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In which John discusses why facebook and other free products are free--and why they are so valuable. DEAR PEOPLE BRAGGING ABOUT USING ADBLOCK:
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A Bunny
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Good morning Hank, it's Tuesday. I really liked your video on Friday, I thought you did a great job explaining Facebook's IPO and why stock markets are so important, but at the end of the video you said this:

Hank: The company that gives me a free service, that I use and have never and will never pay for, is somehow worth one hundred billion dollars: what?

Now Hank, I don't know if you intended that as rhetorical question, but today I am going to answers your...

Hank: what? (repeated from the extract before)

OK Hank, here's the thing: broadly-speaking, there are two kinds of companies in this world. There are companies that sell you things, and then there are companies that sell you. Actually come to think of it, there's a third kind of company, the kind that sells both things and you, like cable companies for instance. Cable companies are like "hey, if you give us eighty bucks a month, we'll give you the privilege of watching content funded primarily by advertising.

But anyway Hank, I believe that the Internet maxim is true: if you're not paying for a service, you are the product for sale. Facebook is worth a hundred billion dollars -- well actually, it's not worth a hundred billion dollars -- but, it's worth whatever it's worth because of you. I mean Facebook could MySpace tomorrow and it would be worth nothing. That means that companies like Facebook, or Google or Twitter or Tumblr, have to listen to their users, which is a good thing. But make no mistake, the reason Facebook is valuable is because you use Facebook and you're valuable... I mean you in particular Hank,  but also other people.

The stuff you upload to Facebook, whether it's wall posts or photographs or videos is valuable because it brings other people into the site to look at that stuff and then they in turn upload their stuff, which brings in yet more people into the site. And everything you upload helps Facebook to know more about you, which in turn allows Facebook to know what you are tempted to buy and encourage you to buy it.

Now Hank, I know that you like everyone on the planet will insist that you don't even look at ads. And you insist that you aren't even conscious of what's getting hawked over there, or possible over there: damn you spatial intelligence. And you'll inevitably believe that you get the better end of the bargain, because of course you get the thing you want for free and the ad has no effect on you. Well Hank, let me just point out that A) that is what advertisers want you to think, and B) corporations actually have a really good idea of how advertisements affect your behavior. In fact there are many thousands of people who are working full-time to make sure that the ads you see are worth more than they cost. To put it succinctly, almost by definition, advertisers buy you for less than you're worth.

I mean Hank, corporations spend four hundred and ninety eight billion dollars on advertising last year. And you may think that advertising doesn't affect your behavior, but there is half-a-trillion dollars that says otherwise. You and I, and anyone that uses Facebook or Twitter or Google or Angry Birds has agreed to be commodified. I'm not saying that's a bad decision, but it is a decision and it's one that should be made thoughtfully and consciously.

Hank, we've never been totally comfortable with ads, but it has always felt like he best solution to allow us to make the stuff that we like, with the people we like. But I don't know, Nerdfighters, I'm interested in your thoughts on this, should Chrysler and Super PACs and scammy online dating-sites fund Nerdfighteria. And should we be OK with being the product.

I look forward to continuing that conversation in comments. Hank, thanks for teaching me what an IPO is. DFTBA. I will see you on Friday.