How much are free apps and other on-line services worth?

A recent Wall Street Journal article (Aeppel 2015) argued that measured productivity growth is badly underestimated because measured GDP does not include ‘free’ apps and other online media services. This paper introduces an experimental GDP methodology which includes advertising-supported entertainment like Facebook in final output as part of personal consumption expenditures. This paper then uses that experimental methodology to recalculate measured GDP back to 1998. Contrary to the Wall Street Journal article, including ‘free’ apps in measured GDP has almost no impact on recent growth rates. Between 1998 and 2012, real GDP growth rises by only 0.009% per year.

There is also this:

Some firms have been creating software, which is already captured in the national accounts as investment. Other firms have been creating intangible investments in marketing, customer contact, business know how or other organizational capital. These intangible investments can pay off either in (1) eventual use of advertising or (2) moving customers to a premium service that does charge a fee. Despite their long-run value, expenditures on organizational capital are not currently captured in the national accounts as output. If we treat these expenditures on organization capital as intangible capital investment, then the productivity boom from 1995 to 2000 becomes even stronger and the weak productivity growth of the 2000’s is nearly unchanged.

That is from a new paper by Leonard Nakamura and Rachel Soloveichik (pdf), and I thank Hal Varian for the pointer.


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