The revenue comes from the power to influence, not selling data.
Advertising is not just placing adds, it is about having the advertisements effective in influencing and persuading people. The more effective Google, Facebook, Amazon, etc can be at influencing your opinion, the more essential it is for companies to allocate a budget to spend on these platforms.
These are the richest companies in the history of humanity, and that money does not come from selling data.
Yes, anonymised, aggregate data is a revenue source, but it is not a significant one, within the heading ‘payments and fees’ in the graph.
The biggest source of revenue of Facebook, Google and other media enterprises, is from advertising, not from the sale of data.
One of the main metrics that affects stock price, and is an indicator of potential earnings, is ‘user engagement’, or the total time people spend on web sites. This is the equivalent of ‘ratings’ for a television show. The more watched the program, the more it can earn.
While Facebook’s spokespeople did not reply to our inquiries, we will offer one clarification in their defense: They do not “sell off” data, technically. They sell a service to advertisers. Looking to peddle your hemp-rope macramé vests? Facebook will happily take your money and use algorithms to serve your ads to a carefully curated subset of its users. Those with no taste perhaps. Or no arms.
popular mechanics: How Much Money Facebook Gets From Selling Your Data
No matter how you look at it, the answer is the same. The other metric that affects the stock price is revenue, and the revenue is from advertising. Advertising sounds innocent enough, and at one extreme advertising is simply providing information to consumers, but at the other extreme, it can be propaganda: to influence or persuade an audience to further an agenda.
The ultimate profit arises when a large audience can only be effectively reached through one channel, such as people getting all their news from Facebook, or buying all their products from the catalog that is Amazon or doing all their research through Google.
In these scenarios, if a company wants to promote a product, it has no choice. Either promote a product though the relevant channel, or consumer wills will not be informed, persuaded or influenced to buy the product. Paying these companies their fee to influence consumers, becomes an essential cost of business, and thus becomes a part of the cost of the product.
At the extreme, the product with highest allocation of its price being allocated to influencing consumers via platforms, becomes the most successful product, even though that means allocating the smallest percentage to providing the product itself.
The platforms can effectively ‘tax’ everything that consumers purchase, and their ability to influence can enable them to play a role in who governs, and the rules of society. It is a step beyond the 4th estate, and those running the platforms have even influenced the definition of the 5th estate to suggest the new power is held by the people on the platforms, and for the definition to ignore the greater power of the platforms themselves.
There is no such thing as a free lunch: We all pay.
Someone has to pay.
TANSTAAFL [There ain’t no such thing as a free lunch], on the other hand, indicates an acknowledgement that in reality a person or a society cannot get “something for nothing”. Even if something appears to be free, there is always a cost to the person or to society as a whole, although that may be a hidden cost or an externality. For example, as Heinlein has one of his characters point out, a bar offering a free lunch will likely charge more for its drinks.
No such thing as a free lunch
Yes, this is just quote from Wikipedia, but that text remains on the site because there is a consensus, and people agree with these words. It is recognised that either the user or someone else in society must be paying for the social media, “free” searches and other “free” services all provided by incredibly rich companies.
Whoever is paying, is paying too much.
Plus, for those companies to make those unprecedented profits that makes some of them now more valuable than the entire economies of entire countries including Brazil, Canada, Rus, Kor Australia, Spain and Italy.
If these companies were run as not-for-profit like the internet itself or Wikipedia, then whoever is paying, could clearly be paying a whole lot less.
The influence company tax: It is consumers who really pay, not advertisers.
The “free” service providing companies earn their revenue from advertising, and it companies selling consumer products, not consumers themselves who pay the Google, Facebook/Meta and other “free” service providers, and as a look at corporate profits of these companies reveals they are as described on seeking alpha “huge”, and not exactly falling off a cliff as a result of advertising costs that fund these huge tech/”influencer” companies of Google Facebook/Meta etc. This because successful “influence” and advertising campaigns mean that companies manage to raise prices to cover the costs of advertising, and still make sales. To companies that sell to consumers, advertising is part of the product cost, and if Google, Facebook/Meta and other can help them sell products at good margins, then the cost of advertising is justified. What is happening is the percentage of products prices that is allocated to marketing is increasing. This means when consumers spend their money on products, and increasing percentage of the product price is going to influencer companies of Google, Facebook/Meta etc.
Products now effectively include an “influencer tax” to cover the cost of promoting the products through the influencer companies.
But what about people not influenced by advertising?
Most people believe that their decisions are not influenced by the advertising and campaigns to influence their decisions. These people buy their brand of phone because of the features, and never due to “Blue Bubbles” culture war because their chosen brand has status as a result of deliberately limiting their own customers’ ability to communicate securely with others.
Despite that many of us feel we are not influenced in by media and propaganda, but does anyone really still believe a candidate for election to the US presidency does not need a big advertising and promotion budget?
There are even regulation and limits on fundraising, to try and avoid appealing only to the wealthiest donors being a winning strategy.
Overall, not everyone may be swayed, but clearly a lot of people are influenced.
There is no escape, apart from being extremely wealthy.
Unfortunately, you can’t declare “I don’t use Facebook, Instagram or TikTok, so I should be eligible for lower prices”.
A person can avoid Google search, Facebook, Instagram, WhatsApp, TikTok and YouTube, but it is still not going to save them on their weekly shopping, clothing or other purchases. In fact, all evidence is that the rising “cost of living” which is in part driven by the “influence tax” may affect those most who do not have the income to use frequent these services, and the whole process appears to benefit the wealthiest 1% and big business, even though many people assume these groups are those channeling the money to the influence companies.
Updates:
- 2023 August 17 : Updated added more on “free lunch“.
- 2023 Jan 16 : Initial version.