It was a remarkable moment when that staunch pillar of American media, Time Magazine, chose the entire population as Person of the Year. While Time raises a shrine to grassroots news and culture—including explicit obeisance to the YouTube amateur video phenomenon, musical mash-ups (with no hand-wringing over copyright infringement), and the Wikipedia smorgasbord—the editor complemented their precedent-shattering announcement with a brave claim that they regarded the information horde as an enhancement rather than a challenge to their journalistic profession.
User contributions may help to bulk up every business that depends on information, but they also force the painful exercise of new muscles. At the same time, these contributions are creating a new kind of economic value that may require a different way of measuring corporate assets.
An analyst estimated that only one-fifth of the value in the U.S. stock market was based on tangible assets such as buildings, equipment, and raw materials. Four-fifths had to be considered intellectual property.
But a significant amount of the information on large Internet-based companies is provided directly by the customers themselves. The leaders in this regard are probably craigslist and eBay, where customers provide not only the material for sale but ratings and “flagging” of entries.
Amazon.com benefits greatly from reviews posted by customers, as noted by my employer Tim O’Reilly, who has repeatedly said that the new “Intel inside” that adds value to computer companies is “data inside.”
The phenomenon of building a business on user-provided data is not completely new (for instance, a colleague reminded me that Zagat’s has done it for years), but the Web, and particularly Web 2.0, makes it a significant factor in the economy.
So when Internet-based companies boast valuations in the tens of billions of dollars, while owning only a couple dozen millions in tangible assets, how much of this value is provided by customers?
Admittedly, it’s hard to compare customer-provided data with more traditional assets. Economists normally consider an asset something that can easily be sold, such as a patent or a customer list. It’s not clear that anybody would want to buy Amazon.com customer reviews. But people do buy information from Google on the search strings entered by visitors.
Observers usually focus on privacy concerns over customer-provided data. But the sheer economic value of freely provided customer information is also of interest, and can influence arguments over the right to privacy as well as other social questions.
The economic aspects of aggregating user-provided content has been noticed; in fact, it has been criticized as a “concentration of the economic rewards into the hands of the few.” This represents quite an attitude shift! For years, people who wanted to publish web pages had to pay for hosting; now we debate whether they’re being exploited when the host allows them to put up web pages for free and try to make up the costs through a precarious advertising strategy.
The economic debate is worth carrying on, but the social environment for information resists simple comparisons to older models.
For instance, law professor Beth Simone Noveck recommends in an article titled Trademark Law and the Social Construction of Trust: Creating the Legal Framework for On-Line Identity that customer ratings, such as those hosted by eBay, should be considered the property neither of eBay nor of the person being rated, but of the entire community that creates the ratings.
Traditionally, Internet companies have tried to claim full ownership of all postings by users to their sites. But Flickr and YouTube allow their users to keep the rights to the images and videos posted to those sites; this is a very progressive trend.
We could use some economists to run some research on the multifaceted question of how to value user-provided data. And if the value is high, we could benefit by companies admitting their dependence and granting users the rights we deserve.
This article was originally published in the American Reporter.