Estimating Value of Facebook by Paying Users to Stop Using It | Hacker News Reader

Estimating Value of Facebook by Paying Users to Stop Using It

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1) The $1000 is misleading because although it's an average, the median is considerably lower, around $100 in that case.

2) This shouldn't be surprising as it tells us most people don't care that much, and a few people 'really do' - which is normal for most goods.

3) Since we're dealing with network externalizations, wherein the value goes up when more people use it (the value of FB is the network, less so the features) - then a lower price makes more sense. If all those people who bid $100 or less (say 2/3 of the population) quit FB tommorow, than those in the $1K range who 'really like FB' would probably leave as well, because their friends would not be there.

This gives us a hint that in product wherein the consumer surplus is not very evenly distributed - and there are strong network effects ... that the optimal price should be low.

4) Getting paid to leave is simply a different metric than having to get out your wallet to pay for something. Surely the authors know this but I didn't see it mentioned. 'WTP != WTL' i.e. willingness to pay is not the same as willingness to leave.

At 100$ median valuation, wouldn't that mean that facebook's value is inflated (the article states ~250$ per user)?

No, because the average value is what we'd use in that calculation, not the median.

They also left out those who wouldn't leave for any amount of money, ostensibly, which is tricky because they probably valued it tremendously.

No it wouldnt mean that

The silicon valley user-currency ponzi scheme is just for show, and to be able to afford a home

Facebook derives a lot of value from its users but it isnt solely proportional, it is a multinational with many revenue streams

Facebook is valued by the stock market mainly by the profit it's expected to generate in the long run. (Other concerns move the stock price around in the short term, but for most large companies most of the time the stock price will be a good reflection on the consensus view on long term profits.) The value users get from Facebook is almost totally unrelated to profits generated, and therefore to the stock price.

"The value users get from Facebook is almost totally unrelated to profits generated, and therefore to the stock price."

They are definitely related.

FB creates some kind of value - some goes to them in terms of profit, some goes to the user in consumer surplus.

As FB shows more ads, the consumer surplus goes down.

Obviously corps are the one paying, but value to consumers does matter.

Facebook's value as a company is related to the total value of its users, not its total value to its users.

No because Facebook's valuation is based on its value to its advertisers, not its users.

> 1) The $1000 is misleading because although it's an average, the median is considerably lower, around $100 in that case.

This was my first thought - a dollar is worth wildly different amounts to different people. If I'm struggling to put food on the table and fuel in my car, then a dollar is pretty important. If I'm sitting in my mansion sipping fine wine and contemplating what to do with the afternoon, a thousand dollars may be inconsequential.

Or, concretely, if I’m sitting in my midwestern liberal arts college...

Even to people who are struggling to make ends meet, there is likely some monetary value to using facebook, as many community service organizations now organize charitable events through facebook, and facebook groups are excellent resources for local information (local deals, budget-friendly groceries, giveaways). I suspect you'd still be hard-pressed to get many such people off of facebook for a year for less than $500

I half want to make a Kickstarter called "Let's Kill Facebook" that promises to give people $50 of the total proceeds to delete their Facebook account. I'd venture a surprising number of people who really care about killing Facebook would back it, and a surprising number of people who don't care that much about Facebook would take the $50. If it went viral enough to make an impact on people's networks, #3 would take care of the rest.

(I'm not actually going to do this, but it's a fun thought experiment.)

> I'd venture a surprising number of people who really care about killing Facebook would back it, and a surprising number of people who don't care that much about Facebook would take the $50.

And an obscene amount would take the $50 and create a new account (or simply not reveal their real account).

I agree it'd be a fun experiment, though. And I see no reason to keep it hypothetical. I'd be particularly interested in seeing how much is raised (which I suspect would be relatively little).

> 1) The $1000 is misleading because although it's an average, the median is considerably lower, around $100 in that case.

The median wage in the US is $31k [1], or about $15 an hour.

The average facebook user spends 50 minutes on the site a day [2], or 300 hours a year. That's a $4500 a year that they are already spending on facebook.

[1] https://www.ssa.gov/OACT/COLA/central.html [2] https://www.nytimes.com/2016/05/06/business/facebook-bends-t...

Only if they would otherwise spend that time working, which seems unlikely.

I thought it was crazy at first then I thought about comparables and companions and it doesn't seem so bad.

Comparable: Many people pay $1000 a year for cable TV. They may complain about but they fork over the money.

Companions: You might spend $1000 a year for internet access (either wired or wireless) which you might use to access Facebook. You might spend $1000 a year for a phone that you access Facebook on.

I've found that companions are a good way to estimate "Willingness to Pay" quickly. For instance if somebody spent $50,000 on a software license you can probably sell them a $50,000 server to go with it.

> 4) Getting paid to leave is simply a different metric than having to get out your wallet to pay for something. Surely the authors know this but I didn't see it mentioned. 'WTP != WTL'

Glad someone mentioned this. It would be a very different situation if you switched Facebook over to a subscription model, and it'd be a different outcome still if you had people bid to be the only one still able to use Facebook in the auction.

I honestly think this is actually a really bad metric to choose, even if it's better than nothing. I, for instance, barely use Facebook, but would require a decent chunk to bother to deactivate it, just because I'm really insensitive to extra money compared to the general population. I would, on the other hand, probably not pay much to keep it because that requires extra work. Still better than nothing, but hopefully someone can top this.

Pretty interesting. I bet if you took that same group and said Facebook now costs 1000 a year to use they would all quit.

It’s easier to spend money that wasn’t in your wallet in the first place. It’s when you start taking it out of the wallet that people react.

