In between the wedding and my race against the clock to get as much research done as possible before my research leave is over in January, the year 2009 has quietly slipped away and the holiday season is already upon us.  First of all, happy holidays!  As a gift to my readers, I want to bring some new exciting research insights from the conference The Emergence and Impact of User-Generated Content (UGC) I just attended in Philadelphia last week.  The conference was co-hosted by the Wharton Interactive Media Institute and the Marketing Science Institute, and featured top-notch researchers and practitioners who work in the field of social media and UGC.

A major question addressed by quite a few presentations at the conference was the impact of user-generated content. So in Part I of this two-part conference report series, I would like to highlight three presentations that I found particularly interesting with regard to this topic.

Does consumer chatter about a product affect stock return?

The answer is yes, according to the research presented by Professor Gerard Tellis from the University of Southern California. In their research, Professor Tellis and his doctoral student Seshadri Tirunillai looked at six diverse product categories with rich consumer reviews: data storage, footwear, toys, personal computers, cellphones, and PDAs/smartphones. They gathered consumer reviews in these product categories from three sources: Amazon.com, Epinions.com, and Yahoo! Shopping. These reviews were then analyzed for the overall rating, review volume, and valence (positive or negative) of review associated with each product. Using a mathematical approach called vector autoregressive, the researchers tied these review characteristics to each company’s stock return and volatility. They found that consumer reviews lead stock performance by a few weeks (meaning that consumer reviews can help predict stock performance a few weeks ahead). Specifically, the volume of review (after controlling for the valence of review) has a positive effect on stock return.  The overall rating (e.g., 3.5 out of 5) did not have any significant impact on stock performance.  But the number of negative reviews and the average percent of negative expressions in the reviews negatively impact stock return and increase stock volatility. In contrast, positive reviews did not have a significant impact.

Lessons for marketers:

• It is justifiable not only from a marketing perspective to monitor consumer opinions in social media but it makes financial sense as well. Research such as this can help make an argument to financial managers why a company should invest in such monitoring activities.
• Although positive reviews may make one feel warm and fuzzy, it’s much more important to pay attention to negative reviews.  In general, negative information is much more diagnostic in conveying market sentiment.

Lessons for investors:

• Consumer reviews may seem far removed from the complex mathematical modeling that goes into stock picking and performance prediction. But this research suggests the value for investors to monitor this social space.
• The researchers further recommended a few investment approaches. For example, as a short-term strategy, buy a stock when its product review enters top 20% and sell the stock when it drops out of the top 20%. The recommended holding period for this strategy is 6 weeks.

Do bloggers affect product sales?

Bloggers like me probably would all like to know that we are making a real impact after the time and effort we’ve put into our blogs. Some companies also invest heavily in the blogosphere and want to know whether that’s a wise thing to do. The research presented by Professor Sriram Venkataraman from Emory University found that blogger influence is geographic-specific depending on the demographics of a market.  Using movie industry data, this research finds that a movie’s first-day national sales is not associated with blog variables.  However, when looking from the DMA (designated market area) level, strong geographic influence emerges. Not surprisingly, markets with a larger portion of young people are more likely to be affected by blogs and at the same time are more likely to discount the influence of company-sponsored advertising.  For markets with a higher proportion of female consumers, the research found that they tend to be more forgiving to negative blogs.  These consumers could read quite negative blogs about a movie but still feel and act positively toward the movie.

Lessons for marketers:

• Consumer blogs can be a worthwhile tool to integrate into a company’s marketing strategy.
• Selectively using these tools based on each market’s demographics may be more effective than a blanket strategy.

What about user contribution in new product development?

This research first struck me as using a very clever data source to address an important question.  Partially based on Professor Matthew O’Hern’s doctoral dissertation, this project uses the well-known open source community SourceForge.net to examine if user collaboration and contribution truly lead to better and faster product development. The answer is mixed. O’Hern and colleagues classified user contributions on SourceForget into three categories: (1) user reports: reports of bugs and issues found in a piece of software; (2) user requests: requests of new functionality or modifications to be added to future software releases; (3) user revisions: user-submitted solutions (i.e., codes) for fixing certain problems or adding new functionality to a software release.  They found that:

• User reports of problems increase release activities, indicating a positive impact on software development.
• At the same time, such problem reports alert other users of issues with the software and reduce the download volume for a software release.
• User requests have the most negative impact, both reducing download volume and release activities.
• Most surprising to me, users submitting their own solutions did not have any significant impact on release activities.  The only impact it had was on increasing download amount for a given month.

Lessons for marketers:

• Wiki-type efforts by users may not always be beneficial to a company’s new product development.  When not properly managed, it can actually prolong the development process and reduce the speed-to-market.
• Caveat: SourceForge is a community of mostly volunteers who do not have a strong commercial interest. Therefore, the proper utilization and integration of user revisions may be limited due to the lack of human power and resources. I would not be surprised that user submission will have a more positive impact in a more closely managed environment.

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Plenty of information to digest for a while.  So I’m gonna stop here for Part I of the series.  What do you think of these research insights?  I’d love to hear back from you.  If you find any of these projects particularly interesting and would like more information, I encourage you to contact the presenter.  Whenever possible, I tried to provide a link to the presenter’s homepage so that you can find his/her contact information.

