Social networks, such as Facebook and Myspace have witnessed a rapid growth in their membership. Some of these businesses have tried an advertising-based model with very limited success. However, these businesses have not fully explored the power of their members to influence each other's behavior. This potential viral or social effect can have significant impact on the success of these companies as well as provide a unique new marketing opportunity for traditional companies.
However, this potential is predicated on the assumption that friends influence user's behavior. In this study we empirically examine this issue. Specifically we address three questions - do friends influence purchases of users in an online social network; which users are more influenced by this social pressure; and can we quantify this social influence in terms of increase in sales and revenue.
To address these questions we use data from Cyworld, an online social networking site in Korea. Cyworld users create mini-homepages to interact with their friends. These mini-homepages, which become a way of self-expression for members, are decorated with items (e.g., wallpaper, music), many of which are sold by Cyworld. Using 10 weeks of purchase and non-purchase data from 208 users, we build an individual level model of choice (buy-no buy) and quantity (how much money to spend). We estimate this model using Bayesian approach and MCMC method.
Our results show that there are three distinct groups of users with very different behavior. The low-status group (48% of users) are not well connected, show limited interaction with other members and are unaffected by social pressure. The middle-status group (40% users) is moderately connected, show reasonable non-purchase activity on the site and have a strong and positive effect due to friends' purchases. In other words, this group exhibits "keeping up with the Joneses" behavior. On average, their revenue increases by 5% due to this social influence. The high-status group (12% users) is well connected and very active on the site, and shows a significant negative effect due to friends' purchases. In other words, this group differentiates itself from others by lowering their purchase and strongly pursuing non-purchase related activities. This social influence leads to almost 14% drop in the revenue of this group. We discuss the theoretical and managerial implications of our results. 36 pages.
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As we all know, social networking sites (such as: facebook, twitter, plurk, etc.) is something widely used by everyone around the globe. It is only natural that advertising companies sees this as a money-making venue. Although, in practice, not many profit is actually gained by these advertising companies through advertisements in social networking sites.
However, according to this article, online advertising companies haven’t been using social networking media to its fullest. That’s why profit gain is not maximized. Had only online advertising companies understand the potential of something viral. For example, like in Youtube website, many advertisements are attached to a viral video with up to million view counts. For every view count both youtuber and advertisement companies get some share of profit. In the end, a lot of money will be gained by the advertising company as well as youtuber and the actual company who puts up the advertisement.
After reading this article, I know that there are three different groups based on how active they are in social networking media. The first one is low activity, which doesn’t produce profit but also don’t take up many costs as well. The second one is moderate activity. These people give the most profit, but also take up some costs. In the end it all evens out to a profit. The most costly one is the high activity group. This is because they cleverly use social media so they don’t have to spend any cent however they gain the most of it. This is costly to both advertising companies and the company who owns the social media site itself. Lucky for them, high activity group are only 12% of the population. Their cost can be covered by the moderate activity group who contributes the most profit and cost the advertising company and website least.
BY : Muchamad Agus Salim (115060701111064)
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