Facebook saves the economy? Poke me

A study into Facebook’s economic impact on Europe is less inaccurate, more misguided, suggests Stephen Pritchard.

For most managers – as opposed to social media types – Facebook is at best a harmless break-time distraction. At its worst, it is a serious sapper of office productivity.

So it may surprise some that no less an organisation than Deloitte has calculated that Facebook’s economic impact, in Europe, is worth €15 billion a year.

According to the firm, which was commissioned by Facebook to conduct the research, “the central estimate of gross revenue enabled by the activities of Facebook” are worth more. A cool €32 billion across the EU and Switzerland, in fact. Not only that, but the social network “supports” 232,000 jobs.

But, as with any research of this type, it is worth spending some time looking at the numbers in detail, and putting the conclusions into context.

Firstly, Facebook is now quite a large organisation. Like other web services, including Google and Twitter, it has been hiring. Most of the new employees are there to sell advertising and other business services. As Facebook continues to find new ways to monetise its service, it will need more, not fewer, sales staff and support personnel. So the “direct effect” on the economy, put by Deloitte at €0.1 billion, will grow. These employees pay tax and spend money, like any others.

Then there are Facebook’s overheads: office space, IT, catering. The “indirect” effect of Facebook comes from its supply chain, the firms that supply it with goods and services. A web site is never going to have the supply chain effect of a manufacturer, or the impact on jobs (think of the “indirect benefits to the local economy” line trotted out by politicians when they win inward investment). But nonetheless, add another €0.1 billion.

Together, these two figures add up to Facebook’s “narrow” impact: €214 million, without the rounding, or 3,200 jobs. Not to be sniffed at, again, but hardly an economic revolution.

The figures for Facebook’s “broad” economic impact are more interesting, but also harder to verify. To assess this, Facebook followers need to look at the Facebook ecosystem as a whole. Deloitte breaks it down into five parts: advertising, apps, events, pages and credits.

Again, some of the claims for these items are easier to qualify than others. Take advertising. Facebook is now, clearly, an attractive medium for some advertisers. It may well offer either better value (cheaper ads), or better “audience engagement” (viewers of ads are more likely to buy things) than, say, a TV spot or newspaper page.

Both, perhaps. Paid advertising on Facebook, Deloitte says, accounts for €0.7 billion in annual value. Again, no trivial sum. Customer communications adds another €100 million to the pot.

But there is a long, long way to go to reach the €15 billion figure, let alone €32 billion. And here, it is slightly harder to take the figures at face value. Deloitte calculates “business participation” to be worth €7.3 billion across the EU and Switzerland. But that includes paid advertising and customer communications. Surely the rest cannot be the fees of social media consultants?

Well, not quite, but almost. In working out Facebook’s broad economic effects, Deloitte attributes €6.6bn to “brand value”. This does include new sales – as does advertising – which should at least be quantifiable. But the reports goes on to say that “much of this effect is associated with the brand value created through social links prevalent on Facebook and the new ways of engendering interest and loyalty that Facebook provides”.

This, in turn, is based on a calculation for the value of a Facebook fan, taken in turn from the average of three other studies. That value is €4.69. This is very, very different, in measurement terms, from trying to attach value to a click-through on an ad.

As important is whether Facebook generates new net revenues, or merely causes businesses, or consumers, to substitute one form of spending for another. It is not new economic activity if, for example, a brand advertises on Facebook instead of in a magazine or the local paper.

It is not new economic activity if a consumer buys a product from an online merchant they find on Facebook, instead of at Tesco or Carrefour. And as for the added value of just having a Facebook page for a business, well even the study admits that is “less tangible”.

It may harm a brand if they do not have a Facebook page, but does it generate revenue? Sometimes it will. But it is hard to make the mental leap from there to €6.6 billion in brand value.

Then there are parts of the study that seem far-fetched. Facebook contributes €5.5 billion to the European economy by generating technology sales. As much as €0.4 billion of that is down to additional device sales. The rest? Broadband.

Take that at face value, and it suggests that a huge number of Europeans are buying devices and signing up for broadband just to, or mostly to, use Facebook. In the absence of Facebook-only services or Facebook-only devices, these numbers can only be obtained through extrapolation.

Deloitte cites data from 3 that says that Facebook users accounted for 0.28 per cent of its mobile data traffic. That makes the app the network’s top data user. But it does not mean that those devices, or broadband services, were bought solely, or even primarily, for using Facebook.

The full study is on Deloitte’s website for anyone who wants to check how the firm has calculated the figures. And there have been other studies, notably Boston Consulting Group’s Connected Kingdom report, from October 2010, which Google commissioned. The BCG report is in some ways more informative, because it tackled a more difficult question: the economic impact of the Internet as a whole.

This is not to say that Deloitte’s calculations are wrong. According to the chosen methodology, they are right.

What suggests a pre-IPO bubble are the inferences made, in this report and others, that Facebook or social media will save the world. It won’t. It just beats having to go outside during a wet lunch hour.