Running head: SOCIAL NETWORKING SITES: GENERATING REVENUE

SOCIAL NETWORKING SITES: CAN IT GENERATE REVENUE FOR BUSINESSES? Kristelle Siarza Wayland Baptist University Albuquerque Campus

SOCIAL NETWORKING SITES: GENERATING REVENUE

ABSTRACT This study discusses social networking sites and its potential of generating revenue if wordof-mouth communication is factored into a business marketing plan. With academic research and an independent study analyzing buyer behavior and the usage social networking sites, discussion is based on the discovery of word-of-mouth communication and its effects when distributed through social networking sites. Because word-of-mouth is proven as the most effective type of communication to influence buyer decisions and the type of communication travels quickly and successfully through social media, we prove social networking sites can influence revenue generation for businesses.

SOCIAL NETWORKING SITES: GENERATING REVENUE

Social Networking Sites: Can It Generate Revenue for Businesses? INTRODUCTION Social media has transformed our world into one great big small town, dominated, as all vibrant towns used to be, by the strength of relationships, the currency of caring, and the power of word of mouth (Vaynerchuk, 2011). Facebook, Twitter, LinkedIn, Orkut, MySpace, and a decade of social media sites: Welcome to the age of social networking. It has scaled back interpersonal communication. It has brought families across thousands of miles together. It has changed the way marketing should reach its customers. During the downturn economy and the maturity of social networking sites, thousands have claimed to be social media experts and millions shared ideas to influence buyers and their purchasing powers. Business organizations either embrace or struggle with social networking sites during their strategic marketing development and the principals of social medias effectiveness have been informally established. Social networking sites are fast paced in development and are quick when transitioning through the product life cycles. Return on social media investments are tough to track from a return on investment perspective. Standard tools of measuring revenue cannot effectively measure wordmouth-messaging too. The inspiration for this research came from these struggles. In this study, fundamental ideals of social networking sites are discussed in an academic setting. Since academic research can be outdated if implemented with standard business revenue figures or product performance analysis, the research is based on the ideology of word-of-mouth communication and the science of its communication. With business principals aside and scholarly journals presented, we answer the question of social networking sites and its potential to generate revenue for businesses. Discussed is the idea of considering social networking sites as a part of the overall marketing strategy to improve product sales.

SOCIAL NETWORKING SITES: GENERATING REVENUE

Using journals from advertising, marketing, computer-mediated communication and consumer research, we divulge into social networking sites and their influence on word-of-mouth communication. We combine research from respected social media bloggers and news organizations. Reading further, no form of reputation management reports or ROI figures are presented due to the confidentiality of businesses presenting the data and the lack of principals and empirical evidence these reports may have. RESEARCH: INDUSTRY WRITINGS AND ACADEMIC JOURNALS A challenge during the research and analysis was presenting a definition for social media in an academic setting. After finding many journals in communication, computer-mediated communication, marketing, and advertising, social media is referred to as social network sites (SNS) in most studies. Boyd and Ellison (2008) define social networks as internet based service products that allow people of all languages to: Construct a public or semi-public profile within a bounded system, articulate a list of other users with whom they share a connection, and view and traverse their list of connections and those made by others within the system. By defining social networking sites, research shows SNS are the communication channel for word-of-mouth (WOM) messaging. With SNSs fast moving transfer of information, the evolution of a network is faster than most product life cycles. Networks developed quickly to compete, resulting in a plethora of SNSs developed in the last decade. Boyd and Ellison (2008) compiled launch dates of major SNSs since 1997. They credit that SNSs are like many major trends that come and go, so to compile a history of social sites can be incomplete. The timeline (Appendix A) and study explains how methods and tactics of social networks led to growth and longevity. Boyd and Ellison critically analyze each popular SNS, like MySpace and Friendster, and discuss the true successes and failures to each.

