How much would you pay for search if it were not free? Let’s pretend it’s an alternate world, or maybe sometime in the future, and there is no free search. You have to pay for your Google, or Bing, or whatever. How much would you be willing to pay?
I would pay up to $500 per year. It’s that valuable to me. What about you?
Last year three researchers at University of Michigan performed a small experiment to see if they could ascertain how much ordinary people might pay for search. Their method was to ask students inside a well-stocked university library to answer questions asked on Google, but to find the answers only using the materials in the library. They measured how long it took the students to answer a question in the stacks. On average it took 22 minutes. That’s 15 minutes longer that the 7 minutes it took to answer the same question, on average, using Google. Figuring a national average wage of $22/hour, this works out to a savings of $1.37 per search.
A few months ago Hal Varian, the chief economist at Google, added a key fact to the final equation. In a talk for Web 2.0 he mentioned that the average user of Google (judged by returning cookies, etc.) makes only one search per day, on average. This is certainly not me. But my near constant Googling is offset by say, my mother, who may only search once every several weeks. Varian did some more math to compensate for the fact that because questions are now cheap we ask more of them. So when this effect is factored in, Varian calculated that search saves the average person 3.75 minutes per day. So the value of free search works out to around $500 per year. We could even round that off to a dollar per day.
Would most people pay a dollar per day for search if they had to? Maybe. They might pay a dollar per search, which is another way of paying.
We can ask the same question about other free services. How much would you pay for Wikipedia, if it were not free? Since Wikipedia entries often appear at the top of Google searches, it is hard to unravel this question from the last. But I would, in theory, be willing to subscribe to Wikipedia for at least the cost of a subscription to the New York Times or the Economist, which is several hundred a year, or maybe $15 per month. We could verify the price by estimating how much time it would take to answer our query without Wikipedia.
Ditto for Google Maps, or Yelp. How much time would it take to get the same service by other means? I probably save several hours per day. The differential is so great that I could simply not do it if it had to be done by other means.
This is the great gift of the free web. It has made some goods so cheap to acquire — like answers, encyclopedia facts, directions, weather reports, recommendations — that we generate entirely new realms of activity by doing far more of them. More is different. We ask so many more questions than before that this ask-and-answer is something new. Have you ever wondered where all our questions were before search engines? We didn’t even bother to ask them.
Now we ask questions by the minute. By multiplying out all the time saved by all the 130 million users of Google, Varian calculates that total replacement cost of this new activities (if you had to do it without Google) would be $65 billion per year. He calls this $65 billion the value added from Google.
But what if in the long run Google wanted to capture part or all of this value added. What if Google, Microsoft, Yahoo, Yelp and the rest, started charing for their services. Users would need to fork up some $65 billion. We have to pay for part of our $1 per day gift.
I don’t think the zero-price option (ZPO) will go away. We’ll always have that choice, probably supported by the interruption of our attention by ads or similar devices. But I imagine the option of paying for search, maybe much better than the free version, will become a choice in the future. And my guess that the price of paid search (and paid Wikipedia, paid maps, paid recommendations) will be close to the replacement costs — about $1 per day.
UPDATE: Economist Michael Cox asks his students, and reports they would not give up the internet for a million dollars.