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August 6, 2008
Valuing social networks
Giblfiz writes in to suggest the article:
I wish people would stop using "economy" as just a smart-sounding metaphor
The piece attempts to put some hard numbers on putting hard fiscal and numerical values on the reputations established on the web. As a rule of thumb, he suggests starting with your page rank on Google, which implies a certain number of page views for each keyword searched, multiply this by the price of advertising using these keywords and sum across all keywords and there you go, an economic value to your reputation.
This is an interesting first order attempt but I see a few obvious flaws. Google doesn't control all the searches, and does so non-randomly, so this method doesn't clearly provide a true value, just a minimum. It also, much like the difference between market exchange rates and PPP, understates the impact and value of contributions by people living in poor areas. They punch above their weight in economic impact because even though they cannot afford much in the global economy they buy a lot of local, non-transportable, and perishable goods that are disproportionately cheap in poor areas. There is also a problem with externalities that I doubt is captured by this. Your website on bees may in fact motivate people to perform more searchs about bees than would otherwise be there. So your value isn't just in the keywords you get, but also the keywords that others get only because of you.
But I wonder about the ultimate aim here. I thought much of the premise of the reputational economy was that it was post-scarce. Consider the famous example of diamonds and water. Diamonds are rare and (almost) useless, water is common and useful, yet the price of the former is high and the latter low. Price and importance are differ. When we think about how important something is, we are thinking about the total economic value of all the item, with respect to the next best alternative. In water's case that is huge. Price however is more about marginal value. One diamond has much more value than a glass of water, but all water is much more valuable than all the diamonds.
Something similar must be true about the economics of reputations. The adwords prices represent the marginal value of the electronic reputation and not the total.
Posted by OneEyedMan at August 6, 2008 8:42 AM
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