Can Social Media Influence be used as a factor in HR recruiting?

Recently Salesforce.com posted a job regarding a position as a Community Manager. Among others the company asked for a Klout score of at least 35. For those not in the know Klout is one of the front runners in the social media influence analytics. It features 19 social networks users can choose depending on where they believe their most influential actions come from.

salesforce.com recruits community manager
Salesforce.com’s Community Manager position drew a lot of attention

After the position showed up bloggers started discussing the possibility that in the future such a score might be used on a wider scale in HR recruiting.

Just like education, previous experience and maybe hobbies, should we expect such an influence score to become a widespread requirement in job applications? Probably not.

Although building sustainable social networks (in the real world) can mean a greater influence, a higher life standard and probably a happier life, online social networks are not (usually) real social networks. Social media can go so far and potential employees should not be judged on this type of score.

Think of a bank CEO. He probably does not have a really wide social network. But the small network he is active in, although usually not very popular, can be really influential in the real world and his actions and decisions highly disruptive. This might also be applied to scientists, lawyers, inventors and many other jobs that don’t need thousands of friends to be highly successful in their everyday lives.

Social media influence should be a requirement only with social media jobs. Maybe not even there. 

Mobile gaming trends

Smartphones are taking the world by storm. They appear to be the fastest growing technology we have ever seen. They slowly grew to a 10% adoption rate and then something changed everything: Apple launched the iPhone. 2 years later the adoption rate reached 40% in the US. Right now nearly half the adults in the US own a smartphone.

Tablets are not doing too bad either: 1 in 4 smartphone owners owns a tablet. The tablet market is expected to reach a 40% adoption rate in the US by 2016.

Mobile app stores

Apple pioneered a new way  of looking at software distribution that has deep roots in Steve Jobs’ vision of “connected consumer”. With the launch of the App Store, Apple triggered a behavior based on instant software delivery and micro payments. The great thing about the system is the seamless integration between the devices and the central market. Payments are easy to make, software installation does not require any advanced IT skills and the iOS makes it easy to operate apps.

revenue from app stores
Apple leads the way. Amazon follows closely.

Apple app store market was a huge success. It now features more than 500 000 apps, 66% of which are paid. This apps generated over $3.4 billion revenues Apple paid to its developers. Google Play, the Android app store, paid “only” $240 million.

Google Play is actually not the biggest retailer of Android applications. The main challenger to Apple’s reign seems to be the Amazon App Store. According to mobile analytics company Flurry, Amazon generates 89% of iTunes App Store’s revenue.

Mobile Gaming is on the rise

Angry birds space
A sequel to the popular Angry Birds is expected this year

“All work and no play makes Jack a dull boy”. Jack decided he would play a game on his smartphone and now the mobile gaming industry is expected to generate $7.5 billion dollars in revenues by 2015.

Established game developers such as EA, Gameloft, Ubisoft, talented new comers such as Zynga and Konami and independent game studios jumped the wagon. They had to learn the new rules and understand the mobile users behavior as the mobile gaming industry is a new breed, where concepts such as social gaming, micro payments and in-app purchase matter. The fast growing user base expects new releases, awesome graphics, multiplayer support and the gaming companies serve them well after a few past flops.

Freemium games

The top grossing games share a common feature. They’re freemium. That means they’re free to install and play and generate revenue from in-app purchases. I have discussed the model in the “Social Gaming Architecture” article but let’s go over the basics again:

  • users are free to install and play the game
  • they get incentives to help them understand and start playing the game on a daily basis
  • as the time passes the games are harder to play and game gratification is harder to obtain
  • by buying in-game upgrades the users can get upgrades, virtual coins etc.

The future of mobile gaming

We should expect mobile gaming to become mainstream. With better connectivity between tablets, smartphones and TV’s we will probably see a decline in gaming consoles popularity and sales.

Because the cost of entry in such a market is rather low for now the market will see new challengers to established gaming companies. Rovio was acquired by EA after the highly popular Angry Birds game went mainstream but Rovio is just one of the many studios just trying to get into the market. I expect mobile gaming, just like social gaming was, to have a disruptive effect on the overall gaming industry.

Facebook money is not real money. Yet.

The dollar
Like ?

First off –  a little introduction on money. When you think of money, what do you see? I bet you picture some coins, maybe banknotes, possibly your credit card. Think about this: in 2011 cash (the things we physically picture as money) in the US accounted for under 16% of money currently available (broad money).

As debit card and credit card adoption increases, as eCommerce grows more and more, the need for “narrow money” (coins, banknotes etc.) decreases. Most of our money exists just as bits of information in the financial system. I presume that in the future most of the currencies will disappear as we’ll move toward a more globalized approach to money, a world with one single currency. We do have a world bank, we have an international monetary fund – we will have an international currency.

We will strip money out of all their symbolic value and give them just one purpose: to enhance human collaboration and trade.

We accept and trust the financial system, not money per se

What we need is a world-wide acceptance of a certain currency, the universal ability to use that currency and a integration with the legacy financial system.

