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Free, But at What Price?

Facebook has hit the media pretty hard over the past few weeks, hard enough that CEO Mark Zuckerberg got dragged in front of Congress. There have been plenty of takes on Facebook and privacy (one I recommend is Alex Tabarrok’s, which notes that the US government’s sudden interest in protecting the privacy of its citizens is awfully circumstantial), but I’m no expert on digital privacy so I want to focus on a different question – how did we get here in the first place?

I’m not a Facebook user myself, but it would appear that its social networking services are valued by a great many people – its user base is testament to that. And why not? It makes it much easier to keep in touch with a wide range of people, and it’s free, so what downside could there be?

The first I heard about Facebook’s privacy issues was from a friend of mine about 5 years ago. He refused to use it, preferring Google+ instead, his reasoning being that Google makes money from hoarding your data while Facebook makes money from sharing it, so he trusted Google to keep his data private. I don’t know how well this corresponds to reality, but the underlying logic, that you should care how the services you use make their money, is what I want to discuss here.

The thing that it is vitally important to keep in mind with any web service, or for that matter any service at all, is that someone has to pay for it. Facebook’s employees do not work for free, and servers are not provided by the beneficence of the Computer Gods. All the stuff Facebook does has to be paid for, and who did you imagine was doing that, and why? Shareholders only put money into something if they expect to get more money out again, so where exactly was that money coming from?

This is not to excuse Facebook’s behaviour, but merely to highlight a fundamental fact of economics – anything that is to be done, at least anything that is more than an idle pastime, has to have a revenue model – anything that is not paid for directly is being paid for indirectly.

An equally fundamental fact is that institutions, especially for-profit ones, are shaped by their revenue models. A institution views those who pay it as its customers and has an incentive to keep them happy, so the revenue keeps coming. But if you’re not paying them, you’re not the customer, and the company only needs to keep you happy to the extent that keeps their real customers happy.

Advertising-based businesses need you to look at their product, but they need a lot of other people to look at it too. I believe that one of the main reasons why broadcast TV has typically been milquetoast and formulaic is that advertising-based models incentivise content that has very broad appeal, and that means content that takes few risks. Note that creatively daring TV tends to be produced by subscription-based services, who need to create content appealing enough that people are willing to pay for it. It also means that the content producer needs to avoid alienating potential advertisers. This is currently having a malign effect on YouTube, with many videos being taken down or demonetised, often with little or no explanation from YouTube. And let’s not forget that the very concept of clickbait is driven by advertising – sites want clicks because clicks are what earn them money.

Viewed in this light, it is easy to see what led to Facebook doing what it did. Their customers are the people buying its advertising services and user data. Facebook has no incentive to care more about privacy than it needs to to retain users, and as Facebook has gotten bigger, network effects mean that it is more and more socially costly to avoid using Facebook.

I think this issue is more acute with web-based services because of the history of web content. In the early days of the World-Wide Web, web content was predominantly amateur: hobbyists putting up things that interested them (thereby falling under the “idle pastime” exemption for needing a revenue model). What corporate presence existed was basically promotion for their “real” business, which happened in meatspace. What this meant is that while you to had to pay for internet access, you didn’t pay for the content itself.

This changed in a big way with the tech bubble. Suddenly whole internet-based businesses started to appear, like Google, YouTube and Facebook. These businesses weren’t small annexes to a meatspace businesses, they needed an internet-based revenue model to fund themselves. What hadn’t changed though was the idea that web content was free. People tend to get incensed when asked to pay more than what they consider a fair price, and perceptions of a fair price have more to do with what people are used to paying than with the economic logic underpinning how the good is produced. It also doesn’t help that the last couple of media for delivering news and entertainment content – TV and Radio – were advertising-based as well. This means that for as much as a century, we have operated in a media environment where we weren’t paying for much of the news and entertainment we consumed.

But advertising doesn’t seem to work very well on the web – advertising revenue is scant (perhaps due to the nearly unlimited number of places to advertise), and even if it did work, it carries its own problems as I noted above. If we value our privacy enough that we don’t want to sell it (and this is an open question), then we need to find other ways of funding the web services we use. This is one of the reasons why I am so interested in crowdfunding platforms like Patreon and Twitch’s subscription service. If we want the web to serve our interests, we need to find ways to pay it to do so.

image: Facebook Logo (public domain image, logo is a trademark of Facebook)


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James is a government policy analyst, and lives in Wellington, New Zealand. His interests including wargaming, computer gaming (especially RPGs and strategy games), Dungeons & Dragons and scepticism. No part of any of his posts or comments should be construed as the position of any part of the New Zealand government, or indeed any agency he may be associated with.

