As social media becomes more pervasive in business and economic life, many researchers are trying to figure out just how much impact it is having on sales and on business models.
Jeffrey Hu, Associate Professor at Scheller College of Business at Georgia Institute of Technology, and an MIT Sloan alumni, is among those studying the effects of social media. In particular, he examined just how much online broadcasting channels and crowdsourcing are influencing markets and customers compared with more traditional marketing channels. “With the emergence of social media and Web 2.0, broadcasting in the online environment has evolved into a new form of marketing due to the much broader reach enabled by information technology,” Hu said.
Turning Buzz into Business
During 2008 to 2009, Hu studied the patterns of the MySpace music community, the largest at the time, with 14 million users. He wanted to know if broadcasting information via social media –sending updates, bulletins and texts (this was before Twitter really had a strong presence) would result in greater economic returns. In other words, he said at a recent MIT CDB lunch seminar, “whether buzz could turn into sales.”
Hu and his team employed a panel vector auto-regression (PVAR) model to investigate the inter-relationship between broadcasting promotions in social media and music sales. By correlating social media activity of 631 musicians for 32 weeks and comparing the data to Amazon rankings, Hu was able to see a significant effect on sales. The study accounted for control variables such as promotional spending, new album releases and size of network, among other factors.
The research concludes that artist-generated content -- particularly personal messages versus automated ones-- can increase sales and ranking on Amazon. By extension, Hu believes that companies can use social media to promote products and boost sales. “Our findings also point to the importance of conducting captivating conversations with customers in the organizational use of social media,” he said.
The Wisdom of Crowds
The second study Hu described at the seminar looked at the wisdom of crowds and crowdsourcing compared with expert advice and content online. Many people have pointed out that while Wikipedia contains errors, for example, it also can be corrected quickly from a vast range of sources versus traditional, permanent resources such as print encyclopedias. Some advocates believe that customers turn to peer-based communities, such as Yelp, for restaurant reviews over venerable sources like Michelin guides because the websites are more current, are more accessible and have wider coverage areas.
In his research of the financial analysis sector, Hu found that the online community Seeking Alpha--which relies on investor input instead of journalists or professional analysts-- has been “surprisingly accurate” in predicting financial trends and making investment recommendations.
Of course, there are also many caveats where enterprise social media is concerned. As McKinsey notes in this recent journal article, “on-demand marketing” is putting enormous pressures on businesses to respond in four key areas:
1. Now: Consumers will want to interact anywhere at any time.
2. Can I: They will want to do truly new things as disparate kinds of information (from financial accounts to data on physical activity) are deployed more effectively in ways that create value for them.
3. For me: They will expect all data stored about them to be targeted precisely to their needs or used to personalize what they experience.
4. Simply: They will expect all interactions to be easy.
Maybe the next studies will focus on how well social media can help achieve these daunting consumer demands.
For related MIT research about social advertising, see this blog describing Catherine Tucker’s research.
For more of Jeffrey Hu's research, see the following abstracts:
and his Georgia Tech profile here: http://scheller.gatech.edu/directory/faculty/hu/