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Think about how much digital technology has altered your life in recent years. For almost everyone, it’s quite a lot.

Smartphones, social media, streaming services and the ever-proliferating number of mobile apps now consume enormous amounts of our time and lives. And yet, according to official GDP statistics, the share of our economy accounted for by information goods and services is nearly the same as it was in the 1980s.

The reason, says Erik Brynjolfsson, one of the world’s leading economists and experts on how technology impacts business, is that because many of these services are “free,” they don’t always show up in official measurements of economic activity and growth. This is problematic, he explains, as businesses and policy makers alike tend to use GDP data to make key investment decisions. What’s more, our productivity statistics are derived directly from GDP data.

So, when we mismeasure GDP, we also mismeasure productivity and misunderstand which parts of the economy are creating value.

“Because the benefits of digitization are dramatically underestimated, those decisions and policies are being made with a poor understanding of reality,” writes Brynjolfsson and his colleague Avinash Collis in a recent Harvard Business Review article, “How Should We Measure the Digital Economy?


To help rectify this problem, Brynjolfsson and Collis studied the true value of the digital economy. Their method? A series of choice experiments that paid people various amounts to give up digital goods like Google, Wikipedia, Facebook, etc. for a given amount of time.

Of course, the amount needed to get a person to part with a digital good varied from person to person and across goods but the totals were enormous. For instance, the researchers concluded that U.S. consumers derived $231 billion in value from Facebook alone since its inception in 2004.

As more of our economy becomes digitized, businesses will need to utilize new metrics to make important decisions about resource allocation. Though we are still at the beginning of understanding value in the digital economy, Brynjolfsson’s insights offer a crucial new lens for looking at this problem.

Contact us to bring his research and expertise to your organization.

Here’s What You Need to Know About the Value of the Digital Economy was last modified: July 5th, 2022 by Stern Strategy Group