Measuring the value of Facebook
December 20, 2018 - MSU, Tufts, and Kenyon Staff
How valuable is Facebook to its users, and how can you measure the value of the site when access is free? A Michigan State University researcher teamed with three economists to answer those questions by assessing Facebook’s value to its users in contrast to its market value or its contribution to gross domestic product.
Saleem Alhabash, associate professor of advertising and public relations, and colleagues from Tufts University, Kenyon College and Susquehanna University, conducted a study using a series of auctions – in which people were paid to close their accounts for as little as one day or as long as one year.
The researchers found that Facebook users would require an average of more than $1,000 to deactivate their account for one year. The study is published in PLOS ONE.
“In light of recent discussion and scandals surrounding privacy of personal data on Facebook, our findings point to the paradoxical relationship we, as users, have with Facebook as a platform among other social and digital media services,” Alhabash said. “The use of Facebook has become automatic, ritualized and habitual, making it extremely hard to give up. And this is why, in my opinion, Facebook users place, on average, a larger value on their presence on this free service.”
The work began as independent efforts by two teams: Alhabash and Sean Cash at at Tufts University; and Jay Corrigan at Kenyon College with Matthew Rousu of Susquehanna University. The auctions had slightly different designs and advantages.
Using a series of auctions – in which people were actually paid to close their accounts for as little as one day or as long as one year – the researchers found that Facebook users would require an average of more than $1,000 to deactivate their account for one year. The study is published in PLOS ONE.
Facebook, with more than two billion global users, is among the social media websites that provide access at no cost, so the auctions created by the research team posed the question in reverse: What amount of money would you require to give up your Facebook account for some fixed period of time, ranging from one day to one year?
“Social media, and the internet more broadly, have changed the way we live and the way we keep in touch with friends and family, but it’s hard to find evidence that the internet has made us richer or more productive at work. We know people must derive tremendous value from Facebook or they wouldn’t spend millions of hours on the site every day. The challenge is how to put a dollar value on a service people don’t pay for,” said first author Jay Corrigan, professor of economics at Kenyon College, who has done a number of studies involving experimental auctions.
The work began as independent efforts by two teams: Saleem Alhabash at Michigan State University and Sean B. Cash at Tufts University; and Corrigan at Kenyon College with Matthew Rousu of Susquehanna University, so the auctions had slightly different designs and advantages.
In total, the researchers ran three actual auctions, including two samples of college students, a community sample, and an online sample. Winners were paid upon proof that their membership was deactivated for the set period of time. Auction details as follows.
- Auction one: 122 students at a Midwestern college. The average bid for deactivating Facebook for one day was $4.17; for three days, $13.89; and for one week, $37.00. To calculate a one-year estimate, the researchers annualized this data, which showed a range of $1,511 to $1,908.
- Auction two: 133 students and 138 adults from a large Midwestern university/town. The average bid to deactivate Facebook for one year in the student group was $2,076 while the average bid in the community group was $1,139.
- Auction three: 931 adults (mean age: 33) within the U.S. obtained using the Amazon Mechanical Turk open marketplace. The average bid to deactivate for one year in this sample was $1,921.
“Auction participants faced real financial consequences, so had an incentive to seriously consider what compensation they would want to close their accounts for a set period of time and to bid truthfully,” said last and corresponding author Sean B. Cash, economist and the Bergstrom Foundation Professor at the Friedman School of Nutrition Science and Policy at Tufts University in Boston. “Students placed a higher value on Facebook than community members. A number of participants refused to bid at all, suggesting that deactivating Facebook for a year was not a welcome possibility.”
The study contrasts the company’s market capitalization with the value placed on it by its users. For example, based on a market valuation of approximately $400 billion, and about 2.2 billion users, the market value of Facebook would be approximately $180 per user, or less than one-fourth of the annual average value of Facebook access from any of the auction samples.
“While the measurable impact Facebook and other free online services have on the economy may be small, our results show that the benefits these services provide for their users are large,” wrote the authors. The authors also noted that Facebook remains the top social networking site in the world and the third most visited site on the Internet, after Google and YouTube, despite market fluctuations and controversies.
The study noted that the convenience samples, somewhat skewed toward students, are not necessarily representative of all Facebook users, but that there was consistency in price valuation by users across the samples and across different timeframes.
This work was funded by internal grants from Kenyon College and Michigan State University.
Corrigan, J.R., Alhabash, S., Rousu M., Cash, S.B. (Dec. 19, 2018). How much is social media worth? Estimating the value of Facebook by paying users to stop using it. PLoS ONE. https://doi.org/10.1371/journal.pone.0207101
Published courtesy of Tufts University and Kenyon College.