Exactly... enough is to see how people react to the simple idea of "paying" for FB, even 1$ I guess the study is funded by FB toward the investors... :-D

now that would be an interesting study

You just described Loss Aversion perfectly: https://en.wikipedia.org/wiki/Loss_aversion

Thinking the same thing, but then I realized that if the topic is "how do you get people off of Facebook" then loss aversion is exactly what you're fighting against.

They lost their privacy without thinking about it, but giving up Facebook would require a conscious act. So now they're thinking about loss, and that causes feelings.

It’s easier to spend money that wasn’t in your wallet in the first place. It’s when you start taking it out of the wallet that people react.

Seems to me that there's an application of this idea to early stage startups.

I'm not sure why they didn't just ask this question directly?

Both scenarios are hypothetical, as no one is being actually paid to quit Facebook. So, why not make the hypothetical scenario: "Using Facebook now costs $X per month; how high does X need to be before you quit?"

The experiment reported in the paper isn't hypothetical.

They actually paid people to deactivate their Facebook accounts.

Did they only pay people who make money from Facebook? This wasn't clear to me... 1000 USD seems like a hell of a lot of money for an average user to require.

I suspect it'd depend entirely on whether facebook costs everybody $1000/year, or just them.

If facebook costed everybody $1000/year, I would definitely stop using it, because the network would be immediately broken since everybody would know everybody with any sense would stop using it.

If facebook only costed only me $1000/year, I would know the network was still intact, and I would consider it.

Frankly, I do not understand your logic.

If it costs everyone $1000, there will be many many many people who cannot afford that.

If it costs only me $1000, I'd stop using it because... well I already stopped using it so I did it for free actually.

First case, that's the point. Nobody would use it so everybody would move onto something else.

Second case, being the only one out (i.e. the black sheep) means you might consider paying for it to not stand out.

The logic is that Facebook is currently worth $1000 but would be worth much less because of the many people who would stop using it if it had that cost.

Oh, now that makes sense. Thanks.

Similar logic also works the other way. If someone really offered all Facebook users $1000 to quit for a year, almost everyone would quit because even those who currently value it above $1000 know that it won't be worth that much after most of their network quits. The actual cost to get, say, 50% of users to quit is probably much less than $1000 apiece.

Does paying addicts to stop smoking work? If that doesn't then the same will apply here.

First yes I think it does. Second this is more like paying people not to smoke a particular brand - they could change to another.

I'll need some proof of your claim. It makes no sense to me. Cos the intuitive thing is for addicts to use that money for binge smoking.

Huh, nicotine dependency doesn't really work like that. Most smokers don't spend all their money on cigarettes, and go on smoking binges when they have more money...

Source: I smoke, and about half the people I know do too.

A roundabout way of saying "I don't use Facebook so I'm better than you"

I think if facebook started charging me, and only me, any price I would say "What the heck is this? Why only me?" and rage quit facebook.

It's more of a thought exercise because he was making a point that people would expect all users would disappear if there was suddenly a fee like that (for everyone), which, invariably would affect how much the product is worth to them. That's why this only works backwards - asking people to quit for a reward.

If everybody has to pay $1000 a part of your network will disappear due to not having the sum available regardless of the value of the service.

Then everybody else would have to decide if the rest of the network still provides value to them, so a few more would disappear. At some point you'd reach an equilibrium where either a small portion of the original network is happy with what they still have for the money, or the whole network collapses.

It doesn't feel like people would quit because of the expectation that "everybody with any sense would stop using it". You could already say that now about FB, and you could definitely say it for many other products. Yet they are still used.

Now is not a bad time to rage quit Facebook either.

I quit, but no rage required. Just boredom.

I also think that if Facebook started charging everybody any price (like $10/year, or even $1/year), many people (not all of them obviously) would definitely stop using it, and then the network would be immediately broken because of that, as its value would quickly spiral down since the current value proposition of Facebook as a user is that perceptually basically everyone and their dog is on Facebook.

This question (can Facebook charge people to use its service?) is fundamentally vastly different from the one in the article, which basically is: can someone kill Facebook by buying enough people out of using it?

The latter is a true hypothetical as US law prevents charging different rates to different users for the exact same product/service.

It does? There's quite a few counterexamples to that, such as airline fares, cars, etc.

The example above is Facebook charging a single person $1k/year while not charging other people. That's called price discrimination: https://econsultancy.com/what-is-price-discrimination-and-is...

It would be a slam dunk lawsuit.

You can still offer discounts (airline tickets, Adobe, etc.) or negotiate pricing (cars, etc.) legally.

But, it is illegal to isolate someone and charge them more without justification as in OC's example.

So yes, Facebook charging a single person $1k/year is a true hypothetical. It couldn't happen legally in the US.

Can you show evidence of this? What about airline tickets?

No it doesn't.

Yes, it's called price discrimination: https://econsultancy.com/what-is-price-discrimination-and-is...

Different customers get different discounts on all sorts of goods and services, reflecting the various importance of the customer, difficulty of dealing with them, etc. We get an x% discount off list on Cisco network kit, I assume that others get y% or z%.

Yes, but it matters who gets those discounts. If you took a prior action to earn the discount no problem. If it's assigned randomly, no problem.

If Costco charges $1k for a bagel and gives it away to everyone for free except insists on you paying, that's a problem. You're not allowed to isolate discounts based on race, gender, etc. So Costco would have to have a pretty creative reason for making you pay and no one else. It wouldn't hold up in court and it would be price discrimination.

Then Adobe has a huge legal problem.

The first problem is I thought it was "widely accepted" that FB use was a typical power law distribution where a small fraction of users, use it the most. Kinda like drinking alcohol or income inequality stats or heroin use stats. Something that works and means something for well distributed random collections like an average SD or median is meaningless when talking about numerically integrating a power law function to determine a total value.

