Anthony J. Pennings, PhD


Some Economics of Social Media

Posted on | April 8, 2010 | No Comments

There is a dynamism to the Internet and its World Wide Web that is truly extraordinary. While the reasons for their success are complex, we can start by looking at some economic factors, both market and nonmarket. Both seem to be highly relevant to the latest series of technologies and applications known as social media.

It can be argued that social networking is one of the original “killer apps” of the Internet. Its email and instant messaging capabilities, the combination of its capabilities: searching, linking, tagging, commenting, voting, authoring, etc., has allowed new platforms like Facebook, Twitter and Wikipedia to emerge, while empowering a wide number of other websites to enhance their communication infrastructure. I say communication because while social media often involves media content, it adds a new dimension by giving users a voice, either through user-generated content or/and its ability to critique, review, and comment on that content.

So what are the economic factors driving the social media phenomenon?

  • Declining computing and storage costs are giving people access to the “means of production”. Computers, smartphones, video cameras, as well as audio, video, and word editing software now available at relatively affordable costs. Also, cloud computing services making possible online services such as Flickr and Gmail have aided the social media movement. Within the context of the Internet, these technologies have become more than consumer items, they are the capital goods of the social media economy. They are the goods that make other goods.
  • The resources that are used are primarily informational – cultural, political, artistic. These need to be “mined and processed” in ways that are still best done by human labor. Social and cultural production is a delicate operation requiring unique human sensitivities and creativity.
  • The products of social media have an unusual cost structure in that once produced, the marginal costs of additional copies are minimal. A tweet can go to four or four thousand people without incurring much additional costs.
  • The “link economy” of the Internet’s hypertext environment connects like ideas and makes them searchable and accountable. Combined with the “network effects” of the web – as each person joins the network – it becomes more valuable – the link economy has had a major influence on information economics of the web by making it extraordinarily easy and historically cheap to find the information for which you are searching.

The convergence of these economic trends has resulted in social media being embraced for both e-commerce and non-market activities. It is a powerful combination that is not only enhancing e-commerce operations but giving support to all manner of social movements.



AnthonybwAnthony J. Pennings, PhD is the Professor of Global Media at Hannam University in South Korea. Previously, he taught at St. Edwards University in Austin, Texas and was on the faculty of New York University from 2002-2012. He also taught at Victoria University in Wellington, New Zealand and was a Fellow at the East-West Center in Hawaii in the 1990s.


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    Professor at State University of New York (SUNY) Korea since 2016. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, digital economics, and strategic communications.

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