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Current events prove the status quo of SNS product cycles true. During the time the research period, Facebook made major advancements over the last few years. Boyd and Ellison noted Google as a popular search engine but did not consider them as a SNS (2008). However, within days of conducting research, Google+ was introduced and now directly completes with Facebook (Parr, 2011). From a methodology that compiles the U.S. Census Bureau and surnames of Google+, there is a guesstimation of 9.5 million users worldwide (Schroeder, 2011) on the SNS that is known as the Facebook Killer (DeRosa, 2011). The amount of users is incomparable to the largest SNS in the world, Facebook.com. Mark Zuckerberg, CEO of Facebook, announced that the networking site has reached over 750 million users (Ehrlich, 2011). Word-of-mouth communication (WOM) has been proven to generate revenue for business organizations that chose to position this type of messaging within their marketing strategies. Authors of the first survey-based results prove that WOM is seven times more effective than print advertising in influencing consumers to switch brands (Katz & Lazarsfeld, 1955). Trusov, Bucklin, and Pauwels (2008) compare the effects of WOM to traditional marketing channels. Their first research shows how WOM overcomes consumer resistance with low costs and fast delivery. (Trusov, et al., 2008). Their research focuses on the model of sharing ideas and passing on recommendations known as the referral model. After placing various variables as media appearances, traditional promotional mediums, and SNS WOM communication, WOM referrals have a very strong impact on new customer acquisitions. Several other interesting pieces of research came from the test. Trusov et al. (2008) showed how WOM enhanced traditional marketing strategies within paid incentives behind WOM messages was considered fertilized word-of-mouth and could be less effective than organic word-of-mouth. Results from the quantifiable research show that WOM through an Internet social network setting is

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a critical factor for firms seeking to acquire new customers. WOM can have longer lasting effects than traditional marketing techniques (Trusov et al., 2008). Chatterjee summarizes the recommendation and referral behavior of users on SNSs. As the study discovers the user implications for referrals, Chatterjee identifies the purchasing decisions of consumers when they voice opinions on SNS (Chatterjee, 2011). The author shows how managers of new brands choose influential individuals in SNS about their product based on information provided to the SNS during registration. (Watts & Dodds, 2007). Current proof of the effectiveness of this method is the Klout measuring tool. Klout combines user data and sophisticated algorithms in the web programming to measure the reach and potential capability to generate conversations and reach across the internet. (Hotchkiss, 2011) Further research reviews clickstream data, such as page views, users, and clicks, on new product advertising campaigns over a 21-month period and tries to determine the drivers. The writings became extensions of referrals and recommendations and show how its impact is equally important. Other interesting research shows how SNS can affect services that are intangible at purchase. Livintin, Goldsmith and Pan (2006) conducted a study an early stage of the travel and tourism emarketing boom and used SNS case studies from sites like Tripadvisor.com. The authors discuss how interpersonal communication has been a crucial part of the tourism industry and how positive and negative WOM upon tourism products. Livintin et al., (2006) provide specific case studies of hoteliers and destination marketers that have been successful in managing their WOM online through specific types of mediums, including blogs, e-newsletters and their own brand websites. The authors have also reported that 67 percent of US Travelers have used the Internet to search for information for travel plans and that 41 percent of US Travelers have booked via the medium. METHODOLOGY

SOCIAL NETWORKING SITES: GENERATING REVENUE

Since the topic was based on social networks, current SNSs were the avenues to distribute the survey. GoogleDocs was used as the survey collection tool, and the web based software tracked dates and times and collected the answers effectively. The online real-time document editor worked exactly like Microsoft Excel and did not track IP address. This ensured security and privacy for survey takers. Radio buttons and check boxes were programmed into the survey to help populate answers and compile unaltered graphs based on the raw data. The data was not cleansed and was filtered unless used for specific geographical research. Released with a timeframe of two weeks, the survey went out to 1,224 Facebook users, 369 LinkedIn connections, and a network of 1,349 Twitter followers. In total, 2,942 individuals were exposed to the call-to-action of the survey. When released on Sunday, June 26, 2011, 34 responses were received within the first hour. After 24 hours, 182 responses were received (Appendix B). In total, over 238 responses were received and 8% of the entire network responded within two weeks. Surveyors were predominantly led from Facebook and LinkedIn. As the introduction of the survey mentioned how anonymous the survey would be, individuals who took the survey publicly and privately notified the surveyor of their participation. Though the source of origin was not noted by GoogleDocs, two individuals tweeted their participation on Twitter, 18 individuals sent a message through LinkedIn noting their participation in the survey, and 96 users noted their participation through a user event comment on Facebook. A second survey was conducted to gather qualitative analysis behind buyer decisions based on WOM. In further understanding the opinions of online review site readers, questions were targeted to deeper understand credibility, legitimacy, and the foundation of buyer opinions. Reaching out to the same sample set through Twitter, Facebook, and LinkedIn, 33 respondents reengaged their thoughts through GoogleDocs. However, the first call-to-action for the survey was