The second problem is I read the entire paper and as per problem #1 above, because its an extreme power law distribution, in "Auction 2 results" the average bid to give up FB was an insane $2076 but the SD is over eight thousand dollars and the 50% median was a mere $200.

The third problem is, I admit I don't use FB, but my understanding from my wife is if you disable your account for a day, you're really measuring the cost of time-shifting a days worth of content forward a day. They were not really measuring giving up FB for a day in the shorter samples (see discussion of Auction 1 results) they were measuring the cost of chronologically messing up the UI for one day, or something like that in concept. Its like arguing if I bought the new edition of "Refactoring" using amazon prime the 2 day delivery was worth $40 or whatever the book cost whereas in reality I don't really care about the shipping cost on 2-day vs media mail shipping, kinda.

The forth killer problem is the market is too weak and thin. Lots of brain power goes into evaluating the correct price for one share of GE or CAT or IBM. As such the price has a certain meaning and validation and use in the real world. No brain power goes into calculating the price of viewing a sunset or temporarily deactivating a FB account and as such a measurement merely measures random numbers and can't be used in the real world for any purpose, comparative or otherwise. In theory a widely popular and intensely studied marketplace of the cost of viewing a sunset or deactivating a FB account COULD exist, but since it doesn't, its just kinda a measure of random numbers mixed with how much money I feel I should get for a days minor annoyance, like a wifi or mobile phone outage. Some numbers from Auction 1 Results are creepily similar to "how much of a credit should I get for an internet outage", or "What is a fair per-diem reimbursement for a cheap company", not a specifically FB related cost.

That line bugs me too. We're mixing figures of speech with statistics and that always always goes sideways (sometimes it looks like chicanery). What does it mean to get the 'average person' to quit? Half of people are still on FB? Almost nobody is still on FB? Average height makes sense, because it's a continuum. How do you average discontinuous values? What's the average gender of Americans?

If I'm reading the same data they are, the median price is $730. Which means if you offered everybody $730 half of them would quit. A few of those people would be really happy because all they wanted was $100.

If you were a deranged billionaire and you decided to burn Facebook, you might be able to get half of them to quit at an average of $400 apiece. But even that doesn't make sense because people are people. If my neighbor already got a check for $900 what are you doing giving me this check for $450? I want $900, same as him. Practically, you'd just have to cut checks for $730 and offer everyone the same amount, which means $1000 isn't a real number either. Because I'm sure as hell not gonna take $450 if my buddy knows the guy who got $5000. So it's $1000 checks and you get 65% of people to quit.

> I bet if you took that same group and said Facebook now costs 1000 a year to use they would all quit.

10 cigarettes a day * 30 days / 20 cigarettes in a pack = 15

15 packs a month * $6 per pack = $90 per month

$1000 a year / 12 months in a year= $83

Keeping in mind that each individual cigarette doesn't even have any event listeners hooked up to it to gather usage data...

Yeah, I'd take that bet.

If you're in Australia those packs will cost $40 each in 2020.

Hmm cigarettes with analytics...

You could give them away for free and make it up by selling adverts for chemo.

As the video game world learned, you're not comparing the same thing. Microtransactions that add up to $1000 is very different than a lump sum once per year.

I don't quite understand how that suggestion translates to a useful metric in terms of what is a reasonable estimate of the "real" market value of Facebook inc. is, though? (insofar as we can of course talk about "real" values).

This was not an investigation into "how much do you need to pay people to quit" (if it was, their methodology would have been _highly_ flawed).

I don't know the economics terminology, but perhaps average people are just decent at exploiting opportunity? In this study a third party paid out the second-lowest amount to the bidders who bid the lowest amounts in return for deactivation. While no one competitor platform does everything of what Facebook's apps do, there are plenty of competitors they could make use of instead to replace particular single features or utilities of Facebook. The auction then becomes a game to bid an amount that's high as possible, yet still the lowest among the bidders, to actually win the bet. And instead, if Facebook raised prices from $0 to $1000 overnight, people would quit in droves, for the same reason: because dozens of comparable offerings exists at low or no cost that can take over subsets of the functionality in people's lives.

Given that airline overbookings use the same scheme to decide who flies and who gets paid and bumped to a certain, yet hazy-on-details future flight, perhaps this study simply tests humans' secret bidding strategies much more so than it tests the value people place on Facebook's utility.

One way to continue along this line of research would be to make people bid on giving up a much larger selection of social media services, with the exception of one, which would be their choice. They'd have to name their choice to keep. A second auction would then encourage them to name their price to give up that last one as well.

The optimal strategy in a second-price auction is to bid the true amount you're willing to pay (or be paid, in this case).

You can show that bidding higher or lower than this amount is dominated by bidding the true amount. If you bid higher than your true amount, this can only hurt you: You won't get any more money to stop using Facebook, because if you win, you get the second-lowest bidder's bid amount. It only makes a difference if you increase your bid too far, and lose the auction.

If you bid lower than your true amount, you might win when you otherwise would not have won... but you underbid! You're not getting enough money to compensate you for the loss of Facebook.

See: https://en.wikipedia.org/wiki/Vickrey_auction

Now, I could imagine that there might be a systemic bias towards overbidding, because people aren't good at valuing their cost of foregoing Facebook.

That's only true if the item is unique.

If their are multiple identical items and multiple bidders then bidding the true amount can become sub optimal.

But given the lack of information, a person might reasonably try to make educated guessed about other people's bids. And often enough there's not one price a person has, it's more of a range. The combination complicates the thought process: A person might think anything over $100 would put them out of the running, but is willing to accept as little as $60. Their goal is to maximize their price within that range. Then it's not as simple as choosing your "true" price, the thought process is about choosing the highest price within your range that you believe is less than someone else's. I guess you might say any price within the range is a "true" price, but it does complicate the optimal strategy to include a bit more thought than just a single value.

