Content Contributor Management and Network Effects in a UGC Environment

Acknowledgement: The generosity of 1000mercis Research Lab with data and managerial guidance has been invaluable. The assistance of Ilian Mihov on econometric issues is gratefully acknowledged. We thank Hubert Gatignon, Harald Hau, Andrew Stephen and seminar participants at INSEAD Brown Bag Seminar (2009) for their comments and suggestions. Finally, we greatly acknowledge the guidance of the Editor, Area Editor and two anonymous reviewers at Marketing Science. A Working Paper is the author's intellectual property. It is intended as a means to promote research to interested readers. Its content should not be copied or hosted on any server without written permission from [email protected] Click here to access the INSEAD Working Paper collection The success of any User-Generated Content (UGC) website depends crucially on its asset of content contributors. How firms should invest in the acquisition and retention of content contributors represents a novel question that is particularly important for these websites. We develop a vector autoregressive (VAR) model to measure the financial values of the retention and acquisition of both content contributors and content consumers. In our empirical application to a C2C marketplace, we find that contributor (seller) acquisition has the largest financial value due to their strong network effects on content consumers (buyers) and other content contributors. However, the wear-in of contributors' financial values takes longer since the network effects take time to be fully realized. Our simulation-based studies (i) shed light on the value implications of 'enhancing network effects', and, (ii) quantify the revenue contributions of marketing newsletter campaigns. Our results indicate enhancing network effects in complementary ways can further increase the marginal benefits of acquisition and retention. We also find that simply tracking click-throughs may vastly underestimate the values of marketing newsletters, in our case by more than a factor of five, which may lead to suboptimal marketing effort allocations. 1. Introduction User-Generated Content (UGC) represents one of the most dynamic media forms on the Internet. Video sharing websites like YouTube, on-line encyclopedias like Wikipedia and Customer-to-Customer (C2C) marketplaces like eBay are rapidly taking over many of their traditional counterparts. 1 The achievements of UGC websites often stand in stark contrast with their sizes. In 1998, the two-year old eBay made revenues of 4.7 million USD with merely 30 employees. Similarly, back in 2006, YouTube was able to serve over 100 million videos daily with 67 employees. The impressive growth of the UGC sector is a testimony to …