digiblade

Wednesday, March 08, 2006

The Internet as consumer surplus engine

Martin Geddes has long described the Net as a “consumer suplus engine” to anyone who’ll listen. It takes previously bundled billable services like voice telephony, strips out the service from the connectivity components, and stops you being over-charged for the service because of lack of competition on the connectivity. Anyhow, here’s the verbatim quote from Paul Kedrosky, who has found an academic paper that puts the numbers to what’s obvious to everyone: Only about 0.2% of consumer spending in the U.S. … went for Internet access in 2004 yet time use data indicates that people spend around 10% of their entire leisure time going online… Based on expenditure and time use data and our elasticity estimate, we calculate that consumer surplus from the Internet may be around 2% of full-income, or several thousand dollars per user. Wow, that’s pretty awsome, isn’t it? You’re only paying for about 10% of the value you get from your Internet connection. That other 90% becomes a budget for other, exciting services and activities. Who knows, your non-telco job may be funded by the consumer suplus of the Net! Personally, I suspect that this report will under-estimate the real value, because it only considers monetised value, and users as consumers of content and service. How can you put a price on the value of open, democratic discussion, for instance? Here's a thought: - In physical transport (atoms), we found that there was a complex business called “logistics” which is where the profit is; “trucking” is just a small function of logistics. With data networks (bits), it’s the exact opposite; there once was a complex “bit management” industry called telecom. This is slowly, painfully fading away. It’ll get replaced by a simpler industry that just teleports bits over geographic distance. We don’t have a name for it yet. - Telecom is just another utility delivering stuff through pipes. In fact, it’s just like a water utility — except you don’t have the glamour of sewage disposal.

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