Reputation Economy

Image representing Facebook as depicted in Cru...
Image via CrunchBase

This is a response to  “Value in Prosumer practices- and in the Information Economy

by Adam Arvidsson, posted on the P2P Foundation Blog

Adam Arvidsson

“Lately there have been many attempts to theorize and criticize value creation in online prosumer practices. A lot of people have proposed some version of the Marxian labor theory of value, whereby they have suggested that online content creation should be seen as a form of labor, and that consequently, social media sites like Facebook, twitter, and why not, the Huffington post, exploit their users by appropriating the surplus value that they create. This analysis suggests that, while such an approach could be useful in some cases, it is inadequate as a way of understanding value creation in prosumer practices in general, and as a critique of exploitation in informational capitalism, it definitely barks up the wrong tree. Instead we propose an analysis where the question of value is organized around the crucial link between, on the one hand, an ever more socialized reputation economy, and, on the other hand, financial markets as the ‘places’ where the values are set. This perspective views social media platforms as instruments that determine the value of the kinds of intangible assets that are subsequently monetized on financial markets. This leads us to suggest that social media platforms are not so much part of the problem as much as they could be part of a solution: they could support a more democratic reputation economy by means of which valuations of intangible assets are democratized.”

The whole paper is available (pdf) here.

(Note: I added hyperlinks to some of the terms in Arvidsson’s abstract above for some background reference.)

Parsing the abstract

Adam or others that he cites are making some clearly-stated, rock-solid, and uncontroversial arguments here, and some that are persuasive or provocative but not conclusive, and some that are confusing, convoluted, and very debatable. I list them here in their order of appearance in the excerpt above:

  1. There is an implied need for the word “prosumer”.
  2. “Online content creation should [not] be seen as a form of labor”.
  3. “social media sites…exploit their users by appropriating the surplus value that they create” (create by some means other than labor?).
  4. Labor (no matter how we define it?) “is an inadequate way of understanding value creation in prosumer practices in general.”
  5. Labor (“as a critique of exploitation in informational capitalism”), “definitely barks up the wrong tree.”
  6. There is “an ever more socialized reputation economy” which is involved in organizing and setting the value of prosumer practices.
  7. “financial markets [are] the ‘places’ where the values [of prosumer practices] are set”
  8. “value is organized around the crucial link between, on the one hand, an ever more socialized reputation economy, and, on the other hand, financial markets”, with considerations of labor being either secondary or  inapplicable to organizing or setting value
  9. “social media platforms [serve] as instruments that determine the value of the kinds of intangible assets that are subsequently monetized on financial markets”
  10. “social media platforms… could support a more democratic reputation economy by means of which valuations of intangible assets are democratized.”

My analysis

1. There is an implied need for the word “prosumer”. This need is implied by the author’s use of the term. To begin with, this word adds exactly nothing to the centuries-long dialog on economics. It goes without saying that every living thing and probably every inanimate thing on the planet, much less on the internet, is both a producer and consumer of goods and services. A rusty nail is a prosumer. For that reason and perhaps others less clear to me yet (it didn’t help that I had to look it up) I don’t much like the word. But I may soon be using it, nonetheless.

2. “Online content creation should [not] be seen as a form of labor”. Adam’s arguments against Fuchs’ application of Marx raise some issues worth discussing. This is probably the most controversial and disputable issue this paper raises. Adam returns to it frequently but always seems to downplay or dismiss it each time.

Whatever the other means of determining a Facebook’s value (such as reputation, audience value, and  financial markets), I have no doubt that work has value and there is a lot of work flowing into Facebook along with a giant sucking sound….But what do I mean by “work”? I’m not even going to try to speak for Marx or anyone else. I’m using the term work instead of  the more loaded term “labor” for that reason.

I would define work per se the same way a physicist would. By that definition even my rusty nail prosumer does work. But in this post I’m only going to write about human work that creates some human-recognizable value. I could have said work is any human activity that produces a good or provides a service, but I’d be getting back into Marxian territory. I’m satisfied to refer to generic human work and generic human-recognizable value, period. In a case where I might create some value unconsciously or by accident I might doubt that I had performed any work. If my inadvertent action accidentally created some value for someone else and I was aware of the correlation between my action and her gain, I might feel justified in seeking some share of that gain. Then I would need a reason other than having done “work” to support my claim. So I’m not saying work is the only way to create value or that the creation of value always involves work. But by my definition most participants in Facebook, games, blogs, etc. are performing work and are probably creating human-recognizable value (or they probably wouldn’t be doing it intentionally). However, in most cases today they aren’t getting “paid” anything or rewarded for that work beyond its intrinsic social or recreational rewards.

