“Consumer Surplus” from Personal Technology Is Soaring in the Age of Appreciation

3/25/11Follow @wroush

It used to be that purchases began depreciating in value the moment you bought them. A new car, for example, might as well come with a little Kelley Blue Book countdown under the odometer showing its declining resale price. Indeed, the idea that property depreciates is so universal that it’s built into our accounting methods and tax codes. Traditionally, there have been only a few categories of things that don’t automatically drop in value over time, such as homes (up until 2008 anyway), precious metals, and maybe fine art and other collectibles.

But in the realms touched by software and the Internet, something different is happening. These days, many of the tools that modern consumers depend on, such as computers, smartphones, and entertainment devices, actually grow more useful and more valuable over time, thanks to a) the constant stream of new applications that exploit the devices’ capabilities in innovative ways, and b) the relatively new tradition of free updates for applications or operating systems you already own. In fact, when it comes to digital technologies, we’ve entered what you might call the Age of Appreciation. You can buy a gadget like an iPhone, an Android phone, or an iPad, and then sit back and watch it get more powerful without having to spend another cent.

It’s true that hardware itself still ages, breaks, grows obsolete, or loses its luster. Lord knows that my iPad, which seemed so shiny and magical just a year ago, looks a tad antiquated in my eyes now that the iPad 2 is out. I’m definitely not arguing that we can or should stop buying new stuff.

But I do think it’s worth slowing down to acknowledge the amazing situation we’ve created for ourselves, only 70 or so years into the era of electronic computers. In the Appreciation Age, objects containing computers grow in value because their value resides mainly in the software code they run, and that code can be so easily replaced, supplemented, or upgraded.

What got me thinking about all of this was a pair of relatively routine upgrades to Apple TV, the little black box that lets you play TV shows and movies from the iTunes Store on your big-screen TV. Last November, Apple updated the firmware inside the Apple TV from version 4.0 to version 4.1. And then, just a couple of weeks ago, it upgraded again to version 4.2. We’re so accustomed to such decimal-point changes these days—and they usually happen so automatically, quickly, and painlessly—that they often pass unnoticed. But these two updates definitely came with enough goodies to catch my attention.

The biggest change was the addition last November of something Apple calls AirPlay. This feature connects different devices over a home Wi-Fi network so that, for example, a music or video file stored on a Mac or a PC can be streamed to your TV. I like this feature because it has turned my TV into the sound system for my whole apartment. I can start an album playing on iTunes on my Mac or my iPhone, tap the AirPlay button, and throw the audio over to my TV, which (thankfully) has decent speakers. I also like to buy season passes for a couple of TV series on iTunes and download the episodes to my iPad. When I’m at home, AirPlay lets me watch those shows on the big screen, where they belong.

The more recent 4.2 update came with a big bonus for sports fans: Apple added the ability to watch live, on-demand Major League Baseball and National Basketball Association games for people with subscriptions to MLB.TV and NBA Game Time. But more to my liking, the 4.2 update also lets you stream video to your TV from many iPhone and iPad apps besides just iTunes—so now video from the New York Times app, for example, also plays on a TV. And it may seem like a small thing, but Apple also rolled out some nice new themes for Apple TV’s slide show function. I like to set the device’s screen saver function to slide show mode and connect it to my Flickr account; that way I can, in effect, make my TV into a giant digital photo frame showing my most recent shots. My favorite new slide show theme is called Scrapbook.

All in all, the new features take a gadget that was already quite inexpensive and make it into even more of a value. I had dinner guests over the other night, and while we were watching photos on my television, one of them asked how much I’d paid for the Apple TV. “It must be like $400, right?” he said. He nearly fell off the sofa when I told him it was only $99.

There are many, many more examples of software and software-enabled services that just keep getting better at no cost to users. Another TV-related one: friends have been raving to me for years about the Fox series “Prison Break,” and I figured that I would eventually have to break down and buy the DVDs. But just recently, the whole series showed up on Netflix Watch Instantly, where I can now watch it at zero cost beyond the $9.99 per month I’m already paying Netflix. One could also point to the way Microsoft keeps upgrading the software in its Xbox game console, or the way Google rolls out regular updates for the free Google Earth software, or the way smaller companies like Flipboard or Path keep adding features to their own mobile apps.

When people talk about benefits of computing technology, they usually focus on productivity gains in the workplace (the extent of which is actually disputed). But the improvements I’m talking about are less tangible. They don’t make us more effective producers; they enhance our leisure time or our ability to learn and be creative. When these benefits come at little or no cost, economists call them “consumer surplus,” meaning the difference between what we’re willing to pay for a good or service and what we actually pay.

I’d be happy to pay at least something for the regular updates to Apple TV and all my other iDevices, but they’re a zero-cost benefit of being an Apple customer. So it’s all surplus. And my big-picture point here is that in the new era of digital media and software-mediated services, the total consumer surplus seems to keep going up, and may in fact balance out our rising spending on personal gadgetry. This surplus is hard to quantify—indeed, there’s no place for it in our current methods for tallying up GDP. But it’s improving the quality of our lives nonetheless, and I think that’s something to be thankful for, even amidst the current turmoil of ongoing joblessness, natural and manmade disasters in Japan, and revolutions in the Arab world.

In a sketch on the Conan O’Brien show that’s grown into an Internet meme—complete with T-shirts—standup comedian Louis C.K. said, “Everything is amazing now, and nobody’s happy.” I get his point: it’s easy to grow jaded (or at least unimpressed) about the technological miracles that surround us, from jet travel to cell phones. But as experts like Mary Meeker and Ben Horowitz keep pointing out, we’re just at the beginning of a new wave in mobile and cloud-based computing, and that wave is probably going to transform, once again, the way we learn, communicate, do business, and have fun. Which means, I think, that the consumer surplus is going to keep growing—and that it’s going to be a lot harder to stay jaded.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • pipetodevnull

    I agree in principle, and here’s an “opposite end of the spectrum” anecdote: a tale of two PCs. One is the first I ever built, a 1.7GHz Pentium 4, the other a laptop I was given because the battery is lousy–it’s a 400MHz Pentium 2. Both are about 10 years old. With Ubuntu 10 on the former, and Lubuntu on the latter, I have relatively snappy and imminently useful machines. And they have a promising future. I find this wonderful.
    Nota bene: I am OS-agnostic, and run Windows 7/Vista/XP, OS X since 10.1, and many flavors of *nix–I am not grinding an axe here.

  • http://www.xconomy.com/author/wroush/ Wade Roush

    @pipetodevnull — That’s a great point. Computing devices have been generating surplus for a while now and your workhorse PCs are a great example. I just think the phenomenon is accelerating and reaching more people with the spread of connected gadgets, like smartphones and Internet set-top boxes, that are also open software platforms.

  • Steve Harig

    This sounds like Apple commercial, what a rod.

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