If I'm willing to accept as little as $60, then I should bid $60. If someone else bids $1000, then I get $1000. I don't do any better by anticipating their bid and inflating my own bid to $999. If they bid $61, I get $61, and because I value not-having-Facebook at $60, that means I get $1 of surplus value.

Anyone bidding higher than their minimum price doesn't fully understand the second-price auction. Probably lots of people don't understand it, which could lead to inflated bids. (but that doesn't mean you, knowing better, should inflate your own bid!)

ah, never mind then, I get it. I was thinking about backwards, or maybe sideways, but either way not right side up. Thanks for the explanation.

> dozens of comparable offerings exists at low or no cost that can take over subsets of the functionality in people's lives.

This is exactly what the study is designed to measure. If this was indeed true, exactly how much money are users's willing to pay to keep Facebook even when they have other free alternatives available? If that amount is greater than zero that tells you that Facebook is valuable to those people beyond the cost they are currently paying for it.

"there are plenty of competitors they could make use of instead to replace particular single features or utilities of Facebook. "

" because dozens of comparable offerings exists at low or no cost that can take over subsets of the functionality in people's lives."

No, the value is in the network, not the 'feature'.

You can't go 'somewhere else' because 'nobody is there'.

This is not like Craigslist so much, the network externalizations for FB are everything.

The only way to break it would be to follow the same type of path FB did: Harvard -> Ivy League -> College -> USA -> World -> all ages.

A network could start say among some specific group wherein it was possible to achieve a critical mass, and move on from there.

So say you started where there was a specific need, like bands in LA trying to get the word out to gigs, among those that like to go to such things. And then it spread to other cities for music scene gigs, then for other kinds of entertainment, then more broadly into a social network. And you could call it 'myspace'. :)

Many people can and do go elsewhere, because an individual can have presence on multiple platforms. And while one's social graph in different platforms looks different and is missing some people they know, the network is both self-healing and self-fulfilling, in that it can be reasonably assumed that strong connections can survive irrespective of the network, while weak connections may not, and all connections that didn't survive will be retroactively redefined in one's mind as weak.

It's not like people genuinely use Facebook to discover brand new individuals (as opposed to bands or groups), whereas they'd frequently do that on Instagram, Twitter, or Tumblr. And for interests and activities like music discovery, live music, celebrity fandom, neighborhood activities, and classifieds, other viable alternatives do exist, even if they aren't packaged alongside a rolodex of all the people you went to college with, or your vacation photos, or some isometric farming simulator you used to play 8 years ago.

A critical mass of individuals in most people's lives, and a critical mass of activities and group pages are on FB, to the point wherein most won't give it up for that reason alone; "I'd miss out on old friends or not be able to contact them, also, my kid's school and local playhouse are on there" - is a common refrain.

In those terms - there is no substitute for FB.

As far as your view of how people view relationships - the reason I don't buy it, is because of the simple fact: most people are not quitting FB. Keeping their account costs little, and enables those 'weak' relationships. So they will stay. And FB has the critical mass.

There is no substitute, at least in 2018. Really the only choice is turning it off which I think will happen, gradually.

> we consistently find the average Facebook user would require more than $1000 to deactivate their account for one year

The Hackerati like to bemoan that most people don't value their privacy and will happily give it up to Facebook and Google, even suggesting that such people don't understand what they are giving up.

But maybe people do value their privacy and do understand what they are giving up - it's just that Facebook and Google offer something that is even more valuable than their privacy.

It's a fair question to raise, I guess, but what makes you think that the dollar value for an equivalent experiment "giving up privacy" would be the same or lower?

Assuming people in both studies would give rational answers, otherwise it doesn't add up.

But that's quite an assumption unless both questions are asked in the same study to the same group.

Many of the Hackerati would probably just like to know where to sign up for the $1000/year deal.

  Hey, do they pay that retroactively?  I'd like to get

$1000 for every year facebook has existed.

That's the same as the Liberty vs Security distinction for laws in society. Time and again average people with prefer to sacrifice the former for the latter.

You make it sound irrational or somehow wrong. When driving on public roads I give up a lot of liberty -- hundreds of rules, fees, mandatory insurance but it's well worth it. Not just because driving itself provides a lot of value but because driving is better for everyone, and in particular me being part of that everyone, with less freedom.

Even in the extreme case like HOAs that enforce lawn height requirements. Yes it's a little insane but it's what keeps the neighborhood valuable and your property value appreciating.

The average person is pretty darn rational. Who wouldn't trade away liberty if they're better off having done so?

"but because driving is better for everyone"

maybe "driving with rules", but driving literally kills via exhaust fumes. if you own a tesla, you've already dumped so much pollution into the air...

"it's what keeps the neighborhood valuable and your property value appreciating"

some people don't care about this stuff. they realise their time on this earth is too short to spend it on "lawn height requirements".

"The average person is pretty darn rational."

Humans aren't rational. At all. Reason is a rare tool. Case in point: the current advertising complex.

Sounds like drug addiction.

Paying somebody to don't use something free doesn't equal the value of the product.

If you would pay me each month to not listen to music on youtube, while being at work, it would be far more than I would pay to keep using it. It would be a damn shame if I couldn't do that anymore, but I would never pay the same amount to keep using it.

Edit: structure

Consider 2 scenarios:

A) I pay you $x per year not to listen to music on youtube.

B) I give you $x per year. Simoultaneously, Youtube starts charging $x per year to listen to music.

Is there much of a difference between them?

Logically, no. But most of humanity would not treat them equivalently. I'm sure Tversky or Kahneman have done something on this topic.

Yes, lots of differences: - you can invest $10 for a month, get small profit and than start listening music - you can sign-up for Spotify for $7 a month and get $3 back.

