I wish people would stop using "economy" as just a smart-sounding metaphor

Economists use incentives to explain human behavior. In traditional economics these are mainly monetary incentives, but the expansion of the field to behavioral economics in the 1970s introduced other factors, such as risk minimization and social rewards, that weren't directly tied to money but could influence actions all the same. The current vogue for all things economic has encouraged the Freakonomics crowd to use the same language to explain the emerging online world: today we use the sweeping terms "attention economy", the "reputation economy" and "gift economy" to explain the extraordinary rise of non-monetary phenomena such as open source or Wikipedia.

There is only one problem with that use of "economy"--I'm not sure what it means, and I don't think most of the people who use it do either, since they rarely bother trying to take it any further than a metaphor. But if attention and reputation really are economies, shouldn't we able to quantify them, using economic equations?

What is the money supply of reputation? What is the currency conversation rate from of one form of attention into another? How would you measure wuffie inflation?  

Don't look to academics for the answers. Late last year Yale held a two-day conference on "Reputation Economies in Cyberspace".  I suppose the cringe-making term "cyberspace" should have warned me off, but I've just spent an hour reading all the papers submitted by the 30 academics who spoke, but there isn't a proper economic analysis amongst them. (Another tip-off: most of the participants were lawyers).

There have been some clever attempts to use the language of economics to describe attention markets, such as this nifty pirouette from 1999:

If the attention I pay to others is valued in proportion to the amount of attention earned by me, then an accounting system is set in motion which quotes something like the social share prices of individual attention. 

It is in this secondary market that social ambition thrives. It is this stock exchange of attentive capital that gives precise meaning to the expression "vanity fair" .

But when it came time to quantify it back then, the author had only "a person's presence in the media" to measure. A 2001 book called The Attention Economy didn't get much further. 

I think we can do much better today. Now we have a NASDAQ of reputation--it's Google. What is the currency of reputation online other than PageRank, which measures the incoming links that define the network of opinion that is the Web? And what better measure of attention is there than Web traffic? 

In economic terms, we convert from the Reputation Economy to the Attention Economy to cash by using this formula: The economic value of your site is the traffic your PageRank brings from Google's search results for any given term, times the keyword value for that term. (Higher PageRank means more traffic, since you'll appear earlier in the search results). And you can convert that traffic into plain old cash by simply running AdSense ads. 

For example, my UAV site, DIY Drones, has PageRank 6 (out of 10). That means it appears on the first page of results for the search term "UAV" (albeit low on that page). Right now that gets me about 60,000 pages views a month from Google (which is about a third of my total traffic).  The search term "UAV" is currently worth about $0.20 per click. 

So let's express this in economic terms [note: the following are totally back-of-the-envelope calculations. I'm hoping that they're within the right order of magnitude, but I'm not promising anything better than that]. 

• My reputational wealth is 6 out 10. [Note: this is just for DIY Drones. The Long Tail site has higher PageRank (7) and Wired has higher yet (9), but for the sake of this analysis I'm pretending that there is no reputational transfer between these different parts of my life.] Assuming that reputation wealth is distributed like monetary wealth, which it to say a Pareto distribution, my equivalent net wealth in dollars would be around $200,000. That's comfortably middle class. 
• My income is my share of the attention economy. There are, estimates Kevin Kelly, 100 billion clicks per day on the Web. The US represents about 20% of global web traffic, so we'll call that 20 billion clicks a day or 7.3 trillion clicks per year. I get 2 million of them, or 2.74x10^-7 of US web traffic 
• To make an analogous leap to the monetary economy, the US GPD is around $14 trillion. If I had the same share of that as I do of the Web, my annual income would be around $3.8 million. Which means that I'm richer in attention than I am in reputation for some reason (or, more plausibly, that PageRank is somehow undercounting my reputation). 
• But I'm not making $3.8 million. The conversion rate between these non-monetary currencies and real money reflects the size differences between the online economy and the offline economy. In reality, my 2m annual page views will only make me about $3,800 in Google AdSense revenues per year, so the conversion rate from real dollars to attention dollars in my world is 1,000 "Web credits" to the dollar.

