Social Referral and Business Growth across Markets

Abstract

To show the cross-market evidence on how social referral helps business growth, we analyze a full set of the actively used instant mobile apps (46,929 in total) embedded in one of the world’s largest social networking sites, WeChat. The WeChat platform provides on average over 350 million social referrals of these apps per month. We collect data on the social referrals of the apps and their positions in different markets (i.e., developing and developed, local and non-local markets). By leveraging an exogenous policy change and the coarsened exact matching approach, we find that the apps in the local and developing markets experienced a larger decrease in new user growth rate than those in other markets when the platform sets up barriers to social referrals. Our results show that social referral is an effective way for firms to gain business growth, and its effectiveness is more salient on firms in the local and developing markets.

Keywords: Social Referral, Cross-market, Developing Markets, Local Markets