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Tallying Googly benefits

Kids these days don’t know what it was like before Google and proper Internet. And so it’s easy to take things for granted.

I’d wondered a few years ago about the benefits that New Zealand gets from having access to Google services. These are the kinds of things that would be tough to have developed for a tiny market, but easy to supply to a tiny market once they’re developed globally. I’d written:

Fixed costs kill us. And guess what? Google works to kill fixed costs. Kiwis can share their videos with the world, for free, on Google’s YouTube, can blog for free on Google’s Blogger platform, can chat with the world on Google Voice (ok, this one’s mostly inframarginal given Skype). I’m running some collaborative projects using Google Docs. I find New Zealand suppliers of goods and services using Google. How many international tourists come here because Google has made it so much simpler to plan an international vacation? Before, you’d have had to have gone to a travel agent. Now, a combination of Google Maps and Google searches lets you do it yourself at lower cost and greater confidence in the quality of your results. Google brings New Zealand closer to the rest of the world. And folks want to complain about that they’re paying less in tax than they could be? We ought to be giving Google a medal for giving us all so many free services. Would any reasonable estimate of the aggregate consumer surplus created by Google in New Zealand come up with a figure less than hundreds of dollars per capita?

If anything’s going to be driving future New Zealanders overseas, it’s the opportunity to benefit from the reduction of fixed costs in larger markets. And I think Google’s working to lessen that, although the general equilibrium results could be tough to parse out: while it’s making New Zealand better, it’s also making New York better. If it’s making New York better faster than it’s making New Zealand better, then the net effect works against us. But that certainly doesn’t make the case for policies punishing Google for being active in New Zealand.

And now Google’s come up with some estimates. Valuing consumer benefits for free things is tough, but the method they’re using isn’t nuts: ask people how much of a discount they’d need on their internet service package to go without various Google services.

  • Kiwis can share their videos with the world, for free, on YouTube. Google reckons users enjoy over 50 minutes per day watching YouTube videos and that more than 45% of views of NZ content come from overseas. Their survey says people would need a $180/year discount to accept a no-Youtube internet, which seems plausible.
  • Kiwi users of Gmail also report that they’d have to be paid $195/year to forgo having Gmail in their internet package. The number feels high where there are plenty of other free email packages around, but is plausible if people are reading that as meaning the combined value from Gmail and linked products like Google Docs, Google Drive, Google Photo and the like.
  • Google Search is valued at $190/year per user when the alternative is an internet plan that requires they use some other search engine. I get that value out of it, but I wonder whether that many people would really turn down an offer of $190 off the price of Windows 10 in exchange for Windows 10 having only Bing for a year. They figure this is plausible where leisure users save thirty minutes per day in search cost; I’d expect people would just acquire a lot less information in the absence of search, so building up a figure from potential search time saved might make less sense than the survey measure.
  • Finally, users value Google Maps at over $170/year. As a check, they reckon that drivers save 4 hours a year on average because of improved routings and that public transport users save 2 hours on average through use of Google Maps. I’m not sure that will continue to be true for public transport where the counterfactual is sites like MetLink, which is my go-to for bus routing anyway since it seems more up-to-date on delays. But $170/year as value out of Google Maps… I’d pay well over that if I had to as a subscription fee.

Those add up to about $735 per user per year for those using all four services. It feels right to me as a measure of consumer surplus – I get a lot more value than that out of it, but I’m a bit of an Infovore. They add it all up to being over $2 billion in consumer benefits in 2015.

The report notes a lot of other great work Google’s doing in other areas like education, tourism, disaster preparedness and the like.

I’m a bit more dubious about the numbers on business benefits. Their measures of net benefits to business are value to business net of cost, which is great for what it is but doesn’t measure against a counterfactual of what business benefits would have been if they’d had to shift to their next-preferred platform. I suspect the two numbers are closer together than critics might think: search via your phone that both automatically gives you walking directions to the shop and a link through to their phone number and hours of operation is categorically different than an ad in more conventional outlets. But it’s still not a net number, which they note would have been a rather bigger job to put together.

And it then starts going in the usual economic impact report directions with a multiplier of 1.7 on their measured direct benefits.

They’re conservative in other ways though – they don’t count improved employee productivity from being able to run a quick Google search instead of having to head out to the library Microfiche.

Bottom line is the same as I’d had in 2010: a reasonable figure of consumer surplus from Google is easily in the hundreds of dollars per user. And there are plenty of other benefits too.

About Eric Crampton (88 Articles)
I'm Head of Research with the New Zealand Initiative.

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