How are these differences? You can do this in either case.

Presumably, though, once someone offered you more than $10 a month, you could just pay for another streaming music service. I think the whole idea here is that paying someone to not use a service means they then use that money on some alternative - whether it is a social network, music streaming app, or anything else you can spend money on to pass the time.

I wouldn't spend money on a replacement social network if you paid me not to use facebook, but I certainly would put that money towards something else I found fun and entertaining.

There is a network effect to consider, too. The initial group may require $1k, but the asking price would likely drop as the remaining number of users does.

Obviously each little act of "stop using it" lowers the value of Facebook. If nobody uses Facebook, it has no value.

This is supposed to be a tool to estimate the value, not to get everyone to stop using Facebook: how much do we need to pay a given user to stop using Facebook, provided that nobody else stops using Facebook?

If we put a thermometer on every cubic millimeter of an object, we will probably significantly affect its temperature; but we don't do that; we use one small thermometer against a much larger object, so the transfer of heat between the two has a negligible effect on the temperature.

This is still misleading. The value of Facebook to a given user u_k is a function of the value of Facebook to all users u_i, or at least the set of users that are u_k's friends. So the value function has a recurrence relation. This is why it is disingenuous to say the value of Facebook is a simple linear sum of value per user for every user; it is in fact highly nonlinear.

> This is why it is disingenuous to say the value of Facebook is a simple linear sum of value per user for every user

But neither berbec nor kazinator said, or even seemed to imply, that ….

To clarify - I imagine it's more subtle than a constant slope. I imagine the value per user stays steady for a while then the starts dropping quickly.

>> If nobody uses Facebook, it has no value.

I wish that were true, but if everyone stopped using Facebook they could still build shadow profiles for everyone, as they do for people that do not have accounts, and they could just sell this data out.

why would those shadow accounts be any useful (or accurate) if there's no active users to corroborate or contribute any information on them?

Facebook's value is derived entirely from the information generated from its user base.

For everyone that’s not in the EU: GDPR puts a stop to that behaviour (theoretically at least - with a shadow profile there’s by default no consent collected, and it’d be difficult to argue legitimate interest).

Interestingly, I see a pattern of a strong anti-network effect in play.

Network effects are premised on the value of the network increasing in value as more users join. By definition then, the value of the network drops as people drop off.

While the speed of adoption might always be > speed of deletion, there is certainly an auto-catalytic effect to people deleting FB, or not using/posting to FB as much.

The initial group wouldn't even need $1k. The median bid here was closer to $100.

> Though the populations sampled and the auction design differ across the experiments, we consistently find the average Facebook user would require more than $1000 to deactivate their account for one year. 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.

That's pretty funny.

So I wonder what the average opioid addict would want in exchange for a year of daily withdrawal? Or even tobacco addicts. I've read that, in Germany after WWII, some people just about starved to death, because they'd traded too much food for tobacco.

I don't really care about eating ice cream, but I'd need to be paid a lot to accept to not eat ice cream for a year.

Not because of the ice cream's value in my life, more because it's an unsolicited offer to sell my rights away. I have little reasons to sell, and I might want ice cream within a year, so you better pony up the cash to make it worth my time and inconvenience. However, it really doesn't mean anything about the value of ice cream.

"more because it's an unsolicited offer to sell my rights away."

Most people don't think in those terms.

Also, you're not giving up 'rights' you're willingly not doing something. You don't have a 'right' to Facebook anyhow.

I think what you might be getting with ice cram is the 'optionality' value.

Sure, you ate ice cream 20 times last year, but this year, maybe you're at your kids b-day party and want to eat with them! Or take a toor of some Irish Cream place with great ice cream. There's a big variability and unknown distribution of value, with a long tail in there that has to be accounted for. Often by instinct :)

From what I can tell the participants for the auctions came from:

>One hundred twenty-two Facebook users on the campus of a Midwestern liberal arts college took part in Study 1

>A third sample was recruited online through Amazon’s Mechanical Turk (MTurk), an “open online marketplace for getting work done by others,” where workers complete Human Intelligence Tasks (HITs) [40].

Thus the study sample populations were college students and people on Amazon Mechanical Turk who do Human Intelligence Tasks. I would guess that the Amazon Mechanical Turk also had a high number of college students. Based on the samples, I think that you can conclude that college students really like Facebook. How that actually translates into the general population is a different story.

> our results show that the benefits these services provide for their users are large.

Good god, you scientists can't tell the difference between value created ("provided") and value captured??

Put it a different way: how much would you have to pay people for them to miss announcements of important local events, miss photos and personal notes from their closest friends and family… of course, it's going to be a high amount. But those things all existed pre-Facebook. Facebook has just CAPTURED the value.

Those things were not free before Facebook. If you wanted to advertise the birthday of your two-year-old in the local newspaper with a picture and a cute greeting, you paid money. (Yes, people regularly paid for that kind of notices in newspapers.)

Bad analogy. Advertising your family update in the newspaper is more like having a blog. It's a totally public-focused thing. While Facebook has a lot public, it's really focused on direct stuff of interest to your connections.

People used to mail photos to one another or send letters. With digital technology, that's emails. Facebook doesn't get credit for the switch to the internet and digital formats.

By design, Facebook pushes people to share photos only on Facebook and forget to email others.

Want a test? What's your hypothesis for the following:

"How much would I have to pay you to cancel your Facebook account if I made sure that your closer family and friends and other communities you care about all sent updates to you by email instead?"

Personally I’d hate it if my cousin sent me her vacation pictures by email, but I’m perfectly happy to take a quick glance at them while scrolling by in the FB feed.

