Competition among virtual communities and user val

CompetitionamongVirtualCommunitiesandUserValuation:TheCaseofInvestorCommunities1BinGu*Phone:[phone]E-mail:[e-mail]*Phone:[phone]E-mail:[e-mail]**Ph:(248)-370-4958E-mail:[e-mail]-WeiMichelleChen*E-mail:[e-mail]*DepartmentofInformation,Risk,andOperationsManagementRedMcCombsSchoolofBusinessCBA5.202;B6500TheUniversityofTexasatAustinAustin,TX78712Fax:[phone]**DepartmentofDecisionandInformationSciencesSchoolofBusinessAdministrationOaklandUniversityRochester,MI483091PrabhudevKonanaandBalajiRajagopalanacknowledgesupportfromNationalScienceFoundation’sInformationTechnologyResearchgrant#IIS-0218988andIIS-0219107,respectively.TheauthorsacknowledgeinitialhelpfromChan-GunLee(researcheratIntel),DharmarajKarthekeyan,andMattWimble,andfeedbackfromparticipantsinAISconference,2004.1CompetitionamongVirtualCommunitiesandUserValuation:TheCaseofInvestorCommunitiesABSTRACTVirtualcommunitiesarebecomingasignificantsourceofinformationsharingforconsumersandbusinesses.Thisresearchexamineshowusersvaluevirtualcommunitiesandhowvirtualcommunitiesgrowandcompetewitheachother.Inparticular,thenatureoftrade-offsbetweennetworksizeandinformationquality,andthesourcesofpositiveandnegativeexternalitiesareexamined.Weaddresstheseissuesbasedonover600,000postingsfromthreelargevirtualinvesting-relatedcommunities(VICs)for14differentstocks.Wedevelopedanalgorithmicmethodologytoprocesstextualdataandtocategorizemessagesasnoiseorsignaltoevaluateinformationquality.Theresultsprovideinterestinginsightsintocompetitionamongvirtualcommunities.Thereisatrade-offbetweennetworksizeandinformationquality.WefindsupportforthehypothesisthatthevalueofVICsincreaseswithusefulpostings–demonstratingpositivenetworkexternalities–butthemarginalcontributiondecreaseswiththesize.Onthecontrary,thecostassociatedwithusingVICsincreaseswithsize,whilethemarginalcostincreaseswitheachadditionalpostingindicatingnegativeexternalities.Thenegativeexternalityduetoconsumerinformationprocessingthresholdsleadstoaboundednetworksize.Ouranalysisalsosuggeststhatthecommunitynetworksizedependsontwoimportantdimensions:thedegreeofintegratedserviceofferings(e.g.,emailservices,complementaryinformation)andcharacteristicsofthecontext(e.g.,stockcharacteristicssuchasspeculativeorstablestock).Thecontributionsofthestudyincludeextendingourunderstandingofthevirtualcommunityevaluationbyconsumers,theexpositionofroleofnetworkexternalitiesinvirtualcommunitynetworks,andthedevelopmentofanalgorithmicmethodologytoevaluatethequalityoftextualdata.TheresultsprovideusefulguidanceforpracticeonthedesignandcontrolofVICs.KEYWORDS:Networkeconomics;Computer-mediatedcommunicationandcollaboration;Virtualcommunities;ITdiffusionandadoption21.IntroductionVirtualcommunitiesprovideunprecedentedopportunitiesforconsumerstointeractwitheachotherandtoinfluencehowbusinessesfunction.BusinessWeekmagazineinitscoverstory(June20,2005)noted“companiesareusingInternet-poweredservices[virtualcommunities]totapintothecollectiveintelligenceofemployees,customers,andoutsiders,transformingtheirinternaloperations.”However,attractinglargenumberofconsumersintoanetworktotapintocollectiveintelligencewillalsoresultinincreasedinformationprocessingcosts,generatingnegativeexternalitiesforparticipantsandthecommunityowner.Tounderstandthedynamicsofvirtualcommunities,thispaperaddressesthreequestions:(a)Howdoconsumersvalueonlinecommunitynetworks?(b)Howdocompetingnetworksdifferintheirvaluepropositions?and(c)Howdousersdifferintheirpreferencesfor,andtheirchoicesof,virtualcommunities?Weaddresstheabovequestionsinthecontextofvirtualinvesting-relatedcommunities(VIC,henceforth).Inaddition,toaidintheanalysisoflargeunstructuredtextdata,thestudydescribesanalgorithmicmethodologyforprocessingthecontext-specificvirtualcommunityinteractions(i.e.,textualdata)andtounderstandtheirvalue.Thevalueofavirtualcommunitydependslargelyonthecontributionsfromusersintermsoftime,resourceandknowledge(Butler2001).Virtualcommunitiesmayexhibitpositivenetworkexternality.Thatis,themoremembersavirtualcommunityhas,thehigherthevalueforalltheparticipants,andthemoreusersitislikelytoattractinthefuture;aphenomenonextensivelystudiedinbothacademicresearchandbusinesspractice(e.g.,KatzandShapiro,1985;Asvanundetal.2004).Anincreasingnumberofbusinessesareleveragingthispowerofvirtualcommunities.ThesuccessofeBay,forexample,isattributedtosuchnetworkeffects.Softwarebusinessesarefacilitatingthecreationofvirtualusercommunitiestosupportaftersaleservices.Theopensourcedevelopmentmodelisbuiltonthesustainablestrengthofonlinecommunities.Thus,competitionamongfirmsis3alsoacompetitiontoattractindividualstotheircommunities.OneofthemostwidelyusedandknowncommunitiesovertheInternetaretheVICsforindividualinvestorstoexchangeinformation(DasandChen,2001,AntweilerandFrank,2004,Wysocki,1999;KonanaandBalasubramanian,2005).VICsofferauniqueopportunitytoobservetheevolutionof,andcompetitionamong,multiplecommunities(e.g.,Ya