Does it matter that many Facebook users, Second Life users, gamers, etc. might not consider their activity to be work because they think of it as social interaction or play? Perhaps. They may even resist thinking of it as work for a while. But wait until some of their peers start getting redeemable points or credits for their Facebook activity or play time. I don’t think it will be long before play, when it is understood by the player to produce some value recognized and rewarded by others, will become her work. It will often still be play, but no longer pure play. It will then be both play and work simultaneously. The same applies to “social” online activity. Recruiting friends to an event, filling out surveys, clicking on ads or links, reaching some magic number of friends or some threshold of influence or reputation, etc….Many such things can and probably will be rewarded by others for non-social (e.g. commercial) reasons. If the user is aware of the non-social motives behind such rewards then at that juncture those activities become simultaneously social interactions and work.

Second Life already has an internal market economy with a virtual-to-real currency exchange rate. The supply of virtual currency (Linden dollars, or “Lindens”) reached 1.8 billion in 2008, worth some $6.9 million in real US dollars.

The same dynamic applies to credits or points issued and exchanged all across the internet, including rewards that are in-kind or bartered for work.

How long can it be before nearly everyone is pursuing and expecting such extra-social and extra-recreational rewards in ever increasing amounts? While the kinds of “local currencies” in which rewards for work are issued will probably proliferate, it is only natural for some fungible mediums of exchange to emerge.

I don’t pretend to foresee all the implications of this, but I assume there are those at Second Life and Facebook that are already modeling, simulating and predicting these trends.

No doubt the coin has two sides and there are pros and cons for the social and game platform companies instituting reward programs, virtual currencies, etc. to consider and control. It only stands to reason that online users will grow to see their online time as more valuable and will increasingly expect and demand compensation.

The paper repeatedly takes the position, sometimes ambiguously but often pointedly, that the work factor in the value function is negligible or trivial. I’m just not convinced of that yet. Share croppers started out on the same footing that Facebook users are on today. They slowly began to capture more and more of the fruits of their labor. Leaders and movements accelerated the sharecropper’s transition to markets and currencies. And then there were unions….

In the online economy there are many leaders, activists, and advocates. Many are highly skilled and educated technocrats, analysts, programmers and systems engineers with a big stake in the virtual world. I doubt if the transition from virtual sharecropping to virtual industry, labor and trade will take as long as it did the in the carbon-based economy.

3. “Social media sites…exploit their users by appropriating the surplus value that they create” (create by some means other than labor?). In my opinion the primary means of creating content, reputation, knowledge, applications, platforms, networks, etc. is work. The value of work is multiplied by time, reputation, skill, knowledge, tool use, etc. so there are numerous possible feedback loops. Work  x  time  x  [skills  + knowledge  +  tools] = output. But output  x  reputation <> value. None of those variables and functions are sufficient to set the value of the work. Much of that ambiguous value rises in the direction of the giant sucking sound, never to be seen again this side the corporate firewall….

What DOES set the value of the work?

What COULD set the value of the work?

What SHOULD set the value of the work?

4.  Labor (no matter how we define it?) “is an inadequate way of understanding value creation in prosumer practices in general.” This is totally uncontroversial as long as the word is “inadequate” and not “irrelevant”. However, in the body of the full paper it occasionally seems to read “labor is irrelevant” or some near equivalent in other terms. As stated above, I think that remains to be seen.

5. Labor (“as a critique of exploitation in informational capitalism”), “definitely barks up the wrong tree.” This seems consistent with the treatment and status given labor (a toothless old dog barking at shadows?) throughout the paper. But I’m unclear what tree labor is barking up and why it is not the right one. I’m just missing the sense or the point of the metaphor.

6.  There is “an ever more socialized reputation economy” which is involved in organizing and setting the value of prosumer practices. At the lowly level of work, reputation is just a co-factor of work that multiplies its value. As long as the value of the work is zero, it doesn’t matter how large the reputation multiplier grows. Anything multiplied by zero is zero. Numerous flows of likes, shares, clicks, comments,  etc. feed the reputation, but no matter how great the reputation, the work still remains valueless until some value is placed on the work by other means. Once that happens, then the multiplier effect of the reputation co-factor will kick in.

On the other hand, the aggregate reputation of all the workers on the digital treadmill will rise upwards towards the giant sucking sound. Up there, inside the corporate firewall, the reputation co-factor has a huge multiplying power for whatever streams of value, such as the “market cap”, for example, that circulate up there.

