Facebook Claims $227B Global Economic Impact, but Doubts Prevail

It’s no question that social networking has had a significant impact in the way people communicate today. While email had been the killer app of the Internet in the mid-1990s, and thereafter search and then user-generated content, we live in an era in which connectedness plays a highly significant role in both online and real-world economies.

Such is the case with Facebook (NASDAQ:FB), which recently claimed it has generated $227 billion in economic impact globally in 2014, with 4.5 million jobs attributed to activity arising from Facebook use. This is, of course, distinct from the actual business that the company reports on its own. The economic impact is cited as activity borne out of using Facebook as a platform for commerce, or at least as an enabler of business and business activities.

This figure is reported by a Deloitte study commissioned by Facebook itself. Indicators included the value of “Likes”, and the business generated by events organized through the platform, among others. The study even made a correlation between Facebook activity and smartphone sales. In fact, Deloitte attributes a sixth of the value of smartphone sales worldwide in 2014 to users’ desire for mobile access to the social network. “[I]t is assumed that 16% of the value from unique devices purchased in the given year which are used to access Facebook may be attributable to Facebook,” the study says.

Correlation vs. causality

Economists do agree that Facebook — and social networking in general — do have a positive economic impact to some extent. However, it is argued that the $227 billion figure may be overstated. Attributing smartphone sales figures to Facebook usage alone may likewise be unfair. There is a difference between correlation and causality, of course. While Deloitte (or Facebook) might argue that people want to buy smartphones to access Facebook, the reverse could also be the case — that more people are able to access Facebook due to the prevalence of cheap smartphones and data plans.

Causality is a point of contention here. In an interview with the Wall Street Journal, Stanford economist Roger Noll attributes Facebook’s meteoric rise as an effect of the growth in Internet usage, and not a cause. “Facebook is an effect, not a cause, of the growth of Internet access and use,” he says. Still, Facebook COO Sheryl Sandberg says the social network is one of the primary reasons people buy smartphones today, citing that Facebook access is “one of the main drivers of why people buy phones, particularly in the developing world.”

There is no question that Facebook is now a viable platform for B2C and even B2B marketing for anyone from small businesses to large enterprises. Businesses pay for sponsored listings. Facebook pays for wages, utilities and services. Facebook-owned startups and companies account for their own activities. Individuals get to use the platform to market their small businesses. Employers use Facebook to check out job applicants. It’s quite complicated to peg a value to all the business and economic activity arising from the social network itself.

Value added?

One thing that Facebook and Deloitte forgot to account for is the productivity loss that can be attributed to unnecessary Facebook and social network usage in the work setting. How many aggregate man-hours are lost from sharing viral cat videos, incessant selfie-posting, and falling victim to clickbait headlines and personal chats on company time? How much bandwidth do companies unnecessarily consume (and often pay for) with such activity? How many students waste valuable time stalking exes instead of studying for potentially better grades and subsequently improved earning potential in future? By some rough estimate, productivity loss can be estimated at around $28 billion annually. This is an un-scientific estimate, but the logic follows — there are both benefits and losses.

If anything, then the net economic impact of Facebook may be closer to neutral than the hundreds of billions a year that the company claims. There is increase in consumption and activity, but one might question the value added of these activities. Are we using Facebook to build things, or are we wasting our time on trivial pursuits through the platform?