Okay, this is admittedly a very poor attempt to quantify the Attention Economy and the Reputation Economy in real economic terms. But that's only because I don't have enough data and skill to do it properly. Inside Google, two offices down from CEO Eric Schmidt, sits former Berkeley economist Hal Varian, who has both the data and skill to do this right. And trust me, he has. 

It is possible to move beyond the woolly metaphors and treat Attention and Reputation like real economies. So when are we going to stop using the word "economy" as rhetorical smoke when we describe non-monetary markets and start measuring them like the economy they really are? If there's is a secret formula to Google's success, it's in doing exactly that.

Comments

[hyokon]

I think that is the right direction. I would like to suggest including other happiness/utility that is not traded with money. The happiness research I read at the Freaknomics blog was very interesting. In the end, money is a means to buy some, not all, happiness. So a monetary economy is just a proxy/part of the overall economy, if economy is defined as the total happiness in a society (maybe too broad?). There are things you could buy but often done by yourself, like the housework, without a price tag. Sometimes happiness comes for free. We feel happy when we see beautiful people on the street. Somethings give you happiness but you cannot buy with money. For example, your youth is priceless.

[John Banfill]

Money is simply virtual power. If I have a few bucks, I have power to get some goods and services that I want. People and institutions with various types of power such as political, religious, attention, intellectual, property and fear are able to use their power to get money or other items and behaviors of value.

Attention, reputation and gift giving status are forms of power. As you point out, they can be traded for money. Perhaps they shouldn't be termed economies but they do need a term to describe their common characteristics.

[Chris Tregenza]

Re: 2m clicks = $3,600

I make roughly that $ amount from a quarter of the clicks but my web sites carry more intrusive advertising that The Long Tail does.

Does this difference in efficiency impact on reputation? Do you have a better reputation because you carry less adverts and thus appear as a Guru dispensing wisdom compared to my cheap hackery?

Seth Godin carries zero advertising on his blog, does that make him infinitively richer in reputation than you & me? Probably not but there is a metric that can be measured. The more screen real-estate given over to advertising, the less space a blogger has to promote their reputation. By forgoing advertising entirely, there is nothing to distract Seth's readership from his words of wisdom.

The critical factor here is that you and Seth both have books to sell where as most bloggers do not. I would imagine that there are also paid speaking engagements and other avenues for generating cash that derive in part from the reputation the web site generates.

I'm guessing that if book sales and other revenue are taken into account, your lack of efficiency in Google advertising converts very effectively into cash via indirect reputation/money transfers.

[Anonymous]

You are guilty of the same crimes as the people who use the economics related terms much too freely.
a) PageRank is but one of many link-based measures of popularity (not reputation) that can be derived from principles in citation analysis.
b) "Higher PageRank means more traffic, since you'll appear earlier in the search results" - how do we know that for sure? Google's ranking algorithm is proprietary, and PageRank's contribution to the mix can only be guessed. Your guess is probably half-true in the case of head queries, and in the case of tail (and you should know about this) - its quite likely that the role of PageRank (or any other popularity based measure) in the ranking produced is much much lower.
c) "For example, my UAV site, DIY Drones, has PageRank 6 (out of 10)" - That makes no sense because PageRank (as defined in the academic paper) is a probability distribution, and therefore is between 0 and 1 for any given page and sums to 1 over all pages.

[James Grimmelmann]

"Economy" means a lot of things. Economics has a lot of methods. Don't try to force your vision of the one way to study an economy on everyone else.

From the Oxford English Dictionary:

The management or administration of the material resources of a community, discipline, or other organized body; the art or science of managing such resources. . . . The method of divine government of the world, or of a specific aspect or part of that government. . . .he organization or condition of a community or nation with respect to economic factors, esp. the production and consumption of goods and services and the supply of money.

Remember the old meanings of "political economy?" Not all of those things look like The One True Economics as you describe it. If we think about "economics" as the study of the flows of scare resources among the members of a society, then, yes, it is possible to speak about an "attention economy" or a "reputation economy" or a "gift economy," and to do so meaningfully in terms that look very different from the cramped view of "economics" you describe.

[Will Davies]

I'm not convinced by your definition of 'economy' or understanding of 'economics'.

