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MIT CDB Assistant Professor, Renee Gosline, Describes Digital Marketing's Newest Influencers

MIT CDB Video: Sinan Aral on Social Commerce


At the recent MIT CDB conference on Big Data, professor and social networking expert, Sinan Aral, discusses peer influence and how it can impact product marketing strategies and the online economy.




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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.hu_jeffrey_profile.jpg1.jpg

 

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:


http://ssrn.com/abstract=2201430

 

http://ssrn.com/abstract=1807265)

 

and his Georgia Tech profile here:  http://scheller.gatech.edu/directory/faculty/hu/

 

That the amount of business data is skyrocketing is hardly news. All we have to do is consider the huge volumes of data and archives at any major financial institution, retail business or healthcare organization. Then multiply those amounts by a several times and you’ll have an idea of the staggering amount of information amassed at web-based businesses such as Google and Amazon.

 

More important than the quantity of information generated, however, is an understanding of how it is used and how it can create value for organizations, their customers and the overall economy. At the MIT Center for Digital Business, a recent statistical study on the implications of big data offers significant proof that proper use of analytics and business intelligence tools can help businesses use their digital information to grow efficiently and show bottom-line results.

 

Specifically, my paper with Heekyung Kim, Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?, finds that “companies that use data-driven analytics instead of intuition have 5%-6% higher productivity and profits than competitors.” Research was based on the business practices and information technology investments of 179 large publicly traded firms. Huge improvements in metrics are allowing a granular analysis of data—whether it resides on mobile devices, in email or elsewhere in data centers-- to find out more about customer behavior. What’s more, the relationship between data-driven decisionmaking and performance also appears in other measures such as asset utilization, return on equity and market value. Our results provide some of the first large-scale data on the direct connection between data-driven decision making and firm performance.

 

As we wrote in the recent Atlantic magazine article:

“Today, businesses can measure their activities and customer relationships with unprecedented precision. As a result, they are awash with data. This is particularly evident in the digital economy, where clickstream data give precisely targeted and real-time insights into consumer behavior.”

 

And while web-based digital companies – notably, Amazon and Google--are in the forefront of data analysis, now we are seeing offline companies in logistics, manufacturing, retail, casinos and finance making use of these techniques as well. Gallo Wines, UPS, Caesar’s Entertainment and Match.com are a few examples cited in the Atlantic article. Marketing and sales organization are leading the way and are far ahead of some other departmental users, but increasingly, we see business units such as HR using email to help internal staff productivity benefits. Similarly, manufacturing lines are gaining access to real-time data from CRM and ERP systems to help them track trends and demand.

 

To delve into this topic in-depth, we are offering a new two-day executive education course on March 28 at MIT Sloan in Cambridge, Mass. [see related blog for details here.]

Two papers came out last year that examined important issues around jobs and wages. Both are in top journals. Both were written by first-rate researchers, none of whom specialize in studying the impact of technology. And both came to the same conclusion: that digital technologies were largely responsible for the phenomena they examined.

The first paper, by David Dorn and my MIT colleague David Autor,  is about how jobs and wages changed in America from 1980-2005. It was published last year in the American Economic Review and called “The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market,” which is an admirably informative title.

Equally admirable are the graphs the authors draw to illustrate their main findings. Here’s the one for jobs (the one for wages has a pretty similar shape). It gives the changes in employment share — which you can think of as changes in the the ‘market share’ of jobs — between 1980 and 2005. And it shows vividly that low-skill and high-skill jobs gained market share over that period, which those in the middle of the skill range lost.

Autor

Autor and Dorn are clear on what accounts for this shift:

The adoption of computers substitutes for… workers performing routine tasks—such as bookkeeping, clerical work, and repetitive production and monitoring activities—which are readily computerized because they follow precise, well-defined procedures. Importantly, occupations intensive in these tasks are most commonplace in the middle of the occupational skill and wage distribution.

and what doesn’t:

We evaluate numerous alternative explanations for the pronounced differences in wage and employment polarization… including deindustrialization, offshoring, … and growing low-skill immigration. None of these alternatives appears central to our findings.

The second paper concentrates on wages, and tries to determine what’s caused the red line in the graph below to decline so fast in recent years

http://www.slideshare.net/amcafee/mc-afee-econ-data

profits and labor share

This line documents the labor share of GDP in the US over the post-war period — the percentage of GDP that gets paid out in compensation (wages and benefits) to workers. As the graph above shows, US labor share has  been heading down sharply just as corporate profits have reached hew heights.

Is this because of globalization? Nope, because it’s been happening around the globe. As Loukas Karabarbounis and Brent Neiman write in “The Global Decline of the Labor Share” (out in the current issue of the Quarterly Journal of Economics):

We document, however, that the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced firms to shift away from labor and toward capital.

The AER and QJE are the two top journals in the economics field, so this research is about as solid as it gets. In light of this and plenty of other work, it really is time to stop arguing about whether technology has been one of the tectonic forces reshaping work and the workforce in recent decades. The evidence is just too clear that it is, and that we see evidence of the second machine age everywhere, including in the statistics.

This post first appeared March 12 on my Business Impact of IT blog here.