Tech Giants Should Pay Users

A user’s content and browsing history are monetizable assets.

Rather than tax, regulate or break up Facebook and Google, we should ask that they pay for the monetizable assets that they have so far mined for free. These assets are a user’s content and browsing history.

As with all types of mining, the tech giants have developed an innovative technology that they combine with an exogenous asset (an asset obtained from someone else) in order to make money. In their case, it is information and data. In the case of a traditional miner or oil company, it was copper or zinc or oil, or other resources.

Mining before data mining. (Photo: Reinhard Jahn CC BY-SA 2.0 de, Wikimedia Commons).

Very Low Cost of Goods Sold

Facebook and Google are massively profitable in part because they sell targeted advertising, their output, without paying for the browsing history, a key part of the input, that makes this targeting possible in the first place.

It would be like Exxon not paying for the crude that it produces, refines and sells. Or like Boeing or Ford not paying for aluminum and steel. Surely their margins would be significantly higher.

In the debate about breaking up the large tech companies, their defenders argue implicitly for status quo on the theory that market forces will sooner or later contain their expanding power. But status quo may be unfair to users who are giving away something of value for free.

Facebook and Google have admitted, indirectly, that a user’s browsing history is a monetizable asset. It follows then that they should pay for it. The same is true of the content that a user posts on Facebook: trips, holidays, family photos, personal achievements, all of the things that increase user traffic and therefore increase user interaction with the companies’ advertising.

Facebook and Google are not free to users

One frequent defense of Facebook and Google is that they provide their service for free. This is nominally true in the sense that users are not writing monthly checks as they are to their phone or cable providers. But unlike with the phone or cable company, users are giving their status updates and browsing history for free.

In the case of Facebook, say that the average user gives his content valued at X per month. By making its service nominally free, Facebook is essentially saying that, were it instead to charge users, it would charge them the same amount X on average, netting the cash outflow and inflow at zero in both directions.

In the nebulous world of microeconomics, it would be a rare coincidence if the total value to Facebook of an average user’s content plus the value of his browsing history matched exactly the value that this user was getting out of Facebook or, in theory, what he would be willing to pay Facebook for access.

Plainly, it is highly unlikely that the value given in one direction (by the user to Facebook) is exactly equal to the value given in the other direction (what the user is willing to pay Facebook).

The status quo has perpetuated itself because Facebook is a de facto monopoly and can therefore choose to “charge” whatever it wants for user access. And it charges the exact amount needed to net out the cash inflow/outflow between the company and its users.

Yet, to answer the question of whether the value to a user is commensurate with the value to Facebook, consider the company’s massive gross profit margins of 87% and 83% in 2017-18, much higher than other super profitable companies like Alphabet/Google (59% and 56% in those same years) and Microsoft (65% and 65%). Clearly Facebook’s cost of goods sold (the difference between revenues and gross profits) has ample room to rise before it matches that of other very profitable tech giants. The way it would rise is by Facebook (and Google) paying users.

Related: We argued elsewhere that Twitter should charge certain types of users and certain types of tweets, not only to improve Twitter’s finances but also to enforce a better code of conduct.