The Economics of Social Media
Social Media and the Market for Attention
Why human attention is the scarce resource that social media platforms compete for, and how Herbert Simon predicted that information abundance creates attention scarcity.
In an age of endless content, attention is scarce.
Simon’s insight
Economist Herbert Simon wrote in 1971 that “a wealth of information creates a poverty of attention”.
The business model
- Social media platforms offer services free.
- They earn by selling advertisers access to users’ attention.
- More time on the platform means more ads and more revenue.
Competition for attention
Platforms compete not just with each other but with sleep, work, books and friends.
Time spent
Indians spend several hours a day on smartphones, with social media and video taking a large share, according to industry reports.
Costs
- Attention spent on feeds has an opportunity cost.
- Fragmented attention may reduce focus and productivity.
Economic lens
Users “pay” with time and data, not money.
A social app costs nothing to download, but the company earns by showing ads during the hours users spend scrolling.
Users pay with attention and data.
- Attention is the scarce resource platforms compete for.
- Herbert Simon predicted attention scarcity in 1971.
- Platforms earn by selling attention to advertisers.
- Users pay with time and data.
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