7.  “Financial markets [are] the ‘places’ where the values [of prosumer practices] are set.” FINALLY, some value. According to some well-paid economists, much of the online work has no value, but things like speculation create mass quantities of value from thin air which can then be multiplied by all the reputation that has been vacuumed up from the digital work floor down below.

The FACT that financial markets set (and apparently create, as well) the value of the company out of thin air is not in dispute. The question of whether they should do is less settled, at least in my mind.

8. “Value is organized around the crucial link between, on the one hand, an ever more socialized reputation economy, and, on the other hand, financial markets”. Here, again, the theory is that work has no value. Only financial markets set value with reputation serving as some multiplying co-factor applied by the markets in some highly arcane and ceremonial way.

This wealth, created by the financial markets in some mysterious way by “conventions” (all we know is that reputation is used somehow in the magical ceremonies) is then shared equitably with all the internet workers…..NOT!

9. “Social media platforms [serve] as instruments that determine the value of the kinds of intangible assets that are subsequently monetized on financial markets”. Going by the full paper, I’d say these “intangible assets” are supposed to include things like “audience value”. I don’t understand why that is any more intangible than reputation, though. The paper doesn’t seem to mention where the tangible revenue like CA$H from ads and data mining, and interest on huge cash investments a company makes, and stuff like that gets counted in to set the value of the company.

10.  “Social media platforms… could support a more democratic reputation economy by means of which valuations of intangible assets are democratized.” This is hard for me to parse. I did not read any mention in the paper of assets being democratized, so I have to guess it is only the valuation process and not the assets themselves that are “democratized”. Even assuming that reading is correct, I don’t think I know what it means.

We must hold on to the hope that all the voting mechanisms such as eyeballs, likes, shares, comments, ad and link clicks, etc. on the social networks will be able to democratize something or it mat all be for nothing.


One of my main problems with this paper is what I see as false either-or dichotomies. Labor and reputation should BOTH be valid valuation modifiers. Reputation and financialization may be Adam’s main interests, but the “meat” of his comments on these two things could have been clearly presented in two or three pages. Too much of the paper was devoted to 1) econo-jargon that just seemed (to me) to obfuscate the role of labor and 2) drawing false either-or dichotomies between financial market valuation, audience value, reputation, and other valid co-factors such as labor, attention-time, content, etc.

You might be able to squeeze value out of reputation without actually producing anything, but that would be an aberration of the marketplace, not a healthy value stream. Actual production of content and mouse clicks (unless fully automated) requires time, effort, and expertise (labor). Reputation is only a co-factor that multiplies the value of the labor (paid labor only, since in the view of economics experts, unpaid labor has no “value”), the ad space, the stock price, etc..

The only thing that is really new about reputation in the internet economy is its increasing democratization. All the old drivers of reputation still pertain, but we now have more active and explicit ways to “vote” on our preferences (liking, sharing, commenting, etc.) The orders-of-magnitude-greater democratization and quantification of reputation is new and important for underpinning information quality assurance and valuation. I just don’t think it sweeps everything else (like labor, LOL) under the rug or into the dust bin, and I don’t see that creating a lot of need for new theory and jargon. Opportunity, perhaps, but not need.

I am inclined to say that much of the new “reputation economy” jargon and theory actually obfuscates matters rather than clarifies them.

I appreciate that Adam Arvidsson may be implying that Facebook users may somehow deserve to share in the financialized value of the company. If so, I completely agree. But in my opinion it will only be when the the open/free/p2p community creates a new and better social network platform that such an ambition has any chance to be realized.

Meanwhile, I think the best general approach to valuation is to identify ALL  inputs and all outputs of value and then, for each input and output stream, identify the various sources of the inputs and the receivers of the outputs. Only then can the aggregate value of an online social network be calculated and the fairness of the contributions and distributions be judged.

One value of such an exercise might be to show the potential developers and users of future social network platforms what they are missing–the opportunity cost of continuing with “business as usual”.

In much the same way that the nuclear power industry adds to climate change by capturing resources that could go into solar technology, and the way that Microsoft’s monopoly set computer science back 100 years (yes, I know computer science is not that old); Facebook and Second Life capture investment and human resources that could and should be better used.

It is beyond the scope of this piece to discuss what is going on with efforts to develop open, democratic, and user-owned social networking platforms, but there is definitely something very wrong with the snail’s pace at which such projects are proceeding and with the proprietary aspects of the few projects which do exist. I would like to see a p2p social networking engine become part of the Linux core code.

Quotes & Notes from the full paper

“Audience value” (as an attractor of ad revenue, investment, more audience, etc) and the value of “audience participation” are two separate things.

Some forms of added value are difficult to attribute to individual actors & others are not.