'Economy', at the time of Adam Smith, referred to a character trait of governments. A government needed to display 'economy' in the way it took decisions, which meant being efficient and measured. This meaning still stands in the term 'political economy'. Only much later, possibly around the time of Keynes, did people start talking about the economy as a monetary and industrial object. But you can still have an economy of anything you like, or employ economy in your approach to things (e.g. economy of effort), regardless of whether money or markets are involved.

Neo-classical economics is the study of rational choice, and is not limited to money, industry or exchange either. Coase, Becker et al demonstrate this. There is nothing metaphorical about talking about the economics of (say) love or humour.

Where there is a dodgy metaphor at work is where market or industrial metaphors are used. So Becker started to talk about 'marriage markets'; politicians (in Britain) talk about 'UK PLC'. And yet metaphors flow in the other direction as well. Think of how the financial crisis is referred to with the folksy 'credit crunch', rather than with economic jargon.

[Dirk Scheuring]

My own envelope says that if you get 60,000 pabe views a month, that's 720,000 annually, and not 2,000,000. Am I missing something?

[Chris Anderson]

@all of you who cite the old and more general meaning of "economy": I'm aware of that and do realize that a lot of academics in particular still use that looser meaning. But I'm using the more rigorous definition as practiced by economists today. My point is we're using the word Economy but not using the tools of Economics. I'd like to see if we can.

@anonymous: Google assigns Google a numeric weighting from 0-10 for each webpage. You can see it if you use the Google toolbar. My DIY Drones homepage has PageRank 6

@Chris: I'm referring to my DIY Drones site, not the Long Tail. I run one column of AdSense on that and get an effective CPM of around $2.40. What are you getting on your site?

@Dick. You misread the post. 60,000 pages views represents the amount that comes directly from Google, and that just represents one third of my total pages views. 180k pages view/mo * 12 months = 2.16m page views/yr

[Tim]

Even while you're pointing legitimately towards a more neoliberal treatment of these "economies," I think you're overstating how much people are using "___ economy" in a fast, loose, misunderstood, and impossible to understand way. Terms like "gift economy" actually do have a pretty rigorous definition and extensive sociological treatment that goes back almost a century. Marcel Mauss's The Gift, Malinowski's studies of pacific islanders, and Levi-Strauss's work on so-called primitive economies all form the basis of modern anthropology (through to more recent anthropologists like Geertz or Bourdieu); and similar treatments of "economy" in the broader sense of exchange form the basis of sociology in Max Weber, Georg Simmel, Emile Durkheim, and others. There's also a well-established distinction between restricted economies (which is what modern economists study) and so-called general economies, which would include all these variations.

In general, using "economy" in this way mostly signals that you're talking about exchange of a nonquantified good and you're talking about it in a more sociological or ethnographic way than an economist would. That doesn't mean that you can't try to get quantitative on that mug -- but it does mean that these terms aren't opaque or unformed, and the analyses aren't illegitimate, even if they appear that way to you.

[YLlama]

Wait, $200,000 is "comfortably middle class"? Ivory tower lately?

[Chris Anderson]

@Yllama: That's $200,000 total net worth, including property. Which is comfortably middle class. See this (page 8).

High horse lately?

[Dave Cunningham]

Hi Chris,

Thanks for all the information on the concept of longtail.
I am putting the long tail concept to practise in the travel industry currently.

My site www.ourexplorer.com is focussed purely on tourist guides from all over the world. It is a booking engine so travellers can book tourist guides and explore a new destination through the eyes of a local.
Unique and the first booking engine of it's kind.

Would you be interested to learn more?

[Michael H Goldhaber]

Chris,

I coined the term “Attention Economy” back in 1987. I agree with you that most people misuse the term. I meant by it an economy in the sense that attention is intrinsically scarce, desirable —in fact necessary, is exchanged between people and helps structure as a social system. But it is a different economy entirely from the money economy. As I see it, it very likely will succeed the latter, just as the money economy succeeded the loyalty-and-fighting-based feudal economy of early medieval Western Europe.

Attention cannot accurately be quantized, certainly not in clicks or even citations. At the same time we can have some idea of the number and importance of attention transactions, and these are already far more numerous and arguably more important than monetary transactions. I have tried to quantify this very loosely with what I call the TPI index of economies. For the money economy the index is about 20,000, where that for the feudal economy is 1. On the same scale the coefficient forr the attention economy today is about 30 billion. (See http://goldhaber.org/blog/2006/07/14/my-baychi-talk-71106/ then look at the pdf and focus on pages 49-55 for a partial explanation. ) So the attention economy in fact occupies a growing share of social space, structuring quite differently from the way things worked in the period of domination by the industrial, money-based economy.

By the way, I am not officially an economist; in fact my background is physics. From what I have seen economists apply quite misleading mathematics and are prone to take for granted highly ideological views of the way the world works. Davenport and Beck admit they got the title of their book, which I don’t think much of either, from my website.

Best,
Michael

[pTd]

Chris,

as the Anonymous @ Aug, 6 01:35 AM wrote, PageRank is only one of many link-based measures of popularity.

And unlike other measures, PageRank cannot be trusted, other than for theoretical posts like posts: Google uses it to "punish" websites who don't follow what Google thinks are web's best practices.

Several reputed websites have low PageRank only because Google presumes they sell a part of their property, links, that Google appears to think as IT'S OWN property.

I run a blog network with domains PageRanked none to 6 and from my observations I can tell that PageRank is loosing its relation with SERP -- some people defend that there is no relation at all. One of the domains (my blog, actually) had PR 5 in 2004, then was punished by Google with 0 and I lost some traffic from Google, I learned SEO and 3 months later I was back to PR 5 again. But for short: Google punished my again 6 months later -- but this time I didn't lost any traffic, au contraire.

Talking about the relation between links, PageRank and AdSense... There is tonnes of metrics to do and shape. As we all know fron reading your amazing The Long Tail, and from experience, it is not linear. AdSense is a word market. We must take the numbers and comparisons very carefully.

See, in my network I have one of the best, reputable, followed, read, commented (both on site and on the blogosphere) and linked political blog here in Portugal. Is is written by a well known guy who appears weekly on TV. In AdSense scale, it is one of the worst, with no more than 20 to 25 cents CPM. Another one is a niche blog with very few links, the author is unknown, no reputation on portuguese blogosphere -- and we do a lot of money with it, it's our cash cow: $8 CPM steady, it had months in 2006 and 2007 with $14 CPM.
(Before your readers ask: http://arrastao.org for the fisrt, http://lowcostportugal.net for the second examples)

@Michael: "Attention cannot accurately be quantized, certainly not in clicks or even citations".

I agree. But for short periods of time, and pontual metrics, linked citations ARE a measure for attention (don't take the click for granted, however). I'm measuring the attention portuguese newspapers' daily stories grab from the blogosphere and the results point clearly what newspapers have more attention from one important fragment of national readership (political blogs are more important here than in U.S.)

[David Phillips]

Hmmm... An economist using an algorithm to evaluate assets. Lets start with the online asset.

One measure is the number of pages (lets say available via search engines to the non technical user). As a raw measure it is a start. It misses out email, IM and other 'assets' but is a beginning.

Here then is a basic measure of the size of presence and is also size of reputation. It is a measurable, relative and transparent quotient.

Of course, this is not a useful measure without refinement. Is this beneficial reputation asset or a liability.

Is this asset available on all devices (cell phones, PC's Laptop, computer games USB's, etc etc), all channels (web sites, sms, blogs, Facebook etc), geographical location and so on?

From there on, the online asset can be measured in many other ways and there are means by which one might examine what are the drivers of these assets and this economy. Such measures are of the nature of web sites, SEO, social media presence and so forth.

Yes, there is a way one can examine the online world as an 'economy' but I don't think its starts off with a mysterious Google algorithm of rank but may use search engines to identify the basic size of the 'visible internet'.

[cz]

PageRank is dead. Long live PageRank.

[paolo]

Pagerank is global, it tries to be objective. The value (trust) I place in George Bush is different from the value (trust) you place in George Bush. This is right handed whuffie.

I think you will enjoy the project RIPPLE, read
"Money as IOUs in Social Trust Networks & A Proposal for a Decentralized Currency Network Protocol"
http://ripple.sourceforge.net/decentralizedcurrency.pdf

There is also a research group in Yahoo! just focusing on this.

[Internetagentur München]

It is not only "economy" that is being used as a smart-sounding metaphor. Also "ecology" is being used for quite a while as a smart-sounding metaphor in our society. Well after having read this article - there is no more to say about this.