With a reported 900 million active members, Facebook is, by far, the largest digital-sharecropping operation that the internet has yet produced. About one out of every eight people on the planet sharecrops for Facebook today – and their collective labor is expected to put a billion dollars of cash into CEO Mark Zuckerberg’s pocket when the company goes public in a few weeks. In a 2006 post, I explained why sharecropping is such a powerful business model for social networks and other online businesses:

One of the fundamental economic characteristics of Web 2.0 is the distribution of production into the hands of the many and the concentration of the economic rewards into the hands of the few. It’s a sharecropping system, but the sharecroppers are generally happy because their interest lies in self-expression or socializing, not in making money, and, besides, the economic value of each of their individual contributions is trivial. It’s only by aggregating those contributions on a massive scale – on a web scale – that the business becomes lucrative. To put it a different way, the sharecroppers operate happily in an attention economy while their overseers operate happily in a cash economy. In this view, the attention economy does not operate separately from the cash economy; it’s simply a means of creating cheap inputs for the cash economy.

Facebook’s most recent financial filing provides a great illustration of the “two economies” that underpin digital sharecropping. As Techcrunch noted, Facebook reported that it earned an average of $1.21 in revenue from each of its members during the first quarter of this year. What Facebook calls ARPU – average revenue per user – is one of its crucial financial measures. Here’s what it said about ARPU in its filing:

During the first quarter of 2012, worldwide ARPU was $1.21, an increase of 6% from the first quarter of 2011. Over this period, ARPU increased across all geographies … ARPU in the first quarter of 2012 declined 12% from the fourth quarter of 2011. We believe the sequential quarterly decline was driven by seasonal trends, which also affected ARPU trends from the fourth quarter of 2010 to the first quarter of 2011, during which period ARPU declined by 10%. In addition, the sequential decline in ARPU in the first quarter of 2012 was affected by the fact that our user growth was higher in geographies with relatively lower ARPU. ARPU increased 32% from $3.08 in 2009 to $4.08 in 2010 and 25% to $5.11 in 2011. In these periods, we experienced ARPU growth across all regions.

Because Facebook’s content is created by its members, ARPU also tells us the monetary value of each member’s labor. If the average Facebook sharecropper were to be paid a revenue share for his or her work on the site, that member would make a buck and change every three months – about enough for one crappy cup of coffee. Needless to say, the amount is so small that Facebook members never think about it. The amounts only become economically interesting when, as I wrote earlier, you aggregate them on a massive scale.

I would argue, in fact, that while Facebook very much wants ARPU to grow steadily, it probably doesn’t want the number to get so large that it becomes a meaningful amount to its members. If that happened, members might start thinking about the cash value of their labor rather than just its attention value. The line between the two economies would blur. By keeping ARPU modest (and focusing on scale), Facebook maintains the all-important divide between the attention economy (in which members see themselves as working) and the cash economy (in which the company reaps the monetary value of the members’ work). The last thing a for-profit social network wants is for its members to start seeing themselves as laborers.

MySpace has restricted its members’ ability to stream on their pages videos hosted at Photobucket. A clear violation of the spirit of Web 2.0 – the sixties got free love; we get free widgets – the move has set off an outcry in the blogosphere. A revolt, we’re told, may be in the offing, as fed-up MySpacers pull up stakes and strike out for unfenced territories, where the deer and the antelope play.

Maybe. Maybe not. The gravitational pull produced by the network effect can be pretty strong.

It’s worth remembering that the business model of Web 2.0 social networks is the sharecropping model. After the Civil War, when the original sharecropping system took hold in the American south, the plantation owners made money in two ways. They leased land to the sharecroppers, and they also leased them their tools. It’s no different this time. The payments for land (Web pages) and tools (video widgets et al.) don’t come directly, through exchanges of cash, but rather indirectly, through the sale of advertisements. But the idea is the same. If there’s a widget that can accommodate advertising, that tool will be supplied by the plantation owner, not by some interloping varmint. Whine all you want, but that’s the way it’s going to be.

Now, if the interloper would like to pay for the privilege of being a tool supplier on the plantation owner’s land, well, that’s a different story entirely.

This post, along with seventy-eight others, is collected in the book Utopia Is Creepy.

A while back I wrote that Web 2.0, by putting the means of production into the hands of the masses but withholding from those same masses any ownership over the product of their work, provides an incredibly efficient mechanism to harvest the economic value of the free labor provided by the very many and concentrate it into the hands of the very few.

Richard MacManus’s new analysis of web traffic patterns helps illustrate the point. Despite the explosion of web content, spurred in large part by the reduction in the cost of producing and consuming that content, web traffic appears to be growing more concentrated in a few sites, not less. Using data from Compete, MacManus shows that the top ten sites accounted for 40% of total internet page views in November 2006, up from 31% in November 2001, a 29% increase. The greater concentration comes during a period when the number of domains on the web nearly doubled, from 2.9 million to 5.1 million.

Even if we grant that traffic numbers are unreliable and that page views are not the only way to measure traffic, the trend seems clear: A few big sites increasingly dominate the web.

On the surface of it, this might seem to contradict the long-tail, or power-law, theory. But it’s not so simple. As MacManus shows, the greater concentration of traffic can largely be explained by the popularity of two “social networking” sites, MySpace and Facebook, which together accounted for 17% of all page views in November 2006. Both MySpace and Facebook are made up of millions of “user profiles” created by their members. If we counted each profile as a separate site, which in a content sense it is, we would find no increase in the concentration of traffic, consistent with the long-tail theory.

What’s being concentrated, in other words, is not content but the economic value of content. MySpace, Facebook, and many other businesses have realized that they can give away the tools of production but maintain ownership over the resulting products. One of the fundamental economic characteristics of Web 2.0 is the distribution of production into the hands of the many and the concentration of the economic rewards into the hands of the few. It’s a sharecropping system, but the sharecroppers are generally happy because their interest lies in self-expression or socializing, not in making money, and, besides, the economic value of each of their individual contributions is trivial. It’s only by aggregating those contributions on a massive scale – on a web scale – that the business becomes lucrative. To put it a different way, the sharecroppers operate happily in an attention economy while their overseers operate happily in a cash economy. In this view, the attention economy does not operate separately from the cash economy; it’s simply a means of creating cheap inputs for the cash economy.

It strikes me that this dynamic, which I don’t think we’ve ever seen before, at least not on this scale, is the most interesting, and unsettling, economic phenomenon the Internet has produced.

More on this subject: The sharecroppers’ tools.