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54 thoughts on “Free, But at What Price?

  1. The long-term threat to advertising as the revenue source is that the web is the first broadly-used content displayed on a general-purpose computing platform whose software is controlled by the end user. More than 30% of computer users globally run ad-blocking software, and the percentage is growing rapidly. When enough sites introduced anti-ad-blocking scripts to their content, anti-anti-ad-blocking software appeared. As it turns out, the anti-anti-ad-blockers also disable other types of annoying things. Eg, an end user who installed the Reek package for their browser to stop the NY Times’s demand to turn off the ad-blocker will discover that the limit of five “free” articles per month has also gone away.

    This is a technology battle that the content owners cannot win. Installation of the necessary browser extensions is getting easier and easier. Google’s Chrome browser comes with a minimal ad-blocker pre-installed. As ad-blockers implement increasingly sophisticated content filters, the cost of bypassing them also increases — at some point, it’s simply not worth the cost of trying.

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  2. Does Facebook actually sell user data? The way their advertising business model works, as I understand it, is that you can pay to have an ad displayed to people in a certain area, with certain demographic characteristics and certain interests. But this doesn’t, AFAIK, actually give you any information about those users. You don’t know who is seeing your ads.

    I suppose if someone clicks through to your site from one of the ads and then buys or signs up for something, you know that that user has the characteristics of users to which you requested that particular ad be displayed, but that doesn’t strike me as all that different from how traditional targeted advertising works. You put a different offer code in each magazine you run your ad in, and now you know that most people who sign up using that offer code are subscribers to that magazine.

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    • What Facebook does is sell to you lists of people who have looked at certain content.

      For instance, you could ask FB to show an ad of yours to people who have visited ordinary-times.com in the last month.

      Or nationalreview.com in the last month. Or Huffington Post or Stormfront. You can do combinations, too. They probably have demographic categories too, based on age, gender, race and so on.

      I think if you want FB to show the ads, it probably costs a lot less than them sending you email addresses for the people, but I expect they would sell you that, too.

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      • If I’m company X and want to advertise to demographic A, will Facebook say, “Okay… we’ve got 50,000 users in that group. Here’s the cost,” or will they say, “The 50,000 users in that group are John Smith, Jim Bob, etc. Here’s their data”?

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        • I think they will sell you either option A or option B, but option B costs a lot more, because you can then use it without them. I’m not really sure about this, but, for instance, Cambridge Analytica appeared to do an option B.

          They will also sell fractionals. That is, “of those 50,000 users in your target group, we will show ads to 10,000” – because that’s all the advertiser can afford, for instance.

          Or maybe they don’t want to oversaturate. Hahahaha!

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          • As I understand it, Facebook never sold any data to Cambridge Analytica. What happened was CA acquired a company which had run a Facebook application to which users had voluntarily granted access to their friend lists, and apparently also access to lists of things their friends had liked (with friend-level visibility). By acquiring the company.that owned the application, they gained access to that data. Facebook was not involved other than through operating the platform.

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  3. The other day, I saw news about Firefox including advertising in future updates. I wonder if there would be a market for a commercial browser that has to be purchased, but it would not have ads or privacy issues. I also wonder if anybody could turn a profit with a google-type search engine that has a subscription fee, but does not have an incentive to collect user data for advertisers. In other words, would people be willing to pay for software and services that actually treat them like a customer, instead of the product? I am not sure we have reached that point, and I am not sure it would ever happen for something like social networking that requires a lot of people to buy-in to be useful, but I wonder if we will get there in the near future.

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  4. Everything has costs.

    You don’t like commercials? Pay more for content.
    You want your data private? Pay for a platform that doesn’t need to sell it to stay afloat.

    This doesn’t seem complicted.

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    • I think the frustrating thing is that there’s no way to pay for social networking (or for that matter online “content”) that’s really, well, convenient. Hell, I actually pay for a subscription to the Washington Post, and then go ahead and just circumvent the paywall because it’s easier than messing around with passwords.

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      • This is where I feel we’re getting bratty…

        Paid online content is inconvenient compared to free online content. Or maybe not… GARGH AUTOPLAY ADS!

        But paid online content is super convenient compared to paid offline content.

        “The problem with my future computer phone robot is it is 99x better than the alternative instead of 100x better!”

