Wednesday, February 9, 2011


The success of any user-generated content (UGC) website depends crucially on its 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 wearing-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 that 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.