The Value of Receiving Network Updates: A Quasi-Experiment on a Social Networking Site

• Activity Number: 398
• Type: Topic Contributed
• Date/Time: Tuesday, July 31, 2012 : 2:00 PM to 3:50 PM
• Sponsor: Section on Statistics in Marketing
• Author(s): Yotam Shmargad*+
• Companies: Northwestern University
• Keywords: Social Networking Site ; Network Externalities ; Clustering Coefficient ; Natural Experiment ; Quasi-Experiment ; Social Network Analysis

Abstract

Social networking sites enable consumers to receive updates about their contacts without engaging with these contacts directly, making it feasible for consumers to stay current on a very large network of contacts. Yet no existing study isolates the value of receiving these network updates. This leaves unanswered questions regarding if and when network updates benefit consumers. In my study, I analyze the private database of a large social networking company that began charging customers to use a network update application they had previously offered for free. The sudden monetization of this app provides a unique quasi-experiment that allows me to measure how its value varies with properties of consumers' networks. I find that: 1) The value of the app increases with the number of connections a user has, indicating a presence of network externalities; and 2) The strength of these externalities is greater for users embedded in less clustered networks, suggesting that the value of network updates is derived from an increased access to information about contacts who are loosely connected to us.