Data Mining: Text Mining, Visualization and Social Media

Visualizing Economics, Catherine Mulbrandon's Blog

I've just stumbled across Visualizing Economics - a blog by Catherine Mulbrandon. The title pretty much says it all, so please take a look.

Free, Blogs

The Blog Herald comments on the Free skirmish between Gladwell and Anderson by pointing out

The blog is alive and kicking, if nothing else but because it is hard to pick critics and arguments to pieces in 140 characters or less.

I wrote quite a bit about the book when it was being formulated. Now, I’m looking for the (free) online version but haven’t found it yet. Chris/Wired is known for erring on the side of sensationalism to move units (as is appropriate in the media business), so I wonder what his investment in this new thesis is.

The Price of Greed

The graph below gives me some hope for the citizens of the west. While Wall Street is in the toilet, the Bush administration is proposing to bail out the various financial institutions with $500 Billion dollars. This is, essentially, the price of the greed that free market economies, capitalism and conservative governance encourages. Hopefully, this will mean less money to commit war. I’m glad the blogosphere at least is calling it as it sees it.

Follow the Money: Part 1

You may have arrived at this page via a search engine - certainly you used a computer to get here. We often think of these things as being free - computers are like phones, they are just there; search engines don't require me to input my credit card information before I can see the search results. However, if you look a little closer things start to seem different.

Let's start with the computer - we are all vaguely aware that it is costing us money. Firstly, we had to buy the machine. Secondly, we have to pay for internet service. Most importantly, however, we have to pay for the electricity to run it. But how much does that cost? Eric Shufro, who writes at OverClockers.com, has an interesting article that address just that question: How much does it cost to run your PC? His scenario is for 24 hour up time (not your typical use) and comes out at around $50 per month. So per hour, this is about $0.07.

So how about the search engine? It is interesting to look at two sides of the equation here. Firstly, let's take Google. In 2007, it cost $11B (yes, 11 billion dollars) to run Google. This is the total costs and expenses line item from their 10-K filing with the SEC. Google served about 7 billion searches in December 2007. If we assume all of 2007 was the same (which, of course it wasn't) then that would give us 82 billion searches coming to 13 cents per search.

Ok - so that describes the cost to Google of providing a single search, but what does it cost you? One way to look at this is to consider what funds Google. As Chris Anderson points out in this interview, one can consider advertising budget as the cost to the consumer of an ad supported model. Chris makes the point (in reverse) about Craig's list, suggesting that the money that this service has taken away from classified ads in news papers makes everything a little bit cheaper. This is similar to the comment I made in an earlier post about the concept of 'free'. To summarize: 2007's internet advertising is estimated to be around $20 Billion. That amounts to more than $50 per capita for the US (in other words, over the course of the year, $50 of what you pay for stuff is used to attempt to persuade others to buy it as well).

As I get time, I'm hope to cover some other examples like this, as well as drill down on the ethics of the idea of invisible costs as well as externalities.

Free of Understanding

Chris Anderson continues to jot down observations about FREEdom in the wild. His latest post is illustrated by an image of powerlines transmitting the word 'copy' (I guess indicating the transmission of 'free' copies of content over a network). Ironically, this illustration captures one of the major issues which Chris has yet to address: the externalities of free stuff.

Now, I'm quite sure that Chris fully understands this issue, but I do wish he would address it to some degree in his musings as he builds up to the book. I'm also quite open to the idea that Chris' concept of 'free' is quite different from mine and may somehow elegantly sidestep this issue (though this post does equate specifically cost with value, thus hinting that externalities - which are a cost - will be addressed even though the post in question somehow fails to). That being said, the idea of 'free' enterprise productivity tools is so paradoxical as to be almost ridiculous. Just as you can't print money, you can't simply make costs evaporate. You can certainly move those costs around a little.

Chris Anderson: Free, but at what Cost?

BoingBoing points to a talk which Chris Anderson recently gave at Nokia. Chris' next book focuses on the notion of zero priced products and services: Free. While Chris gives a good talk (as one should expect), I feel that he is missing out a large aspect of economics which needs to be considered - even more so - when considering the zero price: externalities.

There are two aspects here. Firstly, there is always someone, somewhere making money. While it is apparently 'free' to read Wikipedia, every time you go there, someone makes money. The computer manufacturer? The bandwidth provider? Google via the ads in their search engine? The sites which the Wikipedia article links to? If someone is making money, someone else is paying. Guess who that person is.

Secondly, there are aspects of cost which are not clearly stated in direct monetary terms, even through the chain of third parties not involved directly in the transaction. We get our biodiesel delivered by a vehicle which may well have been constructed from a vendor using Brazilian rain forest in the creation of the metal products used in the manufacturing process. Chris mentions the impact of 'free' electricity: irrigation for vast desolations which could then be used to produce biodiesel. He doesn't mention the cost of exhausting those areas of land via the use of single crops, the environmental impact of the transportation of the fuel (in terms of vehicle manufacture, roads and fuel).

Chris states that Google introduced a gigabyte of free mail storage because they realised they could make money with that number. I'm not aware that Google is making money with GMail (of interest). In fact, there is another motivation behind introducing larger free web mail. Firstly, each user does not get the claimed amount of storage. Most will use far less, so it is a perception that is being marketed. If all GMail users uploaded a gigabyte of data the system would go down. Secondly, GMail is not winning in web mail, but due to the brand power Google has forced its competitors (most noticeably Yahoo! and Microsoft) to offer the same storage capacity for their users which are orders of magnitude more numerous.

Free-to-me is not the same as Free. Even Free-to-me is not Free-to-me. Ever tried to read Wikipedia without paying for electricity? Without paying for coffee? When you pick up all the 'free' cosmetics from your hotel room you are increasing the cost to all hotel guests.

In the example of airlines, what appears to be free (a 10 euro ticket) is not - it costs you your attention where upsell will occur (ever been pushed a visa card on an airline?).

I'm excited to see what Chris is going to put in his next book. I'm hoping that he will approach the topic in terms of the complete ecology implicit in every transaction rather than simply in terms of the cost to the end user as they reach for their wallet.

Is Free Good?

We all love our free stuff: search, social networks, review-sites - it's all good. However, free is a bad fit for quality. Services like FeedBurner (which tracks stats about the subscribers to your feed) are free. This means two things:

1. You don't need to pay to get value from it.
2. You have no recourse when it doesn't work, or isn't consistent, or ...

While many free services do work with traditional market pressures (if you don't like Google, you can go to Ask or wherehaveyou), services like FeedBurner do not transfer. Essentially, if you find yourself using a unique service which is free, don't expect to be able to apply any customer pressure (especially if revenue is being generated by a minority of paid up customers while you, the majority, are marginal).

Hopefully, Chris Anderson is going to explain why free does work in his next book (though at his recent talk at KDD he was talking about a different book studying the economics of shoes...)

Did I mention: FeedBurner reported 30% fewer subscribers today for this feed.