Tuesday, 22 January 2013

The Economics of Online Dating, Poker & Bingo.

One of the things that interests me about economics is how people make money out of new technology. The printing press was used at first for political pamphleteering  one sheet arguments, easily produced and distributed; and Bibles in the vernacular. This led directly to the reformation and the subsequent two centruries of war, as the people, rather than just monks, debated how many angels could, in fact, dance on the head of a pin.

This power to distribute ideas, previously the preserve of an ecclesiastical and political elite, was enormously disruptive. The same is true of all other information distributive technologies - Radio and TV were at first controlled tightly by the powers that be, then regulation relaxed. People started hearing what they wanted - rock and pop rather than what the authorities wanted them to hear. The same is true with TV. ITV started the rot, and we're complete with the broadcast of 'Celebrity wedding planners'.

Finally we come to the internet. And the triumph of the medium over the message. The money is made by the owners of the forums, not the people producing the content. Other than that it's a free-for-all with a distinct winner-takes-all flavour. Why did Amazon win the battle of the online retailers? Probably more luck than judgement  Why did Facebook beat MySpace? What happened to Friends re-united? Once dominance is established though, can we really predict how long it will last. Perhaps the cool kids are already migrating to Twitter. Perhaps the dominance of Facebook is already over. Who knows? The shares have certainly responded to Facebook's challenge to Google in search, so perhaps even Google's dominance there might be ephemeral.

I suspect the real losers of the internet will not be the established newspapers and retailers, whose online brands may well survive, and whose brand equity will be useful in maintaining market share in a 'goods unseen' environment. The real losers will be casinos, crippled by regulations which simply don't apply to online poker or bingo. Interesting the cost of doing business is probably the cost of acquiring players. You can tell this by the amount of advertising they do. Once scale is achieved, then payouts can improve, in a virtuous circle of scale vs. relatively fixed costs. Judging by the adverts for online Bingo in particular, I guess the barriers to entry are low.

The other joyous thing about the internet is that much of the stuff that makes money - online dating, gambling, networking, and advertising does so without much interference with regulations. They provides a beautiful resource for economists and sociologists to see what people actually do, rather than what the powers that be or enforced social norms want them to do. We can explore people's propensity to take risk - financial and otherwise - with huge volumes of anonymised data. We can see what people's mating preferences are as opposed to what they say they are. Possibly the greatest gift the internet will give is the data to better understand ourselves.



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