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Social media are fundamentally changing the way we communicate, collaborate, consume, and create. They represent one of the most transformative impacts of information technology on business, both within and outside firm boundaries. This special issue was designed to stimulate innovative investigations of the relationship between social media and business transformation. In this paper we outline a broad research agenda for understanding the relationships among social media, business, and society. We place the papers comprising the special issue within this research framework and identify areas where further research is needed. We hope that the flexible framework we outline will help guide future research and develop a cumulative research tradition in this area.

In this paper, we investigate the effectiveness of a firm's proactive management of customer-to-customer communication. We are particularly interested in understanding how, if at all, the firm should go about effecting meaningful word-of-mouth (WOM) communications. To tackle this problem, we collect data from two sources: (1) we implement a large-scale field test in which a national firm created word of mouth through two populations: customers and noncustomers, and (2) we collect data from an online experiment. We break our theoretical problem into two subproblems. First, we ask: \"What kind of WOM drives sales?\" Motivated by previous research, we hypothesize that for a product with a low initial awareness level, WOM that is most effective at driving sales is created by less loyal (not highly loyal) customers and occurs between acquaintances (not friends). We find support for this in the field test as well as in an experimental setting. Hence, we demonstrate the potential usefulness of exogenously created WOM: conversations are created where none would naturally have occured otherwise. Then, we ask: \"Which agents are most effective at creating this kind of WOM?\" In particular, we are interested in evaluating the effectiveness of the commonly used opinion leader designation. We find that although opinion leadership is useful in identifying potentially effective spreaders of WOM among very loyal customers, it is less useful for the sample of less loyal customers.

We investigate the evolution of online ratings over time and sequence. We first establish that there exist two distinct dynamic processes, one as a function of the amount of time a book has been available for review and another as a function of the sequence of reviews themselves. We find that, once we control for calendar date, the residual average temporal pattern is increasing. This is counter to existing findings that suggest that without this calendar-date control, the pattern is decreasing. With respect to sequential dynamics, we find that ratings decrease: the n th rating is, on average, lower than the n -1th when controlling for time, reviewer effects, and book effects. We test and find some support for existing theories for this decline based on motivation. We then offer two additional explanations for this \"order effect.\" We find support for the idea that one's ability to assess the diagnosticity of previous reviews decreases: when previous reviewers are very different, more reviews may thus lead to more purchase errors and lower ratings.

Managers are very interested in word-of-mouth communication because they believe that a product's success is related to the word of mouth that it generates. However, there are at least three significant challenges associated with measuring word of mouth. First, how does one gather the data? Because the information is exchanged in private conversations, direct observation traditionally has been difficult. Second, what aspect of these conversations should one measure? The third challenge comes from the fact that word of mouth is not exogenous. While the mapping from word of mouth to future sales is of great interest to the firm, we must also recognize that word of mouth is an outcome of past sales. Our primary objective is to address these challenges. As a context for our study, we have chosen new television (TV) shows during the 1999–2000 seasons. Our source of word-of-mouth conversations is Usenet, a collection of thousands of newsgroups with diverse topics. We find that online conversations may offer an easy and cost-effective opportunity to measure word of mouth. We show that a measure of the dispersion of conversations across communities has explanatory power in a dynamic model of TV ratings.

We investigate a business-to-business context and ask when and why a firm should announce a \"reference program\" that commits the firm to facilitating the flow of information about the efficacy of its products from early adopters to potential late adopters. We model a monopolist manufacturer with a new innovation that can be sold to two potential customers. We demonstrate here two benefits of a reference program that relate not to an increase in later adopters' willingness to pay but to an increase in the willingness to pay of the early adopters themselves. The impact on the early adopters' willingness to pay arises in two ways as a result of their observation of the firm's commitment to information transmission. First, in a model of symmetric uncertainty, we show that the announcement of a reference program facilitates dynamic pricing by the manufacturer in the sense that it allows the firm to provide temporary exclusive use of the technology to one of the customers. This creates more value, which the manufacturer can extract via a higher price. In this way, a reference program can serve as a partial substitute for an exclusive-use contract. In a model with asymmetric information, we demonstrate that under certain conditions, the firm is able to use the reference program as a signal-again, to the early adopting customer-that its technology is of high quality. However, such a signal requires significant discounts to early adopters to ensure separation. As a result, a pooling equilibrium dominates in which the manufacturer fosters references regardless of its quality. Finally, by allowing the firms' private information to be stochastic, we show that separation may be a dominant outcome.

