Digital Economic Practices

Introduction

Understanding the digital economy requires moving beyond abstract definitions to examine the actual practices that constitute digital economic activity. This topic explores three major types of digital economic practices: search and advertising, social media, and disintermediation platforms. Each represents a distinct approach to creating value and generating revenue in the digital age.

Search and Advertising: The Google Model

Google's economic practice demonstrates how reading communities and collective activities can be monetized through targeted advertising. The company's success derives from two fundamental capabilities: reading the World Wide Web and analyzing user behavior.

Reading the Web

Google's PageRank algorithm treats the Web like an academic citation network, using backlinks to determine the importance and relevance of websites. This approach reads the collective judgment of web creators about what content matters. The algorithm doesn't just count links— it weights them based on the importance of the linking site, creating a recursive system where authority begets authority.

Personalization and Profiling

Once Google achieved scale, it began collecting data on searchers themselves. Personalization isn't primarily about understanding individuals but about identifying correlations between groups of users. If many users of a certain demographic prefer particular search results, Google can deliver those results to similar users. This profiling creates value by making search results more relevant while simultaneously enabling targeted advertising.

The Advertising Model

Google's monetization relies on automated keyword auctions where advertisers bid for search terms. Crucially, winners pay only slightly more than the second-highest bid, building trust with advertisers while maximizing long-term revenue. In 2018, Google generated over $26 billion in advertising revenue in just the first quarter, representing 85% of total income.

Community, Trust, and Privacy

Three dynamics underpin search as a digital economic practice:

• Community: Search engines depend on the collective creation of the Web and the recorded activities of searchers
• Trust: Users must trust search results to be relevant and unbiased, even as advertising is integrated
• Privacy: The "reading" of communities creates detailed user profiles, raising surveillance concerns

Social Media: The Industry of Beauty, Wonder, and Grief

Social media platforms monetize human sociality itself— the fundamental experiences of connection, identity formation, and community building. Facebook exemplifies this practice, with over 2 billion monthly active users and $15.9 billion in net income in 2017, 98% from advertising.

Platform Practices

Facebook collects extensive data on user demographics, behaviors, and social connections. This data enables sophisticated profiling that matches advertisements to users based on age, location, gender, relationship status, education, and countless other factors. The platform must balance advertiser demands with user experience, protecting the sense of community that makes the platform valuable.

User Practices

Users engage in practices of identity construction and community building through posting, commenting, sharing, and connecting. These activities create what scholars call "networked publics" characterized by:

• Invisible audiences: It's never entirely clear who sees what messages
• Context collapse: Audiences that might be kept separate (family, work, friends) can see the same content
• Blurred public/private boundaries: The distinction between public and private communication becomes unclear

Variations: WeChat and Snapchat

WeChat demonstrates how social media can integrate financial services, with over 1 billion users in China using the platform for payments. This creates additional monetization opportunities beyond advertising, as the platform can charge fees for financial transactions.

Snapchat shows that success isn't guaranteed even with large user bases. Its "don't be creepy" approach to advertising— limiting data sharing with advertisers and keeping ads separate from user feeds— has struggled to achieve profitability, demonstrating the tension between protecting user experience and generating revenue.

Disintermediation: Uber, Airbnb, and Blockchain

Disintermediation involves removing existing intermediaries between service providers and customers. This practice doesn't eliminate intermediation entirely but replaces traditional intermediaries with digital platforms.

Uber: Reintermediation of Transportation

Uber removes traditional taxi regulations (licensing, knowledge tests, union membership) and replaces them with platform-based controls:

• Rating systems where passengers rate drivers and vice versa
• Algorithmic matching of riders to drivers
• Automated payment through the app
• GPS tracking of journeys

The platform becomes a new intermediary, sitting between driver and passenger, controlling the relationship and taking a percentage of each transaction. Drivers with ratings below 4.6 stars are typically deregistered, showing how the platform uses community feedback to manage service quality.

Airbnb: Reintermediation of Accommodation

Airbnb allows property owners to rent spaces without meeting traditional hotel regulations (fire safety, accessibility standards, business licensing). The platform provides:

• Trust mechanisms through reviews and ratings
• Insurance and dispute resolution
• Payment processing
• Search and discovery tools

Blockchain: Distributed Disintermediation

Blockchain technology promises to disintermediate the disintermediators by creating distributed trust without central platforms. Instead of trusting Uber or Airbnb, users would trust cryptographic protocols and distributed ledgers. However, practical implementations face challenges around scalability, energy consumption, and user experience.

Common Patterns Across Digital Economic Practices

Despite their differences, these practices share fundamental characteristics:

• Community Dependence: All rely on collective activities and user-generated value
• Data Collection: Success depends on capturing and analyzing information about user behavior
• Platform Control: Digital platforms mediate relationships and control information flows
• Network Effects: Value increases exponentially with more users
• Asymmetric Information: Platforms know far more about users than users know about platforms
• Regulatory Challenges: All operate in complex relationships with government regulation

The Transformation of Advertising

Across search, social media, and disintermediation platforms, advertising has transformed from a broadcast medium to a surveillance industry. Traditional advertising reached broad audiences with generic messages. Digital advertising targets specific individuals based on detailed behavioral profiles, fundamentally changing the relationship between advertisers, platforms, and users.