The West’s hindsight on using this medium is the East’s (India for example) foresight. In this case, however, it might not be, especially when the consumers are more discerning and money conscious. Surely, multisided revenue streams will be difficult in India.

Trust is the biggest factor, be it on the Web or outside of it. Companies just need to work harder to gain users’ trust. Once trust is established, paying for any service is secondary to a user.

Of the 4 services responsible for the bulk of the surplus, 3 (email, search, and IM) will all diminish in importance and value as social rises. There’s no question that social networking has the potential to drive growth in the value of advertising, as companies move away from cluttering the Web with intrusive ads and instead use social networks as opportunities to engage with prospective users in a way that adds value for those consumers. This wont look like advertising today, but it will serve the same key function, only much more effectively. That growth in the value of “advertising” (although I doubt it’ll be called advertising) will be what offsets the surplus created by social.

I suggest another monetizing model, just like we have a ‘like’ button on Web pages, there should be something like a ‘pay bandwidth’ button on every Web site. By that, a visitor will pay a Web site only if he finds it worthy, it comes directly from his Internet service provided.

This in turn will make up for the advertising dollars. There will be enough room for false-advertising and false-clicks, but these things can be corrected with algorithms and policies.

P.S.: It will also make people believe that there is no such thing as unlimited bandwidth.

I’m not sure that the surplus value is really there to be exploited. The value seems to be based on a perceived value of users and the perceived value would at least in part be based on the cost of paid alternatives. Perhaps the current shift to Web-based services actually means that the paid alternatives are all over-priced.

When you ask “What is the value of communication?”, which represents 44% of the derived value, are you not also asking “What is the value of speech?” We obviously derive massive economic value from physical communication but it doesn’t mean that it can be monetized (primarily because it is so easily replicated).

Perhaps the prices of these services are getting closer to what they should actually be...free.

To be clear, are you saying the global online advertising market is $30 billion and there is a $20 billion market to block ads? I can’t believe this is so high on people’s consideration of what they are willing to spend money on. Also are you including search within your ad figure? If so, this feels like it’s a long way off.

This is good insight regarding Web usage and trends in the US and Europe. I agree with Shashank, in that the numbers and trends will be more accurate if we include other global regions such as Southeast Asia, Australia, India, the Middle East, China, Japan, and Latin and South America. Doing so will give us a broader view of the real trend. I’m sure the list and the numbers above, will change and surprise us all.

A couple of simple tests determine whether there is a chance of providers appropriating more of the surplus:

1. Is there a network effect, so that there is benefit to me of others using the same platform?

2. Are there substantial switching costs, or a strong lock-in effect?

To explain the first: Skype and Facebook have a strong network effect. Once I have signed up, it increases the value to me to have my friends join. Email on the other hand doesn’t have the same network effect; it makes no difference to me which email platform my friends have, provided they use something.

Ebay best illustrates the value of high switching costs. By enabling sellers and buyers to build reputation (some sellers can now boast feedback from 10,000 transactions, 99% positive) it provides a very strong disincentive to trade on any other platform.

A service can increase its chances of charging a subscription if it scores highly on these two tests. The network effect makes it a “must have” and the high switching costs discourages users from migrating to alternatives, even if those are superior in some way.

It is clear of the top four applications, social networking is where providers are most likely to be able to capture more of the surplus, by establishing the site as “the place where you can’t afford not to be.” I’d bet on Linkedin over Facebook, on the grounds that it captures professional reputation through its recommendations, as well as having a strong network effect. If Linkedin were to decide that you could only add new recommendations if you took out a subscription?

For the other services, it looks like advertising will still be the best way to go. I would not want to underestimate the growth potential here, which would come from more effective advertising, that which produces greater impact with no more “intrusion.” Google are the masters of this, with highly targeted advertising based on their ever-expanding knowledge of what users do.

The moment you truly monetise the Web, as the article suggests, is the moment you lose its biggest value: participation.

Applying traditional business models isn’t enough for Webconomics and all the better for this.

Economies of real-time social communication—perceived to be a credible communication—to vast numbers of consumers will work in favour of both big corporations and consumer cooperatives. This will help the new set of tech-savvy social entrepreneurs (armed with modern management skills), especially in emerging economies, to create “by the people, for the people, of the people” type companies with global reach and managed by social organisation or community.

I do echo Christopher on consumer cooperatives competing with big corporations. Going forward it would be good to see a research report on implementation of such models.

The upcoming Web site developers have to concentrate on developing interfaces for mobile and smart devices like iPad and Samsung Galaxy, because the future is of special applications, which will even bypass the existing browser concept. Interfaces will become even 3D oriented using Web graphics language technology.

A paid venture stays so because of the fact that it started that way. Many of the Web services that we see are currently free and there exists no scope in making people pay for it.

The author has suggested just one source of profit for the Web sites, that being the increase in the number of ads, until the customer reaches saturation.

