Consumer Surplus of Apps

That adage “if the product is free, you’re the product” carries truth. Somebody is paying for product development and as cheap as internet plumbing is, those costs add up when apps are successful. For most of the consumer digital economy it’s advertisers.

If you’re not paying with dollars, what kind of price elasticity and consumer surplus are we looking at? Facebook’s 2014 Q4 earnings indicate their marketplace for ads is getting more efficient. A strategic decision to display fewer ads with increasingly more accurate targetting is paying off. More signal less noise. Between those quarters they increased the value of each user in the US by 25%. Advertisers are now paying >$8 for each user in this region.

I posit, if it hasn’t already happened, that on average the adtech at Facebook will get so advanced, so targeted, that consumers perceive the ads as high quality content. Not an annoyance to endure or price to pay for using the service.

If that is the case Facebook would have to get hacked big time for consumer to start experiencing any significant cost. Until that happens, most services in this category are a blind spot in the GDP measurements and tremendous benefit to society.

It seems, up until now at least, that people feel fine with “being the product”, as they perhaps should, given the scale and effectiveness of the model.