Posted: 4 Oct 2015
Date Written: August 1, 2014
The rise of social media has opened up a vista of business opportunities to better understand customer needs and preferences, to reach specific targets and to leverage social influence and word-of-mouth in unprecedented ways. Monetization of social interactions and influence is one of the key challenges facing researchers and practitioners alike. For example, while online users are often paid to “like” products and vendors on social media sites under the assumption that likes are valuable, the crux of the matter lies in the question: How much is a “like” worth to a seller? This simple yet important question (more generally, the issue of monetization of user actions on social media) has received scant attention in the extant social media literature. To address this question, we posit that “likes” affect business outcomes through two distinct mechanisms: (i) Direct influence on friends or contacts (or higher order impact on friends of friends), and (ii) signaling, whereby a higher “likes” count of a product acts as a proxy for superior quality or value.
To identify the economic value of the social “likes” we carefully designed a randomized field experiment where the “like” information is adjusted to separately identify the role social influence and social signals. We identified that having a social “like” on a product page increases the revenue from social signaling and each additional like contributes to the sales. From the academic perspective, this research provides a foundation for understanding and assessing the business value of social media initiatives. Literature on the value of social influence is nascent, and has not considered the joint impact of signaling and influence on monetization of social media activities. As noted in many business publications, in spite of an explosion of social media investments, assessing the financial value of social media initiatives has remained an elusive endeavor. From the practitioner’s standpoint, this research study not only helps marketers optimally incentivize social media users to engage with their products and brands, but also provides a basis for assessing the returns from allocating resources to this new channel of interactions and commerce.
Keywords: social advertising, social influence, social signaling, social networks, information diffusion, peer influence
JEL Classification: D83, M30, C93
Suggested Citation: Suggested Citation
Garg, Rajiv and Barua, Anitesh, Like Economy (August 1, 2014). Available at SSRN: https://ssrn.com/abstract=2568982