        Maybe I’m crotchety but if you don’t like WaPo passwords, pick up a newspaper.

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        • I mean managing passwords is easier than picking up a newspaper.

          But beating the paywall is easier than that.

          And, like, it’s not even money that’s the issue. I pay for it gladly, but the thing I’m nominally paying for is less convenient than stealing it so I steal the thing I bought.

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          • It’d also be easier to skip the checkout line at the grocery store and just leave the correct amount of money in an envelope near the door.

            But we still get in the checkout line all the same.

            …right…?

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            • Well, no, because you’d probably get arrested and even if you aren’t actually guilty of theft (IANAL) it would be a huge hassle.

              EDIT to add: But if I wouldn’t get arrested? I would absolutely do that. Why wouldn’t I?

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                  • You assume the purpose is solely to inconcenience you.

                    It isn’t. It’s not all about you.

                    Traffic lights are inconvenient. Should I blow through them?

                    Turnstyles on the subway are incovenient. Should I hop them?

                    Airport security is inconvenient. Should I bypass it?

                    Most of life has a cost of admission associated with it. When the cost is reasonable and applied fairly or non-punitively, you either pay it or move on.

                    Logging in isn’t so inconvenient that you can justify not doing it.

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                    • Yes, because unlike all of those other things, this doesn’t serve of broader social purpose.

                      Most of life has a cost of admission associated with it. When the cost is reasonable and applied fairly or non-punitively, you either pay it or move on.

                      I did pay the cost of admission. I’m a subscriber.

                      They not only can have my money, they do have my money. But I’ll be damned if I deal with another password for anybody if I don’t absolutely have to.

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                        • Seriously, stop telling other people they’re being bratty, anti-social, etc. And don’t justify it by saying you’re talking about society when you’re clearly attacking specific people and their specific choices. There are ways to talk about this as a social issue without sitting in moral judgment on other commenters and you’re not sticking to them. It doesn’t even seem like you’re making an attempt at this point.

                          Everyone chooses what social rules they want to follow. No one is innocent of breaking a single social rule.

                          You’re being extremely unreasonable and it’s not civil in the least.

                          Stop or I’m literally going to suspend you.

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                            • When lots of others act like you are acting, lots of others get suspended.

                              Except it isn’t lots of others who act like this, and thus, people very rarely get suspended.

                              You’re suspended until Monday.

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            • Not quite sure it would be. First, I don’t know what i owe before i check out. And second, I don;t usually havve correct change, or the ability to pay with my CC. But even if it was easier ( assume im a math savant who carried enough bills and change to make any amount perfectly), the reason i don’t do that isn’t because of my morals, its because the cost of doing that is real. I.e., I will likely be harrassed/caught/potentially arrested. While with the NYT, there just isn’t a calculable risk.

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              • See my comment above.

                The NYT gets to set the rules for your engagement with their site. You may choose to break them and the consequences wil be what they are (and possibly what they are will be nothing). But if everyone does that, the system breaks down and the Times is no more.

                You’re defecting because you don’t like that not everything is perfectly aligned towards your interests. You only follow the rules if its advantageous to.

                Hence, brattiness.

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                  • No. What I meant was that if everyone circumvents the paywall, we have a problem.

                    If everyone steals, we have a problem.

                    Maybe the Times is cool with it for now because the frequency is low. But if they learn that a large number of users are circumventing the paywall with no abity to discern between paid subscribers and non-paying readers, they’ll likely make a change that is disadvantageous to all.

                    It doesn’t seem unreasonable to tell people to follow the rules that the person who is providing you a good or service set for acquiring that good or service, especially when those rules are pretty standard.

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                • Don’t call people on here bratty. Especially if they’re talking about subscribing to a paper and not liking the delivery mechanism.

                  If the Post delivered my paper to my mailbox every day and I arranged with my kid to stand by the mailbox every day and bring it to me because I couldn’t be bothered to do so, no one would care how the kid got the paper out of the mailbox. Regardless of how many federal laws he was breaking just by going into my mailbox in the first place.

                  Frankly I think you’re more concerned about this than the papers in question are, and generalizing from this instance to something as broad as
                  “You’re defecting because you don’t like that not everything is perfectly aligned towards your interests. You only follow the rules if its advantageous to.”
                  is obnoxious and hyperbolic.

                  Don’t.

