Mark Zuckerberg recently had Facebook purchase a mobile computing software program called “WhatsApp” for $19 BILLION dollars. I feel a lot like Dr. Evil when I write that.
As all of the news coverage will tell you, this is for a free service – it makes no money directly.
This is two conundra in one. How can something be worth $19 billion dollars? And how can something that is worth so much money be available to individuals for free?
I’m going to take the second question first, because it’s simpler. There are two reasons that this mobile computer program is available for free. First, this product was never an economic good in the way that nearly 100% of the people in this country think of the goods that they produce and consume. It was not something that was grown, like a carrot, or built, like a car, and brought by its producer to a marketplace to be exchanged for money with someone who wanted the object. Here, the good that was produced was produced as an investment good. It, like many other tech products, was funded by speculators. (We generally call them venture capitalists, to be polite.) In the case of WhatsApp, the company was given $8 million by some wealthy people in 2011 and then they didn’t have to worry about money again for the next few years. In other words, the good was free to people because the actual good itself was not directly the holder of exchange-value.
Second, while $8 million is certainly quite a bit of money to have to spend over three years, it also reveals how fundamentally cheap it is to produce this good (the one that is worth $19 BILLION dollars. Sorry, mind still blown.) How do you make software? You have programmers make it. Good, capable programmers who type diligently into their laptops for many months, trying to make their code as good as possible so that the software always works regardless of what phone it’s being used on. You have a few designers make it look as cool and appealing as possible. You have a couple of project managers who make sure all of the bugs are being worked out in the most efficient possible way. You have someone who answers the phones and responds to angry emails and tweets encouraging things at potential users.
These people are doing fine work. However, what they’re doing is creating an idea – a complicated idea, but also just an idea, in the sense that a newspaper article is an idea. It is possible for intellectual property like this to be distributed for free because the cost of distributing any one unit of it doesn’t add meaningful additional costs to the production process. For goods made out of actual physical materials – something which actually costs a producer something for each unit made – you can’t make it free because you would sink deeper into the red with each unit you gave away. It’s clearly a lot simpler to produce a free OpenOffice than a free OpenMilk.
The physical intangibility of intellectual property begins to get at the first question as well, the problem of how this particular good could be worth $19 billion. To begin to answer the first question, if you had to make something out of actual physical materials, you could never produce $19 billion of value out of $8 million of expenditure. While it’s possible that good-quality labor and savvy entrepreneurship could double or quadruple value – heck, maybe multiply the value of those physical inputs tenfold – they simply cannot multiply it 2375 times.
The only things that can do that are things which have become entirely unmoored from their original relationship to the value of someone’s work as added to physical materials. Something can increase in value that dramatically only if it’s not really connected to the value of the work itself, but to its value as a chip in an extremely high-priced poker match.
For most of us, money is real in the sense that we produce a certain amount of it with an hour of our work. The value of that hour of work becomes fought over, ferociously and in public, when we struggle over raising the minimum wage or arguing that unions are forcing employers to pay too much for their employees.
Money is also real when we spend down the savings we’ve created from our earnings. The hue and cry about the inability to cover sick people who can’t afford health insurance draws on this imagery that our fingernails are scraping the bottom of our pocket. The money that we put in was simply the source of our collective hourly labor, the only money there is, they argue – and now it’s nearly gone.
To check the business pages, this evidently isn’t a concern for certain kinds of transactions. This money is closer in form to chips changing hands in a poker game. A very, very high-stakes poker game, played in mysterious fancy buildings all over the world. It’s so unreal, it’s hard to connect it to our real money in our real economy. But when you become inured to the scale of these events occurring in these mysterious, fantastical places in our broader economy, you forget to connect the dots.
$19 billion = the value of one free mobile phone app.
$3.4 billion = the annual cost of running all of the state-level public programs in Maine. All of the schools, all of the social services, all of the roads, prisons, courtrooms, elections; regulating all of the private activity in a way that makes sure we have clean air and clean water, for 1,329,000 people.
Heck, for good measure:
$19 billion = the value of one free mobile phone app.
$13.95 billion = the annual cost of running all of the state-level public programs to support all 3,276,000 people in northern New England.
What is the solution to this? Should we allow states to become venture capitalists, so we too can make ridiculous piles of money out of somebody else’s poker game?
Or can we, at bare minimum, recognize that there are connections between the money we work for and the money that other people are able to use for speculating on free mobile apps?
It’s really the same money. For people who don’t make their money through producing a good or a service, this money has been sheltered both legally and quasi-legally through favorable tax law. For people who make their money through a salary or hourly wage, well, you just haven’t been playing with high-enough stakes to win those concessions. Run that equation through a few hundred million times and you get the current wealth distribution.
WhatsApp with that? Seriously.