In Part II of this series, I will discuss another project on a privacy-friendly target advertising approach based on social network data.  I will also share with you a few high-priority topics related to social media and Internet marketing that were identified by practitioners at the conference.  So stay tuned!

By now, you probably have heard of Second Life, the popular 3D virtual world that allows its residents to live, interact, buy/sell, and collaborate all under a virtual identity. Where these residents lived, real-world companies have been experimenting too. In my research with Dr. Bill Judge, we have seen more than 50 of the Global Fortune 500 companies who have established an official presence in Second Life. We spoke with some of these companies to find out what drove them to Second Life, how they use it, and how they have benefited from it. Here is a quick summary of what we found:

1. Why Companies Enter Second Life?

Most of the companies we surveyed/interviewed entered SL in 2006. The decision to enter SL varied from an innovative mentality to jumping onto the wagon under competitive pressure. Usually, an individual or a small team of employees were personally involved in SL at first, and they eventually became champions within the company. Interestingly, European companies’ decision to enter SL were driven more by potential for media exposure rather than by the actual functionality or use of the virtual world itself, suggesting important cross-cultural differences in corporate innovation.

2. What Companies Use Second Life for?

Below are six ways the companies have been using SL, ranked by their popularity. The list makes it obvious that communication and learning represent important uses of SL.

3. How Do Companies Benefit from Second Life?

Most companies considered their SL venture to be worthwhile, although only one-third of them acknowledged realizing financial gains. Here is a list of the benefits companies believe they have received from their SL presence, ranked from most-often mentioned to least mentioned:

What do you think about these findings? Has your company ever experimented with Second Life?  I’d love to hear about your experience.

This year’s INFORMS Marketing Science Conference paid lots of attention to social media and social networking. Quite a few sessions were devoted to the topic. Here I picked a few presentations with especial relevance to business practice and summarized them below.

1. Freemium model depends on users’ group membership and content contribution.

Presented by Gal Oestreicher-Singer from Tel Aviv University, this research analyzed a large dataset of 150,000 random existing users and a separate group of new subscribers of Last.fm. The authors wanted to find out under what conditions users are more likely to pay for premium services in a freemium model. Results suggest two main factors: (1) group membership and leadership: those functioning as leaders of Last.fm user groups are more likely to pay for a premium account. (2) Content contribution, in this case, posting of journal entries. Those who have written a journal entry on the site are more likely to pay up.  The effects of these factors, the authors found, exceeded the traditionally accepted influence of content consumption and local network size.  The authors also argue that the network position of the user within the community can also affect likelihood to pay. But this area is still being explored.

2. How To receive more incoming social links for your online shop?

In the social networking space for e-commerce, such as eBay, individual merchants can connect with other merchants by building links between their shops. Such incoming links can build traffic and increase business. So how can one increase the likelihood of being linked to?  Andrew Stephen, who recently joined the faculty at INSEAD, reported findings from his dissertation research that answer this question.  His research shows that reciprocity and assortment diversity are the two drivers of incoming links. In other words, merchants are more likely to have outgoing links to those who have incoming links to them, and they are more likely to link to those who have a large assortment of merchandise.

3. Celebrity, offensiveness, and honest labeling of content drive YouTube video success

I was especially excited about this presentation because it partially answers a burning question that has been on my mind for a while: “What makes some YouTube videos more successful than others?” The two presenters, Caroline Wiertz and Thorsten Hennig-Thurau from Cass Business School, City University, London, together with their co-author Michael Paul compared 100 top hit videos with 100 matching “flop” videos that were uploaded on the same day. They found three factors that have the biggest impact on the success of a video: offensiveness of the video content (i.e., controversy factor); featuring or association with a celebrity; and honest labeling of a video content’s via title, tags, and thumbnail. In a separate study, the three researchers tracked the number of views for 360 videos newly uploaded to YouTube over the course of a month. Their results suggest that the drivers of video views are different at different diffusion stages. In the beginning (the 1st day after posting), past channel success drives the number of views for the video. During the following days, however, existing # of views, volume and valence of user comments, and video description (via title, tags, and thumbnail) take over in predicting video popularity. In the final stage of their one-month tracking period, existing # of views and honest labeling become the most important driving factor. Their research findings offer clues to companies as to what to manage and pay attention to when doing viral marketing through YouTube.

4. Negative word-of-mouth effect accentuated by reviewer similarity and brand reputation

Ever wondered why bigger brands suffer huge backlashes from negative word-of-mouth? Debanjan Mitra from University of Florida addressed this question. By looking at book reviews from Amazon.com and Barnes & Noble websites and correlating them with sales rankings, he and his co-authors found that, besides the established finding of negative word-of-mouth having a larger effect on consumers than positive word-of-mouth, the similarity between reviewers and the audience further accentuate the effect. In other words, we are more affected by the negative opinions of people who are just like us. Furthermore, they found that the situation is even worse for higher-reputation brands (e.g., authors with higher ranking books).  Apparently, the higher reputation your brand has, the more you have to lose and the more devastating negative word-of-mouth can be. In the authors’ presentation title, they labeled this effect as “the weakness of strong ties”.

What do you think?  Do you agree with these marketing scientists findings and insights?