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                  • “Frankly I think you’re more concerned about this than the papers in question are, and generalizing from this instance to something as broad as
                    “You’re defecting because you don’t like that not everything is perfectly aligned towards your interests. You only follow the rules if its advantageous to.”
                    is obnoxious and hyperbolic.“

                    You realize you’re literally doing the same thing you’re admonishing me for, right? I’m no where close to violating the comment policy so step off.

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                    • Your use of you was not about ‘you’ society anymore, it was pretty clearly about the specific people you were conversing with. You shifted from society to the people you were conversing with. If that wasn’t your intention, you were communicating it poorly.

                      Unlike what you said about your interlocutors, what I said was about your behavior right here and right now. I can explain less and threaten / act more next time if you would prefer that.

                      And don’t tell the moderator to step off when you’re being moderated, or you’ll get suspended next time.

                      I’m not kidding even a little bit.

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                      • Also, , this is *not* a moderator comment – but on a meta level – for someone who is so careful about pointing out gender biases, etc., in other people, you really seem to treat me differently than you would another moderator / managing editor of the site.

                        Maybe not.

                        Or maybe you want to think about what the difference is beyond stuff you can blame me for.

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    • Human beings are complicated. There’s quite a big body of findings in the “behavioral finance” sector that show that humans get irrational when “free” things are involved.

      I mean, it’s almost as simple as “You can have a penny for free, or a dollar for ten cents”, and observe that people opt for the penny.

      They don’t but if you substitute goods with known equivalent values, they do opt for the penny.

      I don’t mean to brush you off. This is deeply frustrating to me, but I’m at the point now where I’ve classified it into “stuff I can’t change”.

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    • Kazzy: You want your data private? Pay for a platform that doesn’t need to sell it to stay afloat.

      This doesn’t seem complicated.

      It’s tremendously complicated.

      Because the whole point of social networks is that they put you in contact with friends and acquaintances. A pay-walled social network can’t do that because even if you’re willing to pay, your friends probably aren’t–and if you’re friends aren’t on it, paying for a social network makes you a chump.

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      • And your passwords are then easily cracked because they are easily remembered (and thus easy for a dictionary attack to find) or you have to use the same strong password for all things (and thus once it is discovered, all your accounts are exposed).

        PS I happily pay$12/yr for LastPass.

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        • I’m joking. I do use a password manager with unique passwords that it generates (only one of which I’ve managed to remember). I’m still going through the process of either deleting entirely or updating the passwords on accounts I don’t even realize I have. But most of those use a “common” password that is several common passwords old and most info in those accounts (if there even is any) is outdated. Not ideal but it’s hard to remember every online account I ever started over the past 2 decades.

          Do you find LastPass to be particularly good? I use SecureSafe which is free. It works but I don’t love it. What are the perks of LP?

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  5. This changed in a big way with the tech bubble. Suddenly whole internet-based businesses started to appear, like Google, YouTube and Facebook.

    Two of the three of these were founded after the tech bubble collapsed. And Google didn’t do its IPO until well after the tech bubble as well.

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  6. I first thought about this eight or nine years ago when I noticed that I would get Facebook ads for really obscure things I had never spoken about online, but had bought with my credit card. Nothing as perverse or nefarious as that might sound- I’d buy psoriasis ointment and get an ad for psoriasis ointment the next day, eat at a new restaurant and get an ad for that restaurant the next day.

    It also came up with bands visiting from the states. If you’re a touring band and you play in Canada from the US, or you are Canadian and play the US, you have to pay for a work visa. If you try coming over as tourists and just happening to play shows, you can sometimes get away with it. HOWEVER, if you discuss these plans with your friends across the border, DO NOT do so on Facebook messenger, or you’ll be pulled in at the border and, often, banned from entry for a certain number of years.

    So, yeah, I knew about Facebook and lack of privacy.

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  7. If we value our privacy enough that we don’t want to sell it (and this is an open question), then we need to find other ways of funding the web services we use.

    The future of technology is…

    1) Computerized face recognition will get very good

    2) Cameras will be everywhere. (Witness the solution for various Police issues is bodycams and everyone carries a camera).

    3) Computers will be everywhere.

    Conclusion: We’re dinosaurs. Privacy will continue to decrease. This trend isn’t even close to being done.

    Very long term we’re going to be something like the Borg (integrated with our technology), and it will be a good thing. You’ll still have personal autonomy, the “collective” will be the www. We will be 6-Million-dollar-man attractive rather than Borg-ugly because we’ll continue to value style(*) over function.

    (*) As a matter of policy I have no opinion on women’s fashion. None. Zero.

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