We investigate the equilibrium relationship between product quality and word-of-mouth (WOM) communication. Specifically, we ask whether firms should optimally produce “better” products when consumers are more likely to exchange information. The critical moderating factor in our model is the nature of the communication and what its primary impact is. We first look at WOM that expands awareness of a product. We show that quality may either increase or decrease as WOM expands. The answer depends, in part, on the extent to which the expansion of WOM is one of scale alone or whether it also fundamentally changes the structure of communications. Next, we examine a model in which the primary impact of WOM is to help people to evaluate the utility provided by products with which they are already familiar. Our model suggests that more WOM in this context should always lead to higher-quality products. We demonstrate that the underlying driver of this result is that the elasticity of demand with respect to quality is increasing in the proportion of consumers who are informed about the product’s quality. Taken together, the two models therefore suggest that the firm’s optimal product-policy response to the growth in social interactions depends on both the content and the structure of the underlying conversations. Finally, we compare both WOM models to analogous models of advertising and demonstrate that the firm’s optimal response to a decrease in advertising costs is quite different from that to an increase in WOM. The reason for these differences can be traced back to a fundamental distinction between advertising and WOM: although the former is optimized, the latter is far more random. This paper was accepted by J. Miguel Villas-Boas, marketing .

Media firms compete in two connected markets. They face rivalry for the sale of content to consumers, and at the same time, they compete for advertisers seeking access to the attention of these consumers. We explore the implications of such two-sided competition on the actions and source of profits of media firms. One main conclusion we reach is that media firms may charge higher content prices in a duopoly than in a monopoly. This happens because competition for advertisers can reduce the return per customer impression from the ad market, making each firm less willing to underprice content to increase demand. Greater competitive intensity may thus increase content profits and decrease ad profits. These findings are in sharp contrast to those in a regular one-sided product market, in which competition typically lowers product prices and profits. We extend the framework to examine competition across different media (e.g., between magazines and cable TV) and show that firms in a duopolistic medium may benefit from more intense competition from a monopolist in another medium. We characterize the conditions for each firm in the duopoly medium to bundle more ads and earn greater total profits than the rival firm in the monopoly medium.

Consumer choice is influenced in a direct and meaningful way by the actions taken by others. These \"actions\" range from face-to-face recommendations from a friend to the passive observation of what a stranger is wearing. We refer to the set of such contexts as \"social interactions\" (SI). We believe that at least some of the SI effects are partially within the firm's control and that this represents an exciting research opportunity. We present an agenda that identifies a list of unanswered questions of potential interest to both researchers and managers. In order to appreciate the firm's choices with respect to its management of SI, it is important to first evaluate where we are in terms of understanding the phenomena themselves. We highlight five questions in this regard: (1) What are the antecedents of word of mouth (WOM)? (2) How does the transmission of positive WOM differ from that of negative WOM? (3) How does online WOM differ from offline WOM? (4) What is the impact of WOM? (5) How can we measure WOM? Finally, we identify and discuss four principal, non-mutually exclusive, roles that the firm might play: (1) observer, (2) moderator, (3) mediator, and (4) participant.

We ask whether online opinions impact consumers’ decision quality and assess whether this impact occurs immediately or requires one to undergo learning first. We focus on a setting where consumers have multiple learning experiences using opinions from both uni- and bidirectional network ties. This allows us to investigate the impact of learning from both weak and strong ties. We find that, with sufficient experience, having more ties may lead to better decisions. However, the dynamic effects are dependent on the strength of the tie. Additional strong ties (operationalized as bidirectional links) lead to immediate positive effects on decision quality. However, additional weak ties (unidirectional, follower relationships) initially lead to lower decision quality. We find beneficial learning effects, however: adding more weak ties improves decision quality once one has sufficient experience in the community. Indeed, more-experienced consumers receive, ultimately, higher positive effects on decision quality from weak ties compared with strong ties. We interpret this as demonstrating that one needs to learn the norms of a new community before using the available information to improve decisions. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1076 .