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unsuccessful. When asked for social repetition, the method of retweeting and passing the same message along, the word-of-mouth helped garner responses in two days. RESULTS In marketing, buyer behavior is influenced by personal and intrapersonal influences (Sandhusen, 2008). Questions were asked to clearly define influences upon behavior as well as SNS preference. In this study, brick and mortar stores are defined as retail establishments with a physical location. Online retailers are internet websites that offer retail products and point-of-sale purchases are conducted through an online processing tool. Those surveyed had conducted in online retail purchases at least once a month. Often purchased goods were gifts, electronics, clothing and business products. Brick and mortar stores were shopped by surveyors several times a week. Surveyors said their most frequent purchases were mostly perishable goods. A crucial piece to the study was the evaluation of participation and level of social engagement for survey subjects. If there were low levels of participation on SNSs from surveyors, the study would not have concrete evidence to support the thesis. 98% of those surveyed had a Facebook profile, while LinkedIn, Twitter and MySpace were other common social networks. Many others had accounts on social media platforms that have larger amounts of international unique visitors, including Multiply (2%), Hi5 (3%), and Orkut (2%). In total, 6% of those surveyed had accounts on social networks with small or niche types of users. However, when asked about social media sites used on a daily basis, 94% of surveyors use Facebook while Twitter is used by 44% of those surveyed. LinkedIn came third as most frequently used on a daily basis (25%). To better gage personal influences on buyer decisions, questions were asked to evaluate family and friend influence. When asked the question of family participation on social media, 88% of individuals said their family was active on social media. 41% of individuals said their families influence their purchasing decisions online or in person. When asked if their friends are active

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participants on social media, 97% said yes while only 3% said no. 42% of individuals surveyed said their friends purchase decisions online or in person. Out of those surveyed in New Mexico, 60% said their families do not heavily influence purchasing decisions. Three other important questions that measured trust and influence on word-of-mouth communication sites or sites driven by WOM content had various percentages as a result. When asked How often do you read online websites that allow users to review or post comments about a product or service? on a numeric scale, (1 being very rarely, 5 being very frequently) 61% of people frequently (4 and 5 rating) visited sites. However, when asked about the perception of influence online commentary and review sites have upon products or services, 68% of those surveyed said the remarks were influential (4 to 5 ratings). To best gage the medium of communication that is most influential for those surveyed, advertising communication outlets were listed, and those surveyed were asked to choose the most influential form of advertising. The majority noted word-of-mouth advertising as the most influential. Several issues came about that potentially skewed the survey results. Because of the amount of people that responded to their participation in the social media survey, the question of anonymous identities came into play. Also, two complaints were received by a surveyor that could have potentially confused the entire sample set. One individual said one question was confusing, while the other suggested that other social media sites were missed on the questionnaire answer options. The follow-up survey was based off of two questions that were asked previously: How often do you read online websites that allow users to review or post comments about a product or service? and How much influence do the online comments or reviews have upon your product or service? On the first question regarding the websites, surveyors were asked about the importance