But that’s beside the point. There’s something you’re missing about the local newspaper analogy: it’s that Facebook works great for communicating and sharing within groups of similar size to “people in my small town community who give a shit about my daughter’s birthday”.

I'd be socially ostracized if I started with SMS groups every time I wanted to have a group chat via phone without first having to convince everyone involved to install some new app on their phone or get everyone's email beforehand, which would basically be the alternative today.

> Personally I’d hate it if my cousin sent me her vacation pictures by email,

That's kind of the point. People didn't hate this before Facebook. Now it's become the only socially acceptable medium of communication for many occasions.

Except that FB is actually tragically awful at these things because the way the algorithm is a black box that always changes, you don't have anything reliable about who sees what… and to really promote something so people see it, you PAY for it to be boosted, so it's no better in that sense than the old newspaper analogy!

Let me tell you a personal story: My sister is one of those people who just throws stuff up on FB like anyone else. People not on FB miss it. A couple years ago, someone inspired her to send a personal email to close family just sharing updates about what's happening with her and inviting others to reply the same way. It immediately felt more personal and meaningful and brought out different context and closer relationships compared to anything that happens on Facebook. It died away after a little bit because we failed to keep up a routine… but I predict that if your cousin sent you vacation pictures not in a just "email everyone" sense but in actually thinking of YOU, it would actually feel good and bring you together in a more meaningful way… but I don't know you or your cousin, of course.

Loss aversion is probably a major factor [0]

It’s well known that people demand disproportionately larger compensation for giving something up than they would pay to gain said thing.

[0]: https://en.wikipedia.org/wiki/Loss_aversion

I think that the endowment effect may be the more relevant behavioral economics concept here.

https://en.wikipedia.org/wiki/Endowment_effect

By offering money to leave, we're not actually negotiating what the FaceBook usage value is to the user, but what it is worth to the payee to get that user to quit. (If you're willing to offer me $1M to stop using facebook, that's what I can expect to be paid, even if I would reasonably quit for far less.)

If people estimate the value of the benefit provided by Facebook to be $1000, under US tax law are they required to declare that as a “gift” and pay taxes on the net $1000 of service they received for $0?

I believe US taxes are based on market prices, not value.

It is generally impossible to guess the value of something. what is the value of a bottle of water in to the average person versus the value to a someone lost in the desert?

Ask a simple question, get a simple answer: no.

The FMV of FaceBook access is zero, as evidenced by Facebook being routinely available for free.

US tax law does not anticipate routinely taxing inchoate transfers of value caused by operating things which distribute value broadly. For example, while assigning the copyright to Harry Potter would likely be a taxable event, holding a concert in public is not, even if the concert is of sufficient quality level to charge for it. The general phrase for this is “de minimis non curat lex”; specific instantiations of this of particular note are intrafamilial payments for cleaning one’s room, which is de jure absolutely a taxable event and which de facto would result in the IRS Commissioner being asked to explain himself to Congress if it were ever enforced.

Additionally, if the IRS used people’s subjective self-assessments to value things on one side of the ledger, they’d have to do it on another side of the ledger, leading to people having the attack “be a utility monster [0]” available against tax administration.

[0] Utility monsters have implausivly large but perhaps “legitimate” weightings for things. The existence of them is problematic for systems which do cost/benefits analyses and allow agents unconstrained choice of their utility function.

Thank you for the time you put into this reply.

> pay taxes on the net $1000 of service they received for $0?

by that logic, then breathing in clean air is gonna have to get taxed as clean air has a value that's none-zero, despite that people are paying zero for it currently.

The raw averages are less interesting than the distributions here. Facebook is the prototypical example of the importance of network effects. The mean bids here are in the thousands, but the medians are $100-$200.

That means you could pay its users $100-200 to leave for a year, and it would lose about half its users immediately. But after the first half of users leave, it's probably worth a lot less to the remaining users than before the first bunch left.

Even if 90% of their users are willing to pay some price to use it, charging that price might lose them most or all of their users. I think that's super interesting.

“ our results show that the benefits these services provide for their users are large.” What someone is willing to pay and “benefits” they receive are not the same thing. Someone already touched on it—people are willing to pay a lot for heroin, but few would claim heroin is beneficial.

Heroin is valuable, however.

This is the same as saying that the value of cigarettes is the same as what it would cost to pay a smoker to stop smoking.

With Facebook users, it can't be ignored that, in not all but many cases, we are talking about behavior that ranges from slightly compulsive to downright addicted.

Do you believe it is not possible to alter the usage behavior of a person addicted to a substance with money?

The cost might be unreasonably high to get them to stop, but it might be possible.

That's irrelevant to this argument. The amount you have to pay an addict to stop using something does not give you the value of that thing.

Gambling should be easy. Casino gambling has an obvious negative value to gamblers because most gamblers lose most of the time. If it costs me $X to pay a gambler to never enter the casino again... I don't see any connection between that cost and the "value of gambling in casinos".

That's fair. I also wouldn't consider it the value of that thing.

That's beside the point: You cannot conclude that cigarettes are beneficial by this method.

Right in the abstract they say:

> ... our results show that the benefits these services provide for their users are large.

...which is absurd.

I would, at the very least, say "perceived benefit."

even that is not fair, given the tobacco metaphor

I didn't see the words "Endowment Effect" in the abstract or in these HN comments, so here's a Wikipedia link: https://en.wikipedia.org/wiki/Endowment_effect

Just a little something to keep in mind, relevant to the discussion.

Losing access to Facebook can be pretty brutal. Specifically messenger. I actually had my Facebook temporarily suspended for 72h and I felt it.

It made it harder to contact with family ( we use group chat on messenger). I was still able to see things on Facebook so it wasn't even as bad as a full out ban. So many social events and communications are made through the platform. It's tough, even if you don't like the way the company acts, if all your friends and family use it to communicate you pay quite a price to protest it.

