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The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Siegrun Fox Freyss
February 3, 2015
Column 12: Looking into the Future
The Eyeball Economy and Government Revenues
The paradigm shift from the modern to the postmodern age should not be envisioned as a linear progression from the industrial economy to the high-tech economy, with governments reaping generous revenues from the ever expanding high-tech sector. There have been, and it is likely there will be, cyclical adjustments. We know that one market correction occurred around 2001, when venture capitalists realized that few Internet-based startups had the potential to survive and actually become profitable.
The market adjustments were painful for governments that had increasingly relied on revenues from the new business activities and the growth of new personal wealth.
I would say we are heading for another cyclical adjustment. This one involves the eyeball economy; that is the part of the high-tech sector that is financed fully or partly by advertisement. In “Eyeball Economics” published in InformationWeek in 2006, Thomas Claburn calls it the “attention economy.” It includes social media, like Facebook, YouTube and Twitter. Ads also pay for our free use of email services and listservs, as well as for online games, other entertainment and the ever expanding free applications.
Most TV shows also belongs to the eyeball economy. One can make it part of the high-tech sector as well because of new hardware and software that have substantially improved the viewing experience. I have not seen recent research on the size of the eyeball economy, but it must be substantial. In “The Economics of the Online Advertising Industry,” published in 2008 in Review of Network Economics, David Evans pecks the online ad spending at $16.9 billion. This calculation precedes the development of the social media or Web 2.0.
The eyeball economy may experience contraction or stagnation in the near future because of a likely imbalance between supply and demand. The virtual real estate market, financed by ads, is growing rapidly. Social media, sensational news fragments and entertainment promoters are relentlessly expanding their Web presence to attract more consumers and hold their attention. However, the consumers’ abilities to purchase the advertised goods and services are limited considering that salaries and wages have been stagnant and not grown for many years.
It follows that governments need to be mindful of potential downturns. Attracting high-tech businesses is popular, but the new economy can move in cycles just like the industrial economy. A recession in the eyeball economy can reduce corporate and individual income taxes, as well as sales and property taxes. It can negatively affect the stock market which may affect pension funds. Much of the eyeball economy is financed by consumers’ discretionary income, which consumers can shift around to pay for essential goods and services. The postmodern economy holds promises, but also threats.
One may be excused to think that the eyeball economy is in a bubble when one lives in Los Angeles. The Dodgers were sold in April 2012 for $2.15 billion and the “winning offer came in more than $500 million above the next highest bid.” The day after signing the contract, the Los Angeles Times ran a front-page article with the headline “Are Dodgers’ buyers in for remorse?” The newspaper speculated that lucrative TV rights may be required to make the investment a financial success.
More recently, in August 2014, Steve Ballmer, former CEO of Microsoft, bought the Clippers for $2 billion. According to the Los Angeles Times, “Ballmer paid $400 million more than the next-highest offer…” The newspaper suggested that Ballmer was so rich that his investment didn’t have to reach profitability. Having a national basketball team to play around with may have been enough of an incentive to buy the team. Subsequent appointments and contract decisions indicate that Ballmer wants a winning team. There are no economic downturns in that scenario. If the entertainment market stays strong, governments will be among the beneficiaries. In my view, a contraction is possible as well.
The Information Age and the Age of Good Government
Looking into the future, whether in a downturn or upswing, one can envision that the information age becomes an era of good government. We associate good government with transparency and accountability in fulfilling its mission. Internet tools are uniquely suited to achieve openness and promote democratic principles and practices. The relative ease with which one can establish a Web presence has made the Internet an effective tool to inform and engage various publics and invite feedback using social media. For more systematic and comprehensive feedback, government analysts can use survey tools offered by reputable Internet providers.
The principle of transparency is unique to government and sets it apart from the private sector. Corporations can be much more selective in information sharing. It appears that governments have not adequately advertised what they do and what they do well. They have left the communication channels to reporters, commentators and bloggers. These sources tend to focus on weaknesses. The Internet allows for a more balanced approach, but public agencies need to market themselves and draw citizens, businesses and other stakeholders to their sites. The federal government can be used as example. Its various offices have rich and informative websites. But the citizens do not know it and get their information from sound bites on the Internet and TV.
The concept of the learning organization, as described in previous columns, is relevant again. Government work is complex. To achieve mastery, government officials can see themselves as constantly learning, internally and externally in collaboration with the public. Twitter provides helpful websites for public administrators to inform and engage the public effectively. The links are: https://media.twitter.com/government and https://media.twitter.com/playbook/agencies.
Author: Siegrun Fox Freyss would like to thank Thomas Lynch, Assistant City Manager, Norwalk, and longtime instructor in the Master of Science in Public Administration program, for his excellent feedback on the her 12 columns.