Call me crazy but I believe Facebook credits, the monetary system Facebook imposed on game developers could one day do that. If you think about it it’s not the currency we have to accept. It’s the system that’s issuing it. We trust Facebook with our personal data, our likes and dislikes, to some extent our social life. We could one day trust it with our money.

One might be skeptic about the idea of a Facebook – ran monetary system. However, Facebook is dominating the internet in terms of share of time and number of users.  The Internet is dominating human communication and in the future – trade. It is a matter of time until the electronic currency will shift toward a more Internet – oriented form.

If so, maybe George Soros was not wrong to buy Facebook stocks.

Social gaming architecture

“Your friend sent you a request” says my Facebook notification. That must mean one of my Facebook friends is playing one of Zynga’s or Konami’s social games. You know the type – manage a farm, a city or something close to that. You’ve finished building a windmill – what an achievement –  share it with your friends. Need your crops faster – oh, no – share it with your friends.

Zynga’s top brand: Farmville

These type of games, however annoying are highly addictive (at least for a moderately short period of time), highly viral and for a while they seemed to be the grim future of the gaming industry. After a fast growth period Zynga reported a loss of $400 million dollars in 2011. Not because of how bad its games were doing (Zynga owns 2011 top 5 most played games on Facebook and its revenues were $1.14 billion dollars). No, they payed “stock-based compensation expense for restricted stock units issued to employees”.  $510 million dollars in stock-based compensation it did not had to pay until it went public.

However bleak Zynga’s future might look they still own some of the most popular social games and they started to adapt to the rising trend of mobile-based gaming (tablets and smartphones).

Its main competitor, Konami, is not doing too bad, either. Actually Konami’s social gaming division reported a 77% increase in revenue. Given the sharp rise in Zynga’s and Konami’s revenue we can see clearly that social gaming is a great investment . What makes it so?

Social gaming is highly addictive

Social gaming makes use of some incentive design based on social activity and achievements. Social gaming companies use human psychology to create levels of addiction close to gambling and these games usually have slow learning curve, use many motivators to commit users to revisit the game (plant a crop, come back after 10 hours to use it) and use instant gratification to convince users to purchase upgrades.

Behavior economics in social gaming

Interestingly, most of behavior economics principles can be found in these type of games: from peer pressure to “doing the right thing” (don’t let your crops die) and clearly seeing the outcome of one’s action – all add up to a picture where behavior economics seem to be the baseline for virtual economic architecture in games such as Farmville.

The virtual life in social games

Collectible real-life World of Warcraft coins

Reality perception is altered when such games are played and playing the game seems to be more of a daily task then entertainment. To understand the high interest users have in this type of gaming we must remember that in our day to day life few things seem to add up like the virtual life in social games does. Click a button – start building a farm. Click another – plant crops. Come back after a day and you can cash in your hard earned coins that you can reinvest. It is a little harder to do that in real life. Sometimes – no matter how hard we try achievements don’t seem to pup-up.

We expect an end to our actions. If possible a fortunate one. We have been planting crops and harvesting them for thousands of years. Our bed time stories always have an end. The movies we watch program us to expect an introduction, action and the grand finally. Our lives don’t usually have that and this is one of the causes of modern stress and depression. Having a secondary life where everything is simpler and more colorful is a reward in itself.

The architecture of social gaming

Most social games have a pretty simple story that gets you hooked. The first form of profitable social games were the MMORPGs (Massive Multiplayer Online Role Playing Games) where you played a character and took possession of his actions. Other players would join in and you would search for coins, artifacts and battle different monsters or other players.

What are the lowest common denominators of most successful social games?

1. The story – as we are used to stories from infancy we best deal with adopting a new concept if we receive it in a story. Weather you are living in a future where aliens are threatening to take over the universe, a village where your survival depends on how well you manage your farm or a fantasy world where elves and trolls are trying to get you – you need a story. Without a story no game-addiction can develop, there is no understanding of one’s actions and the game flops.

2. The setting – the environment is really important as that is the context for the players actions. If you are in a farm you don’t usually battle star ships. There is no need for extra mana to cast a spell and there are, usually, no monsters you have to slay.

3. The character – people play games to foster their imagination and to escape the usual reality. That’s the same reason we watch movies – we need alternate realities where we can embody some other character.

4. The economy – whether players are searching for extra stamina bottles, artifacts, coins or other incentives they do that because they understand the need for an alternate economy. Economics are so well embedded in us that social games that have no economic notion can never become mainstream.

5. The limitations – social games have to have limitations. Without limitations there are no achievements. Without achievements there is no psychological  gratification. No limits – no endorphin.

6. The incentives – what makes users tick? Incentives. Search for an artifact and you can defend your castle. Develop more farms and you can buy more land. Upgrade your ship and you can win the battle you previously lost. Incentives makes people act. Just as the real world economics incentives are the carrot that works better than the stick.

