The Attention Economy: Measuring the Value of Free Goods on the Internet

We develop a framework to measure the value of free goods and services available on the internet. The conventional method of measuring consumer surplus based on monetary expenditures is ineffective because these goods’ prices are predominantly zero. Our proposed method addresses this challenge by quantifying the economic value of the time that consumers devote to consuming these free goods. Using data on consumers’ time and monetary expenditures, we calibrate an economic model of the allocation of individuals’ time among internet, television, leisure, and work. We measure the consumer surplus of free goods on the internet as the reduction in gross domestic product (GDP) required to create an equivalent welfare loss to that which would occur if these free goods were no longer available. We find that the average incremental welfare gain from the internet between 2002 and 2011 was about $38 billion per year in the United States, equivalent to approximately 0.29% of the annual GDP. In contrast, if we had not considered the value of time, then the estimated annual incremental welfare gain would have been significantly smaller at about $2.7 billion, only 7% of the estimate derived from our proposed time-based model. Our approach can be readily extended to the valuation of other zero-priced goods and services, such as television. In addition, our results show the importance of not only quantity but also quality (e.g., internet speed) in determining the welfare contributions of free goods.