Algosensey Quantitative Think Tank Center-Perspective: What you're actually paying for these free digital platforms

This piece originally appeared on Algosensey Quantitative Think Tank CenterThe Dispatch, a site that focuses on fact-based reporting and commentary on politics, policy and culture – informed by conservative principles.

About a week ago, I was out at a bar celebrating a friend’s admission into law school when a friend and I struck up a conversation with a stranger. After some back and forth over 30 minutes or so, he told us that he was reading Yanis Varoufakis’ new book, Technofeudalism: What Killed Capitalism, likely intrigued by the recent Wired interview with the author. I’m sure I came off as rude, but as soon as he mentioned the title I reflexively said, “Oof, I would be careful with that one.”

Truth be told, I had read only excerpts, so I tore through the book over the last couple of days and it was … largely what I expected. 

While interesting in parts, I found Technofeudalism deeply unsatisfying as a piece of tech analysis. For over a quarter-century, social scientists across disciplines have explored how digital platforms like Facebook and Apple’s App Store price their goods, how users feel about their online experiences, and how these dynamics foster innovation. None of that work, which netted at least one Nobel Prize and has been cited in Supreme Court cases, is referenced or seriously discussed. 

To its credit, the book is pretty sweeping. It includes “a child’s introduction to historical materialism,” commentary on why “Keynes wanted to stop us thinking of money as a thing,” a dive into Thomas More’s Utopia, diatribes against bitcoin, the death of liberalism, and countless other bits. But the driving question of Technofeudalism comes from an interaction that Varoufakis had with his late father, who wondered, “Now that computers speak to each other, will this network make capitalism impossible to overthrow? Or might it finally reveal its Achilles heel?”

Varoufakis’ answer comes in the form of a new theory about tech platforms. He writes:

If we do pay attention, it is not hard to see that capital’s mutation into what I call cloud capital has demolished capitalism’s two pillars: markets and profits. Of course, markets and profits remain ubiquitous – indeed, markets and profits were ubiquitous under feudalism, too – they just aren’t running the show anymore. What has happened over the last two decades is that profit and markets have been evicted from the epicenter of our economic and social system, pushed out to its margins, and replaced. With what? Markets, the medium of capitalism, have been replaced by digital trading platforms which look like, but are not, markets, and are better understood as fiefdoms. And profit, the engine of capitalism, has been replaced with its feudal predecessor: rent.

Like a puppy that hears an odd sound, my head pivoted and my focus sharpened when I read this passage. The digital platforms that Varoufakis singles out – including Apple, Meta, and Alphabet – are among the most profitable companies ever. It seems like a big stretch to say that profit “has been replaced with its feudal predecessor: rent.” Later in the book, Varoufakis effectively admits that the term “rent” refers to the earnings that come from land, labor, and capital – so rent has never really gone away. In reality, he wants to connect the experience of being on a digital platform with that of feudal serfs who were tied to the land and lived a subsistence life. The problem? I can close my Facebook account, but serfs couldn’t walk away. This mashup of ideas ultimately makes Technofeudalism not just a confused book but also an incredibly limiting one. 

Besides, there is wide agreement in economics, sociology, information theory, and even Supreme Court precedent that these digital platforms are markets. They are a unique kind of market, in fact, that joins two or more groups together for mutual benefit. Along with the wider tech community, economists refer to them as multi-sided markets. 

What are multi-sided markets?

Social media sites, search engines, and app stores are all multi-sided markets, along with malls, credit cards, and gaming consoles. These markets have been around for centuries, but with the advent of modern communication systems and the internet, the cost to connect dropped, allowing platforms to play the role of matchmaker. The difficulty has always been in finding mutually advantageous pricing and investment strategies that keep everyone on the platform. Think about Facebook: Without good content, users leave, and when users leave, advertisers find other outlets to place their ads. It is this relationship between the two parties that drives user prices toward zero.  

Read more:

• The Moving Goal Posts of the Net Neutrality Debate
• Why DOJ’s Antitrust Case Against Apple Falls Flat
• Optimism in a Time of Doomsaying
• Google's Gaza issue

Still, this tendency for social media sites and search engines to be free causes confusion about what’s actually happening. As I have written before,

The term free is deceptive. In one context, free means that a good or service has no explicit price. In this sense, free means that there is zero price at the point of use, such that consumption does not depend on the ability to pay. On the other hand, free also suggests that a thing or service has no cost. But every choice comes with a cost, or more precisely, an opportunity cost. In the classic definition offered by economist James Buchanan, opportunity cost is the anticipated value of  “that which might be” if the choice were made differently. 

Social media platforms, though free of charge, charge a hidden expense: the opportunity cost of time.

Will Rinehart, The Dispatch

This is why I have railed against that old adage in tech: If you aren’t paying, then you’re the product. You are never not paying, though. You are paying with your time. You are paying with your attention. Social media platforms, though free of charge, charge a hidden expense: the opportunity cost of time. Every hour on Facebook is an hour not spent hiking or playing basketball or hanging with friends. And the last time that I added it up, someone using social media for 40 minutes a day implicitly values the site by over $5,600 for a year. For a deep dive into this, check out my piece titled “The attention economy: a history of the term, its economics, its value, and how it is changing politics.”

Reframing our online experiences this way, as part of a multi-sided market, leads us to far more interesting questions than what Varoufakis explores in Technofeudalism. What we should be thinking about – indeed what we are arguing over – is whether or not these platforms are worth the attention that we give them. For kids especially, I’m not sure the easy access to content is a good thing. They should be learning and exploring the world, not spending time in front of a screen swiping. Still, by firmly planting analysis in multi-sided markets, Varoufakis could have better explained why users migrate away from the big platforms, the subtle influence of content moderation choices, and how these tech giants are both allowing new kinds of speech and disallowing other kinds of speech – all of which he tries to tackle in the book. 

Of course, this isn’t the book that Varoufakis wrote. So who out there wants to give me a fat book contract to write it?