This is a completely anecdotal story of how I found the price of my privacy recently. I self identify as a privacy nut. I don’t Facebook, I don’t use google. I’ll pay for privacy conscious services vs. using so called ‘free’ services, but I recently had an experience that gave me a bit of a different viewpoint.

My wife also doesn’t have Facebook, for her it’s more of a time suck then privacy reasons. For the most part she hears me talking about privacy, knows it’s something I care a lot about, and is happy to go along with me. However, she recently learned about a couple apps that give you money back. Walmart pay and iboutta. Without a doubt these apps are tracking all sorts of things and building profiles and selling our information. I’m totally against it... but she loves getting the money back. “Oh you know that yogurt we got from Walmart? Turns out Kroger had it on sell for 50 cents off and we got reimbursed $5!” It really makes her happy. I’m thinking to myself that I would have rather spent that $5 and had kept my privacy, but I end up keeping that to myself. It’s something she really enjoys.

On the other side, it does get into a more devious side of privacy issues. You don’t need everyone to give up their privacy rights- you just need a few to give up the privacy of everyone they know.

I think the experiment is fun but the principle is flawed imho. At best the method will find the average _utility_ value of fb for the study population.

Another commenter remarks that it would be ok to pay 1k to access fb if there is a promise of value (ie the "network" is still there) but projects that if fb became a paid service, that most users would leave it so the risk of losing utility value from fb would not be anywhere near 1k.

Facebook for me is the means to keep contact with a larger group of my friends. From this perspective, one would have to pay me a very significant amount of money to drop the contact to my friends.

On the other side, this is mostly a thing of convenience and habit. The moment there is another, may be even more convenient platform to keep my contacts, I would drop Facebook for free and without heasitation. The value of Facebook for me is purely in my current friend list.

There is one thing that really stands out in the choice of words in this article that makes me feel strange about it: Estimating the value of Facebook.

> [Facebook's] benefits are hard to measure

The Introduction reads like Facebook was the first of its kind and invented the social web. It's kind of like how mainstream media talk about Apple as the inventor of the smartphone and the tabled. It's as if there was no Facebook or Apple, there would never have been any other actor to take that space in the market.

It's like these companies are deities in people's minds. Apple sure has its prophets, but Facebook is probably felt as a more paternalistic and malevolent superego god.

I mean, I would not be surprised to see this kind of narrative in some click-driven blog. But in a peer-reviewed research article?

If this is really how most people think even in academic circles - that it is Facebook or nothing - then there's a huge disconnect and I have grossly underestimated the amount of awareness-spreading needed if we don't want to fully lose the open web.

it's just that the study is surveying people who already have a Facebook account. So the value they are talking about is not some abstract theoretical concept of value - they are talking about value in the context of quite literally - how much dollar value do people place on having a facebook account.

I get it, but to me that's like estimating the value of Honda by asking people who drive a Honda how much they would have to be paid to not be able to drive a car anymore.

The difference being that there are alternatives to cars while Facebook has a monopoly on the social graph of many users. I think one could argue that Facebook is a monopoly on online communication for large parts of the social graph right now, especially as they also own WhatsApp and Instagram.

Even assuming only DAUs would pay $1000/year (Facebook has 1.5 billion of them) and a P/S ratio of 1 (which is conservative), the company would be worth $1.5T.

Edit: But we should consider something like Metcalfe's law, as pointed out by berbec

https://news.ycombinator.com/item?id=18720468

DAU probably means "daily active user" here.

Appreciate the clarification. Almost picked it up from context, but was still a little curious (searching the internet for an contextual acronym is never efficient)

Companies cannot usually capture all the value they create.

And yet companies like Facebook capture many orders of magnitude MORE value than they create.

The estimates in the study are for liberal arts college students (likely relatively Wwealthy vs US users as a whole), and if I’m not mistaken, US Facebook users have ARPU of as much as 10x other regions. If the WTP is also distributed like that, you could take your estima-te down by an order of magnitude even before network effects

> But we should consider something like Metcalfe's law, as pointed out by berbec

Giving, in this case, a value of $750B (at a P/S ratio of 1)

https://www.wolframalpha.com/input/?i=Sum%5Bn+6.67e-7,+%7Bn,...

If FB decided to start charging tomorrow, even $1, enough people would leave that it would become useless for everyone that stayed.

Isn't this sort of like estimating the value of Ford by paying users not to use roads?

Is that why Ford decide to stop making sedans? Only trucks can go off-road. ;-)

No, the roads are still free - the participants are still free to use other services after deactivating their accounts.

But other services don't connect to your friends. So I guess it's more like, paying them not to use any intersecting public roads.

What if it’s just a measure of the strength of addiction?

I imagine if you ran the same study and asked Heroin users or smokers how much you’d have to pay them to stop it would have similar results.

I think you'd need to account for some behavioral economics in assigning positive or negative dollar values to free services

BTW, there are some pay-to-chat applications. i.e. WowApp (https://www.wowapp.com/w/byteofmydream) and also you can spend earned money to charity. Sorry for spam, I just think it's a bit related to the topic

very important to keep in mind there's a world of difference between what you'd have to pay a person to quit, and what they'd be willing to pay if Facebook started charging.

I think the later would quickly approach $0 for most people, especially as competitors rapidly entered the space to take advantage.

Does the study include WhatsApp, Messenger, and Instagram?

I'm curious to know how to figure changes when you include Facebook owned services in addition to the primary Facebook platform.

I wonder if a freemium model would have worked for Facebook. Thoughts on what that could looked like? Which featured might have been held back for paying customers only?

Did they address how many have just quit FB? I did, $0.

I would need to be paid to join FB again, and endure the continuous stream of snarky memes and gregarious selfies.

