April 2023
In Web3 economies – which include games, VR platforms, social media, and so forth – how do we know what prices to charge? In the real economy, companies examine the demand for their goods. Demand is a function of three things: Taste, income, and prices. Economists express it as a function, so that it can be used in formal mathematical models of price determination. Companies are modeled as organizations trying to get consumers to make a purchase.
The Web3 economy is different. All sources of company revenue – purchases, ads, data – are downstream of one thing and one thing only: EYEBALLS. The Web3 economy is a competition for eyeballs. More specifically, the unit of contest is eyeball-time: The number of minutes people spend looking at your service / platform / game. More eyeballs = more money.
There is no economic theory that captures this feature. Attention is little studied, because in the past the issue was not what people were looking at but rather where they put their money. But now, the attention is everything, simply because consumers do not have to purchase anything to be a source of revenue. Consumers generate revenue by mere presence. Imagine a Web3 company that decided to ignore ads, NFT valuation, and data sales, and only make money from what people decided to buy from them. That’s the state of economic theory.
If, in the past, consumer demand was the primary target of economic thinking, in the future economists will have to look more at consumer attention. 100 years from now, the only sales of material goods will be nutrition pumping, waste removal, minimal housing, and computing gear. All other purchases will involve digital goods and services. Digital goods and services are consumed via engagement. The economy will be about buying and selling artifacts and processes that engage. It will be entirely about attention.
I provide a rudimentary theory of attention in a paper just published in the academic economics journal Kyklos (paywalled, sadly). The theory is about fame, which can be interpreted as the attention a person gets:
- In a given period, a person receives a certain number of views. A “view” is a one act of looking, committed by one person. I denote it by V. Thus, V measures the amount of attention the person receives – their fame.
- A famous person has high V. A normal person has low V. A hermit has V = 0.
- The amount of V a person gets depends on what they charge for views. Someone who charges a high price for views will receive fewer of them.
- The more entertaining a person is, the higher price they can charge for their views. A pop star can charge quite a lot for people to view her image. She can charge millions of people $1 just to listen to one of her songs.
- Some people are not entertaining but they get many views anyway, because they pay for them. In the model, a person can charge a negative price for their views. In other words, a person can pay other people to look at them. We see this for example in marketing. With advertisements, a company “pays” you, in the form of entertaining content, so that you will watch their commercials. A timeshare condominium scheme notoriously gives people a free dinner, but then they have to watch a presentation about timeshares.
This model of paying attention to people can be easily expanding to the problem of paying attention to services, such as games. In a paper I am currently working on with Chris Kaczmarczyk-Smith, we build out these ideas about fame to include additional factors:
Companies make products that they want to be famous. In other words, there is no difference between Taylor Swift Inc. and Riot Games. They are both trying to create a product that gets attention. Taylor Swift Inc.’s product is images of a person named Taylor Swift. Riot Games’ product is a game called League of Legends. The two companies face the same economic problem – how to exploit their engagement product for the biggest profit.
A company that makes better content, more engaging content, can charge more for their views. Thus, the quality of the content makes a difference. At the same time, it costs money to improve the quality of content. Expensive videos of Taylor Swift are expensive; so is marketing; and Taylor herself has become accustomed to a certain lifestyle. As for games, more money means better art, smoother mechanics, and more fun. Like all companies, attention companies face tradeoffs of quality and price.
We also note that a population with more income can afford to pay more to see the things it wants to see. Attention companies will get more revenues if they are selling to richer people.
Finally, we account for the fact that attention is social. An attention product often becomes more engaging the more people are watching it. Many people play games not only because the game itself is fun, but because it is really fun to play with friends.
The current work is very basic, loaded with simplifying assumptions. However, the theories will naturally improve as research continues. I think the work on attention will merge into virtual economics and become the basis for quite a bit of economic thinking going forward, as the virtual economy gradually overtakes the real economy.
Words and Games 