I believe the break-even point cannot be reached unless new ventures pop up that are priced from the very beginning. The Web space is pretty new and there exists a lot of scope for innovation. So until something magnanimous, a-la Facebook, emerges again, and unless it charges for subscription, desired profit margins cannot be attained.

You don’t have to pay to walk down the high street and go into a store to shop. To do anything online, the broadband fee creates an entry cost. Last year, global telecom revenue from fixed broadband rose 14% to £126 billion (source: Techwatch). This doesn’t take into account the money spent by consumers spent on mobile broadband. The article doesn’t consider the substitution effect of consumers’ spend on accessing to the Web. The implication of this is that telcos are eating other company’s lunches.

“One not-too-distant example of such a move is how broadcasters gradually shifted service from free programming to pay-TV to capture a bigger slice of value”

Change the word “broadcasters” to media companies. Broadcasters have not shifted to pay-TV, their parent companies have.

Another potential model we are about to start testing is where the surplus gets invested by the content providers to subsidise the provision of connectivity. This is particularly relevant for government and health service providers trying to move the use of their services online. The theory is that they make substantial savings and re-invest a proportion of those savings in subsidising broadband connectivity, particularly for those who would not otherwise be able to afford it.

The projections are based on a survey of 4500 users based only in Europe and the US. Going forward, the number of users from China and other Asian, as well as other global locations, will be substantially increasing. Hence, the overall findings may need some level of tempering.

This factor will be critical for future projections because buying or spending patterns and value for money perception vary quite widely between US, Europe, and the rest of the world.

Also, who pays for this largesse at this point? I guess the money is spent more by the advertisers and in that sense, they still get their value for money.

Though users may be asked to pay for these services, the impact may be much lesser than what is projected here. Otherwise the entire lustre or Web usage will be lost.

The other difficulty will be in terms of valuing and pricing as well as payment mechanisms there.

The author does not get that the Web economy is not only about polls and numbers. It’s about user experience and the economy of ‘free.’

For instance, the fact that people are willing to pay to avoid advertising is an opportunity for… better advertising. (Think Google Adwords versus display advertising.)

Very interesting article. In my world of Data Privacy and Trust there is a constant discussion around the question: “Will consumers pay for privacy?”

That is, as the author says, consumers receive a great deal of benefits on the Internet in a confusing value exchange.

Consumer gives the provider (think Facebook) access to their personal information, actions, likes, friends; the “social graph” and Facebook gives the consumer a strong social platform in which to interact with friends and family worldwide.

The problem is that the value equation, while basically understood, is extremely confusing for most consumers. Most consumers, according to research cited by the FTC chairman in December, simply do not read the Privacy Policy or the Terms of Service on a Web site.

I know that I certainly don’t. In fact, researchers have discovered that most consumers think that when they see a Privacy Policy Statement on a Web site that means that their data and information is protected and private. Of course, all it means is that the organization has a privacy policy. You must read it to learn what it means.

So, will consumers—if they learn about how data is being used, how they are being tracked, and how data is being sold and resold—pay for services and products that offer enhanced data privacy?

Or will they continue to rely on the current value exchange which says that to get access to the product or free, the consumer gets very little privacy?

This article does not mention the new dynamic that attention is scarce and content is plentiful—the reverse of pre-Web media. This means that pay walls become an obstacle for Web sites that offer nothing of unique value. As long as my time is taken up with free sites, there is no ‘oxygen left in the room’ for pay sites. Pay sites flourish when the information has unique or temporal value, or offers a service that is otherwise not available.

A few turns of phrase here suggest the author has lost sight of what the economy is for—to help its participants fulfill their wants and needs. Consumer surplus is produced by...wait for it...consumers! It is not “left on the table” by the “largesse” of companies—companies in competitive markets should be constrained from taking it away from consumers by the threat of entry. Or don’t we believe in free markets, after all?

Along the same lines, the “Advertising Grows” strategy seems to suggest a kind of blackmail—raise non-value-adding interruptions to a high enough level that consumers will pay more to avoid it. But one promise of the Web (and all that data it collects) is that “permission” marketing will displace intrusive messages. Properly done, this means adding information consumers will value positively, not pay to avoid. This has advantages for advertisers and consumers—standing in the way of this value creation amounts to racketeering by bottleneck facilities.

Naive? The scenario not mentioned here is that consumers will form cooperatives to compete with the concentrating set of oligopolistic providers. In other words, the technology not only creates consumer surplus, it makes plausible new kinds of entry that make markets, including communications markets, more competitive. To ignore this possibility is to ignore the deeper impact of the Web.

Who ever “pays” for advertising? It’s not only in the soft cost of the distraction of the pop up adds, it’s in the very hard cost of product pricing. It’s just hard to see. There is no free (or $100 billion) lunch here despite the author’s suggestion.

I also find it interesting that, unless you have embedded it into other categories (many other categories given its huge size) you ignore the largest source of Internet revenew: sex.

Brilliant article. This ties in with the new social commerce streams of revenue coming of age and the new business models being created from them to leverage the new “economics of the Web.”