Beat me to the comment.

There is this very interesting stand-up comedian from India (Amit Tandon) on YouTube. According to him ever since Fb become mainstream, people are under a lot of pressure to enjoy their lives. He logs in every night even if it was just to find out which of his friends were happier than him that day :D

It would seem that anyone who does not use Facebook and values their product at $0 is unlikely to affect the valuation of the company.

Remember: "if you don't pay to use the product, you are the product."

If your "product" won't participate, especially when it's the relationships between products that are most valuable, your valuation is in trouble.

I wonder how these results compare to Estimating Value of Fentanyl, Norco, and Oxy by Paying Users to Stop Using Them.

Actually I find it more interesting to just use this site than reading fb feed this day

I'd deactivate for 5 bucks. I don't see or hold any value in it. I really don't care about an old school friends meal, who I would only have a fake "hi, how are you", then an awkward silence with if I met them anyway. Linkedin on the other hand has a foundation of worth, as does HN.

Please enlighten me on the worth of LinkedIn because I have yet to find it. It’s basically become Facebook For Old People where said old people gripe about Facebook and post absolutely stupid comments on Facebook-like videos.

You can do things like that on LinkedIn? I've only ever gone to the page to see job listings and update my profile for potential recruiters.

If you keep your LI profile up to date and have in demand skills, people will be knocking down your door to give you money. I've found all my best jobs from LI contacts tbh.

It was a wasteland for a while but in my opinion has rebounded.

I find it the same too. Professional and about new and fresh connections. Positive input.

As an anecdote/data point: I largely forgot about LinkedIn, and never really heard much from them. One day I installed the app and decided to see what all my old contacts were up to, just browsing around. Immediately after, my page views went up and I was sent a few messages from recruiters. I'm wondering if they don't 'reward' more active users in recruitment searches...

I'm approaching this from a monetary/value perspective. Linkedin has helped me professionally, to make fresh and professional connections, whereas FB has always been about stale/past connections. You may very well be right about the old foggies part, but professionally it is great.

Don't use it as a social network, only talk to recruiters.

When you have a meeting with someone you can see where they do/used to work and perhaps find people in common. It's also apparently a good way to find employees though I'm not sure how our recruiters manage to use it in that way.

Otherwise...I don't get linkedin either. My gf used to work there and raved about it a lot but I still couldn't figure it out.

LinkedIn is one of two main sources of job offers for me (the other one being my personal connections).

You can use it to find people who work at a company you want to work for, and get a leg up in the hiring process on people who apply directly.

Let's make this a thing. Please link me to your active profile. If you deactivate it and keep it deactivated for a year, I'll send you or your favourite charity $5.

I will be doing it for free, soon. Thanks very much for the offer though, and a fantastic trend too. If only it would catch on. (I need to use thier messenger for the next 2 weeks as I transition employment, no other reason to keep).

Yeah, obviously people who don't care about their friends aren't interested in Facebook. You're no more the market than I am for a curling iron.

It's not that I don't care about friends, it is that FB has no greater value than just talking/texting to people. FB just tries to pretend they bring value to things we already had and still do, before it existed.

FB has negative value compared to talking to people face-to-face in real life… but even while it continues to destroy value by undermining our relationships, various communities have been captured there due to network effects, and then you have to use FB if you want to connect to that community.

True. I do wonder, though, if this community effect has increased polarisation of views.

This is a simple form you can reuse:

Does [increased polarisation of views] increase engagement? [Yes]

Therefore, we can conclude that Facebook does this.

FB is designed for maximum-engagement regardless of whether that is positive or negative for the useds (to use Richard Stallman's pun).

It has nothing to do with not caring about friends. It has everything to do with the company itself. Every news story that comes out just confirms my decision. Not one of them has made me think that I was being too hasty in my decision.

Before FB, it was possible to stay in contact with family, friends, etc. Was it as easy? Maybe. Email was perfectly fine. What FB (and everyone else in social too) was make so damn easy to post to the world "here's what I'm doing this exact second. please look at me!" The noise went sky high, and the signal went very faint. Then the algorithms kicked in, and the signal got even harder to find.

Did Facebook fund this study for positive PR? Or are the authors just trying really hard to get hired there? $1k to shut down Facebook for a year is the kind of result that should make one question one’s methods, not publish it.

Where can I donate?

I will do it for free... Wait, I already did...

Estimating value of heroin by paying user to stop using it.

This is spot on; likely compulsively downvoted by folks in denial about their FB addictions.

Dopamine would be chemical in this case (probably? I'm not a neurologist..)

https://www.psychologytoday.com/us/blog/vitality/201205/face...

tl;dr> FB addicts are chasing the same dopamine rush as cocaine and heroin addicts.

So I was just looking for the Simon Sinek video and came across this instead:

https://www.psychologytoday.com/us/blog/women-who-stray/2017...

Addicts aren't addicted to the dopamine; they're addicted to the thing they do that causes their brains to release dopamine. There's a healthy way to get that dopamine rush; just as there is a healthy way to use social media.

Here's my layman understanding:

- Dopamine for that excited feeling that many people are liking what you had said or posted, i.e. confirmation bias.

- Serotonin for that lovey feeling of seeing something inspiring/cute/your crush.

- Adrenaline for internet arguments, insults, or conflict.

They also have the "punishment" factor, where the news feed completely refreshes if your phone's screen goes off; like a brutal pimp.

or sex. Or food.

"Hey look at all the heroin I can afford now!"

Why is this a bad way to measure addictiveness?

It would certainly be more objective than the arbitrary Schedule I/II/III system we have now.

I prefer something like Yahoo blog 360 with some messaging features, not current facebook. The main problem is that, the stupid feed is very annoying.

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