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of website credibility. All but two individual users responded yes. Surveyors said their opinion on legitimacy of reviews was based on the size of the website, user ratings presented on the site, and the legitimacy of the sites. When those surveyed mentioned about the size of the website, there were no details or specific characteristics of visitors, inventory, or influence that was measured. (Appendix B) The one respondent that answered maybe does not weigh the opinions of others on his buying decision if the potential product is of small dollar value. The negative respondent did not go into detail as to why they do not think about the credibility. It was important to understand buyer perception of the legitimacy of the reviewer. The most common reason for user authenticity was the use of language. Spelling and grammar, professional language and descriptive writing were the most credible reviews to those surveyed. Staying free of marketing-speak and showing knowledge of the product or service through detailed imagery gave potential buyers confidence in users on SNS. The amount of balance and details were also important to those surveyed, and some were even leery of perfect reviews without any criticism. Few mentioned that assurance in a user review came from the user sign-up process, photos taken by the user, and the number of reviews posted by an individual. Respondents were asked if descriptive reviews help formulate less or more of an opinion on the establishment if reviewed (Appendix C). Only 73% of those resurveyed said more descriptive reviews help formulate an opinion, but varied in why descriptive reviews helped formulate an opinion. Surveyors said too many details made products or service less appealing, detailed reviews were beneficial for products rather than service, and persuasive language were less important and influential. Any type of marketing message detracted potential buyers from the review. When asked if products or services are purchased if it has one or more negative reviews, a resounding yes came from surveyors. Many said it was inevitable to have a negative review. However, half of respondents mentioned that it depended on the reviews content, descriptive

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nature, and attention to detail. Surveyors also mentioned that buyer decision is affected by the number positive reviews. In the collection of online reviews in one product or service, positive reviews must outweigh the number of negative reviews. A few surveyors mentioned that the buyers desire for the product can outweigh any review. Surveyors were asked Do you write negative reviews on a product or service you are unhappy with? If so, to what extent of discontent do you write a review? The surveyors had diversity in answers. Many of them write negative and positive reviews, but must have a highly qualifying circumstance and strong experience to drive them to write a review. Others would write how the product or the service did not meet their expectations. Some respondents said they must describe the experience in a balanced and direct way with much detail to the product or service experience. Surveyors said they respond to negative reviews by offering recommendations on how to make the products and services better. DISCUSSION Because this survey had a vast amount of New Mexicans answering to the research survey, the application of trust in a recent study was pertinent. According to the Garrity Group study focused on New Mexicans and their trust perception (2011), family members and relatives were the highest group noted as trusted resources (85%). During the independent research study done to measure influence and buyer decision, those surveyed reported a low amount of influence by families. Even with the contrasting higher numbers of trust in family, SNSs can be an influential medium of WOM communication to gain consumer trust during the purchasing decision process. Fascinating are the SNSs in the market today: they are quick to evolve and stay competitive. The research became interesting as WOM traveled quickly to collect quantitative and qualitative research data. Even as new SNSs are developed and current industry leaders keep reinventing the user interfaces and experiences, we see that SNSs are effective as a medium to share WOM.

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Though we do not show any type of return on investment data to prove the financial advantages of SNS spreading WOM, the principals discussed is enough to garner a strategic plan for communicators and marketing professionals. One important fact discovered that is advantageous for businesses are the presentation of WOM: potential buyers are influenced by several different factors in order to take action on purchasing. They are influenced by family and friends, website presentation, proper linguistics and online site credibility. When businesses do not take these principals into account in their social media strategy plan, organizations may not have a successful social media strategy. Finally, we come to the conclusion that WOM is the most effective type of communication to influence buyer decisions. Proven through academic research, the survey conducted, and business data that could be compiled, WOM should be highly regarded. Because WOM is the most effective type of communication to influence buyer decisions, and word-of-mouth messages travel very effectively though social networking sites, SNSs can influence buyer decision and generate revenue for businesses. It is up to marketers and businesses to develop their strategies to monitor and influence customer WOM.

SOCIAL NETWORKING SITES: GENERATING REVENUE APPENDIX A

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SOCIAL NETWORKING SITES: GENERATING REVENUE APPENDIX B

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APPENDIX C

Does the credibility of the website matter to you?

no 3% maybe 3%

yes 94%

depends 10%

Do descriptive reviews help you formulate less or more of an opinion on the establishment reviewed?
less 17%

more 73%

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Trusov, M., Bucklin, R. E. and Pauwels, K. H. (2008, April 24) Effects of word-of-mouth versus traditional marketing: findings from an internet social networking site. Robert H. Smith School Research Paper No. RHS 06-065. Vaynerchuk, G. (2011). The Thank You Economy (p. 11). Avon. Kindle Edition. Watts, D.J. & Dodds, P.S. (2007) Influentials, networks, and public opinion formation. Journal of Consumer Research, 34(4), pp. 441