I can’t agree that “however the multitude is exploited in creating common resources, labor time is not a good measure of that exploitation.” I can only agree that labor is not always the best measure. Those are very different conclusions.

“A third crucial precondition for the relevance of the labor theory of value is that the realization of
value occurs in direct commodity exchange on markets where there is a direct correspondence
between market price and the labor time necessary for commodity production.”

I think there is some obfuscation here. “Labor theory of value” (either ambiguous or pre-defined in a particular way), “direct commodity exchange”, and “direct correspondence” are all fairly tricky terms to navigate to arrive at a “crucial precondition for relevance.” Whats wrong with indirect exchanges and correspondences, for instance?

“…the rise of intangible assets as a component of the market value of companies implies that resources like brand, innovation, and flexibility, that are to a large extent appropriated from the self-organized productive practices of the multitude (at least within an ‘negrian’ theoretical framework), are directly evaluated on financial markets.” and “…value created in productive processes is more or less directly channeled to financial markets. On financial markets this value is redistributed according to what Marazzi call linguistic ‘conventions’…”

That seems clear and uncontroversial as a matter of fact. As a matter of equity some question remains.

“This leads us to suggest that informational capitalism ever more deploys a reputational ‘law’ of value,
where the value of companies and their intangible assets are set not in relation to an objective measurement…”

What about numbers of eyeballs, users, keystrokes, hits, clicks, links, and numerous other objective measures of reputation?

The “like economy”: many of the same metrics of reputation I applied to internet brands, like Facebook, above also apply to individual users and friend groups. Some reputation criteria may be indirect, intangible, or relatively arbitrary (non-specific “attention time”, celebrity, expertise, etc.) but many are explicit as numbers of “friends”, “likes”, shares, comments, views, click-throughs, etc. Explicit, tangible metrics are the easiest to capture but are not necessarily more relevant than other intangible and ambiguous influences. Adam often seem to be saying value is properly indicated either by one or the other.

The facts in the section on “Facebook and Finance” are not controversial except for raising the question of equitable distribution of this value stream.

“…the value of social media companies like Facebook does not primarily depend on the number of users that they have, nor on the time that users spend online. It depends on the strength of their brand which is an effect both of the number of users that they have, and on their ability to penetrate the lifeworld of those users ‘vertically’ so to speak.”

I would argue that user population times attention time *is* a primary factor if it is arguably the stronger of the only two factors described.

The chart on p 19 showing the lack of correlation between market valuation and user volume only shows that the market valuation process is still largely irrational and based on irrelevant assumptions and arbitrary conventions.

I am not satisfied that “each Facebook user was a ‘victim of exploitation of surplus value’ to the extent of $ 0.7 a year” or that the “figure on the overall value created by audience participation on the internet globally, $ 100 billion… becomes $ 59 per internet user per year.”

The “math” and the assumptions behind those per capta estimates are too opaque.

“If the suggestion is that internet platforms, or even ‘the internet’ as a whole, exploit users by attracting surplus value from their ‘audience labor’, and that consequently this surplus value ought to be redistributed in the form of a basic income, then, as we have seen on page x, there is not much to redistribute. This becomes a rather toothless argument.”

“Audience labor” seems like a very ambiguous term. Is it taken from broadcast media-speak? Is it the labor performed by a couch-potato watching ads on TV? Is this all that Facebook  users are–audience?

Labor may be a toothless dog….but only under certain assumptions, some of which I have challenged. One implicit assumption seems to be that all users are equal with respect to quantity and quality of labor. In fact, the basic income distribution might be divided unequally among far fewer than “all” internet users. Some internet users should probably be paying for their activity and others should be getting paid.

“What needs to be re-distributed in a more equal fashion is not the value appropriated by social media platforms, but the value that circulates on financial markets.”

Again a false either-or dichotomy. The answer is not one but both. Or better yet, the answer is all valid inputs and outputs with no artificial and arbitrary externalities. I am not confident that Adam’s analysis and recommendations are fully consistent with that degree of neutrality with respect to all inputs, outputs, and methods of valuation.

Poor Richard

Related Articles

Relationship Capital Accounting For Your Success

Slideshow presentation by Rob Peters



One Response to “Reputation Economy”

  1. Rob Peters Says:

    Excellent Article Adam!

    My team and I believe on-line social interactions create value. We have developed an open standard interaction process for the capture and measurement of kept-commitments and perceptions known as Relationship Capital Points (RC). We believe that this makes the quality of your reputation and influence more tangible. This gives people, organizations, and services/products a more tangible metric in order to differentiate and validate. We believe the greater the RC earned the more success in the global relationship economy.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: