I’ve been pondering how internet content gets produced. By ‘content’ I mean stuff like wikipedia entries, economics blogs and news articles. The amount of free, useful content on the internet seems to be rapidly expanding. A lot of the content that is generated is funded by advertising. Websites that have useful content get a lot more traffic than those who don’t, and advertisers are willing to pay for people to see their ads, so websites that have ads have strong incentives to generate useful content. Advertising revenue explains a lot of internet content, especially content from commercial online news outlets like Yahoo News and professional bloggers like the numerous blogs that The Wall Street Journal runs.

Some useful internet content, like Amazon.com book reviews can’t be explained by advertising revenue. Most reviews are created by users, not by Amazon. I find the user reviews at Amazon extremely useful; whenever I am interested in a book or in learning about some new topic I go look up the book’s reviews or the reviews of several books on the topic I am interested in. Those reviews are often the deciding factor in if and what I buy. If we think about people as purely self interested, these user created reviews are hard to explain, because the authors don’t profit from better informed purchasing decisions, only Amazon and its customers do. The huge size of Wikipedia (the english language Wikipedia has almost 2 million articles) also cannot be explained by advertising revenue; wikipedia contributors don’t profit from writing entries despite the immense use that many entries get; even Jimmy Wales, the founder of Wikipedia is not a particularly wealthy man.

My explanation is that people are, of course, not exclusively crudely self interested. People do get a certain level of satisfaction out of helping other people. When the external benefits to ratio of personal costs is high (I’ll call this the charity ratio), this potential satisfaction makes some charity work make sense to individuals, meaning that if the benefits to other people from small act of charity greatly outweigh the personal costs, people are inclined to act charitably. Additionaly, since the decision of an individual to help others is based on the information they have about this ratio, better access to information about the benefits to others from helping them is likely to make them more likely to do so. When large benefits to others from small acts of charity are clear, people are more likely to act charitably. In the case of amazon book reviews, I would expect the ability of amazon customers to vote on reviews as helpful or not increases the quality and quantity of reviews, because it gives authors and potential authors more information about how useful reviews are to other people.

I think this explanation is applicable to the real world as well as the online world. Donations of second hand goods like used clothing to second hand stores and thirft shops, which are often operated by charities, are fairly well explained by a high charity ratio because the costs to the donor are low (they were probably going to throw away their old clothes if they didn’t donate them) and the benefits to others are high (the charity makes money and also provids low cost clothes and other second hand goods to the poor). In the online world, high charity ratios are probably much more common because creating content is often easy so the personal costs are small and because potential audiences can easily be very large so the benefits to others can be quite large.

Chris sums up my point better than I could: there is tons of free stuff on the internet because it’s cheap to make. After I wrote this, Chris also points out that I’ve come up with nothing new (hardly surprising), and he helpfully points me to an article which discusses the internet economy (link).