The Trouble With Facebook's $12 Billion, 180,000-Jobs-Creating Economic Boost

fbookA new study by the University of Maryland, looking at the vast ecosystem of apps surrounding Facebook's core social networking offering, has some bold things to say about Mark Zuckerberg's plaything. Among other statistics, the study says that Facebook's apps have boosted the U.S. economy to the tune of over $12 billion, and are associated with some 182,000 jobs—directly creating 53,000 new jobs.

Il-Horn Hann, the professor at the Roberth H. Smith School of Business behind the study, keeps it simple and notes each of the components of Facebook's app-creating "platform creates jobs, and each of those jobs contributes value to the economy."

Despite the big numbers, this is done subtly, Hann thinks, because at the companies involved, the activity "creates value for those companies, which in turn results in hiring new employees and retaining existing ones, which in turn results in those employees making purchases and paying rent or making mortage payments."

Prof. Hann is trying, in effect, to measure how the Facebook app ecosystem is spreading waves of cash and employment throughout the U.S. His study uses a number of assumptions to do this: Starting with the number of U.S.-based app writers (a statistic acquired from Facebook itself), he makes estimates for the salaries of these folk, and the multiplier effect their employement has on the economy. The calculation ends with a figure of $12.19 billion in benefits, and a base estimate of 182,744 jobs "added to the U.S. economy"—more "aggressive" calculations push the benefit figures up to $15.71 billion and 235,644 jobs. (We've attempted to contact Prof. Hann to discuss his study and will update this post as soon as we hear back from him.)

It all sounds plausible—Facebook itself says it has 750 million users worldwide, and notes that "entrepreneurs and developers from more than 190 countries build with Facebook platform." And the company's 2012 IPO will no doubt come with more record-shattering statistics, to say nothing of wildly enormous valuation figures for one of the world's best-known brands. When you have as large and successful an entity as Facebook, then the fringe or halo effect it creates is also bound to be larger than the thing itself in some ways—look at the huge industry that's grown up around Apple's iPhone, with millions of workers around the world crafting tens of thousands of different peripherals for it (to say nothing of the app writers it's brought with it, or the musicians whose lives iTunes has changed).

The media is getting excited about Professor Hann's report—and why not? Any good jobs news is of course more than welcome right now. And with figures like a $12 billion economic boost being cast around, you'd think President Obama should pull back from some of his attempts to re-animate the U.S. economy with green jobs, infrastructure re-vamps and taxation tweaks, and instead focus on enabling firms like Facebook to explode outwards and bring even more money and jobs to the U.S.

But it's important to put these statistics in context. Facebook brings a slew of benefits, and though its place in the future of online advertising is being aggressively questioned, and its core revenue-generating model is perhaps underperforming against bank estimates, it is undoubtedly boosting businesses that use it as a communications channel to their clients. In other words, Facebook is much bigger than its app ecosystem.

Which means we have to also put the benefits Hann's study brings in context of how much Facebook itself, with its app ecosystem and all its fringe systems like Facebook chat and mail, actually costs the U.S. Back in 2007 an oft-quoted study looked at the way Facebook was actually depressing the economy—by eating up man hours which could otherwise have gone on useful revenue-generating work. This research by law firm Peninsula suggested that in the U.K. alone about $264 million in revenue was lost daily.

Let's assume that U.S. use was ten times greater, since the U.S. is roughly ten times bigger, and that means the U.S. was losing $12 billion in revenue from Facebook every 4.5 days, back in 2007. The site has grown now, and has more users who use it more often—and while we know many workplaces now ban it, it's safe to say that lost man hours probably eat up more value from the U.S. economy faster now than they did four years ago. Lots of this lost time is undoubtedly connected to game playing (a genre Hann admits makes for a lot of the Facebook app system), and it's hard to suggest that billions of lost man hours are compensated for by a few thousand extra jobs—even if you assume employees are slightly happier because of playing FarmVille.

And if you want to talk about non-financial benefits of Facebook and its apps, then there's much discussion about how it's improving communications and thus turning the world into a friendlier, happier place, and its role in various parts of the Arab Spring uprisings has been well-documented (if slightly overblown, perhaps). But then you must also look at the time-wasting legal cases like the recent one about students friending teachers, and consider that cyberbullying is a new threat, kindly delivered to millions of schoolkids on Facebook's friendly blue platter. Remember, too, that Mark Zuckerberg really is dedicated to eroding and changing how we think of privacy online, and ponder how this piece of social engineering may play out, at some cost to future society.

Suddenly a $12 billion economic boost, and hundreds of thousands of jobs begins to look a little more complicated than all that.

[Image: Flickr user phillipstewart]

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2 Comments

  • ClickTell Consulting

    The 2007 Study you refer to demonstrated how use of Facebook was eating up man hours. At ClickTell Consulting we recently showed how much of the world’s power was being consumed by Facebook users. Just type in  - Global Power Buster  - in Google and follow the ClickTell Consulting link. You will most certainly be surprised.

  • DerekDomino

    You also have consider the fact that there was never anything indicating that that time was ever spent working to begin with.  There have been several studies that suggest while more time has been spent on social sites like Facebook or browsing the web ( like fastcompany.com ) there has not been a matching decrease in work time.  The time spent was likely "water-cooler" time to begin with.  Secondly there have also been studies suggesting workers who spend some of their day web surfing are actually more productive that their peers who work end-to-end throughout the day.  So as you suggest... always take in the big picture ;)