Our Topics Today

1. Our Topics Today • Internet usage rates – How does the Net change our daily life? Why? • Net Adoption – Where are we? Why? So, what were YOU doing yesterday?

2. How do we measure consumer Internet usage? Leisure activities? • Consumer time diaries. What are the problems? • Recall & accuracy. • Missing measurements • Social constraints & aspirations. • Device tracking • ISP measurement.

3. Internet in Everyday life • As in most technological systems, Internet adoption by business led the adoption by consumers. • Businesses first: • Fax machines, • Computers, • Personal computers, • VCRs, CDROMs, …

4. Even so, roughly a billion users worldwide. • Observations: • Tiers of usage penetration. • Tough to crack 70%. • Rapid growth in populous, low income countries. • Government policy & history matter: ex: S. Korea high, France low. Top 15 countries for Internet Access, 2004 Source:CIA Factbook

5. This Process of Internationalization is a Strong Trend Source: World Bank, US Census

6. Growing Desktop Access Data actually goes back to the early 1970s. Survey counts activeassigned IP addresses.

7. Rapidly Evolving Sophistication & Business Importance • Example: Online coverage of World Cup World Cup 1998: Very modest sites, simple information presentation.

8. World Cup 2002: Battle over control • FIFA demanded control of site. • Limitations on same day and up to the minute results, • Even so, 79 million page views on peak day of tournament.

9. World Cup 2006 Personalization & dynamic scoring already running online. • Other uses: • Tickets, hotels, etc. • Assorted side trip information. • Qualifying sites & results.

10. Net Usage an Important Part of Daily Life, World Wide.

11. Net Users tilt young – the world over. Retired cohort even worse, only about 20% online in the U.S and less than 10% in S. Korea. (note some cohorts are missing)

12. Home use dominates, but work is also important.

13. A Balance of Communication & Content

14. Diverse Communication

15. Internet expands the reach of communication.

16. But it also lowers social proximity (and social skills?)

17. Diverse Surfing Activities So is the Net a time-using or a time-saving device?

18. Net is Succeeding Despite a Crowded Battle for Consumer Time Internet entered a setting with many activities to choose from. These are “did you in last 12 months ” questions. Many activities will be repeated often– such as play a musical instrument.

19. Both “Lean forward” and “Lean Back” Media are Popular Across ENTIRE population: Roughly 2 hours television, one hour Net usage. Among Internet users: Much Internet (2 hours 56 min), some TV (42 min). Source: N. Nie, Dec. 2004.

20. So What is Being Displaced? • “More Americans than ever before are in social circumstances that foster associational involvement (higher education, middle age, and so on), but nevertheless aggregate associational membership appears to be stagnant or declining.” - Putnam, “Bowling Alone”. • Original article at http://usinfo.state.gov/journals/itdhr/0796/ijde/putnam.htm . Book is now out based on it.

21. Bowling Alone vs. League Bowling • Total bowling up 10%, Leagues -40% • Many groups peak just following WWII, declining rapidly in last 20 to 30 years.

22. And its not just bowling…. Note there are some successes (VFW, Optimists, Hadassah) but many more losing members. Socialize with neighbors: -11%

23. What could be causing this? • Economic factors? • Social factor?

24. 2nd Biggest Reason: TV & Cocooning “In other words, each hour spent viewing television is associated with less social trust and less group membership, while each hour reading a newspaper is associated with more.” “An increase in television viewing of the magnitude that the U.S. has experienced in the last four decades might directly account for as much as one-quarter to one- half of the total drop in social capital, even without taking into account, for example, the indirect effects of television viewing on newspaper readership or the cumulative effects of lifetime viewing hours. Newspaper circulation (per household) has dropped by more than half since its peak in 1947. “ Robert Putnam.

25. From the Raccoons to the Media Room: Privatizing Leisure In 1950s, typical American belonged to clubs such as Elks, Lions, Optimist, etc. Now, more likely to have a big screen TV and media room than to belong to fraternal organization.

26. Internet looks very much like the time using devices of Bowden & Avner.

27. Early years of consumer Internet

28. Economics of Time Allocation • The Dual Budget: Time and Money • Available time. • Available money. G. Becker, (1965), “A Theory of the Allocation of Time”

29. Consider Time Only • A student trying to decide how much studying for each of two classes. • A utility function for each class:

30. Let’s pick two specific forms.

31. Solving this constrained maximum

32. Solving gives best pair of times.

33. Same Approach Works for Goods • Utility based on goods, constraint is money. • Again, get the first order conditions. • Solve for x1, x2, l. Utility function. Budget constraint.

34. Key result At the maximum, marginal utilities divided by price are equal.

35. Combining Time and Money: Producing an Activity What are the units of this? What should this be called?

36. Examples of activities • Sleeping, dinner, clean laundry, time with family, member of a social club, going online, TV. • Some cost money, some are free. • High pi*bi? Low pi*bi? • All take some amount of time. • High ti? Low ti? See spreadsheet model for more detail.

37. How do we determine the right allocation of activities? • Define a utility function: • Budget constraint: See spreadsheet model for more detail. “full income” “full expenses”

38. In algebra • Choose the levels of various activities subject to the binding budget constraint. utility full budget constraint. marginal utility of income

39. Even without knowing the form of the utility function, we get In words Marginal utility activity i= (marginal value of income)*(full marginal cost of activity i)

40. Simple case: Additive utility.Ex: Utility(club,sleep) = f(club)+ g(sleep). $ Q(sleep) Q(club) time

41. Initial impact of raising money or time cost of belonging to a club Recall $ Q(sleep) Q(club) time

42. Introduce Television: The Bowling Alone scenario Two effects: New activity for consumption Higher marginal utility of income. $ Less sleep, lots of TV, no club participation at all. time

43. Now Add Internet (in green). Steals large amount of time from TV. $ Optimal l with TV & Internet. Optimal l with TV Original optimal l time

44. Horsky model: A bit messy, but gives us an empirical test of the theory. Durable good Own=1, Not=0. If own, save time. Possibly raise quality.

45. Key Horsky result: Who buys now? h=Time savings from appliance. H= Utility boost from appliance.

46. Empirical findings: Time using does diffuse faster, utility boost crucial. • Market potential higher for TV than dishwashers or dryers. • Utility boost not significant for dishwashers & dryers. • All appliances have some time saving, but more for time saving products. • Open question: What would we find for the Net?

47. Summary • Internet adoption is fast by standards of consumer durable goods. • Internet time usage strong in a very competitive environment. • Elements of both time-using and time-saving appliance, but especially time-using. • Need to re-run the Horsky model, done in 1990, for the Net.