I was looking at the April CPI this morning, and I got to thinking about Dropbox. I use Dropbox literally 25-50 times a day. I’m working on a file on my Apple laptop, save it to the Dropbox folder, and I can be sure that the same file will show up on my PC when I get home.
Dropbox costs me nothing for 2.5 GB worth of storage. More important, I’m getting a valuable service for nothing.
Now comes along Google Drive, which supposedly functions much the same way, and offers 5 GB of storage. Now, I’m not going to switch any time soon because Dropbox is working fine for me. But a reasonable interpretation here is that the “price” of seamless online storage has fallen.
But where does the fall in “price” of the Dropbox/Google Drive-type service show up in the Consumer Price Index? The answer: Nowhere. Free services such as Dropbox and Google Drive (or Facebook, or Yahoo Mail, or any other Web service without a price) do not affect the CPI, even as their usefulness increases.
This is not a new observation at all (see for example the 2009 working paper “The Broadband Bonus: Account for Broadband Internet’s Impact on U.S. GDP” by Greenstein and McDevitt).
Yet this omission of free online services from the CPI, once insignificant, has become increasingly important as we spend more and more of our time online. What has the bigger impact on Americans–an increase in the price of “lunchmeats” (2.3% over the past year) or a decline in the price of online storage (arguably down by as much as 50%, though it is probably less )?
That’s a real question, incidentally, not a rhetorical one. We may have reached the point where Internet companies are providing free services that have a higher value than some things we pay for. How we change our economic statistics to reflect this new reality?
Mandel on Innovation and Growth 
“If you’re getting something for free than you are the product.”. So technically this isn’t a CPI, it’s in Producer cost index and it just went up (probably, cost of 1GB of space probably didn’t decline by 50%) because of this.
Excellent point. There’s actually two transactions going on here simultaneously. One is a B-to-B transaction where you provide your personal data for a ‘price’, measured as a PPI. The other transaction is B-to-C transaction where you get storage for a ‘price’, measured as a CPI.
Are you using the full 2.5GB? Most Dropbox users don’t use anywhere near their limit of storage.
Let’s say that Dropbox Diner offers me free refills on coffee, and they brew 250 gallons of coffee per day. Then Google Diner opens up, and they brew 500 gallons. Has the price of coffee fallen if I drink the same amount in both places?
Good point. Except that coffee has a natural satiation point, and data doesn’t.
Call me impressed when companies start handing out free lunch meat.