7. The social features – imagine playing tag by yourself. It isn’t too fun, is it? We are deeply social animals and everything we do is based on how other people react to our actions. Social gaming evolved so fast that it makes it so easy for users to attract peers and develop common interests.

What social gaming lacks right now?

Most of what we now call social games have developed strong social ties, a great system of incentives, some kind of limitations, some kind of game economics but they lack the story and characters. It’s not all about the graphics. The user has to understand the back story and understand who is he in the game. Just like our real lives the most important things about how we relate to the world are the things that shaped us, who we are and who will we become.

Zynga’s social games lack the story and the characters which is not much of a problem right now but people will get bored with the shiny incentives and peer pressure. For a long term user retention social games need to develop personas and epic stories.

Thomas Metzinger, a German philosopher, stated in “The Ego Tunnel” that we understand reality through a scaled down replica of the reality surrounding us. He based his research on neurological research, human psychology studies and artificial intelligence tests. Why is that important for social gaming? If users are not fully immersed in the gaming reality – they can easily abandon games. The game world is not really a personal perception of reality. Social games are shifting the perception of what is real and what is not but only for a limited time.

In the future I expect social games to develop the social gaming worlds to an alternate reality and developing characters. It’s happening right now with World of Warcraft. There are 10.2 million paying subscribers, fully immersed in the story and characters Blizzard created.

Bonus takeaway

In 2010 we wrote a study on Facebook Gaming. Most of the assumptions and predictions turned out to be right. Here is Gaming on Facebook .

Part two of this article will come soon and will focus on the economics of social gaming.

 

Is Facebook moral?

Many things have been said about Facebook. With more than 900 million users Facebook is changing the way we communicate. People share their thoughts, photos and stay connected to friends through the largest social network. 1 out of every 5 webpage views on the internet is on Facebook. That means Facebook is big and popular but is it moral?

Why question the Facebook’s morality?

Facebook is not just an website. It is a communication platform where almost 1 billion people gather daily. Facebook shapes these people’s reality through the information it filters. You must be aware by now that not all your friends’ posts appear on your all but just those that Facebook deemed interesting to you (“top stories”).  Having such an input on users outlook on reality means that Facebook controls at some incipient level the things we see and therefore the way we perceive reality.

Think about the way we usually perceive the world through our senses: sight, smell, taste, touch, and hearing. Imagine one of your senses would be altered. Let’s say sight. If we weren’t able to perceive the colors we would believe the world is black and white and by consensus the world would be defined as black and white.

Social media in particular and media in general are filters that define our perceived reality. They help us build a mental replica of the world in our brain. Any alteration of these inputs alters our reality.

Think about what that means in terms of human control: you have one trusted source of information that is able to filter some details out of your reality. How does Facebook does that, how does Facebook filter information out of my news feed?

Is Facebook moral?

Facebook, Twitter and other social networks revolutionized social relationships. With a larger pool of potential mates users can find themselves a little to attracted to the idea of polygamy. A recent UK study even pointed out that a third of all recent divorces point towards Facebook as a contributing factor.

Users, especially young ones, point toward a certain depression caused by the social network. The reason seems to be the fact that they don’t always feel adequate among their social media friends. With others posting interesting status updates and photos regarding an unrealistic lifestyle (ever had the feeling that all your Facebook friends seem to be either travelling, partying or just enjoying a perfect life?) teens feel that they can’t measure up to that kind of lifestyle.

Facebook also seems to increase jealousy and affect romance as people can now find information regarding their partners they couldn’t have found in the past.

These things paint a pretty dark picture of the social network we thought to be spotless in terms of helping human relationships. That picture is not actually accurate, though.

Facebook is as moral as guns

Facebook caused divorces
Divorces are not caused by Facebook.

Facebook is just a bunch of code patched together. It does not cause infidelity, depression or jealousy by itself. It just helps these things, sometimes.

I will focus on the fact that one third of all marriages in the UK point towards Facebook as a contributing factor. Data shows that there is a slight increase in divorce rates in UK, but it can’t be caused by Facebook.

A 2011 study showed that there was a slight increase in divorces in England and Wales, in 2010. However the number of divorces per thousand married population have actually gone down in the last ten years.

More so, if you would look at the image on the right you would see that the year Facebook opened to users 13 and older is the same year the number in divorces started going down.

If Facebook was actually causing adultery and divorces the numbers would have gone up by 30% but they didn’t. If you are looking for a correlation the data points to an actual decrease in divorce rate.

Facebook can’t be blamed for choices people make

Adultery, lies, jealousy, depression are all  part of what makes us human. We make wrong decisions and we are willing to blame anyone or anything for our mistakes. Sometimes the lack of privacy that Facebook is known for exposes those mistakes. Of course people blame Facebook for their divorce. They blame it because they got caught.

Why did George Soros buy Facebook stocks?

George Soros buys 341.000 Facebook Shares

As you might have heard George Soros, the Hungarian – American investor known for his 1 billion $ profit in the 1992 “Black Wednesday UK Crisis”, is reported to have sold his stakes in financial companies such as Citigroup, JP Morgan, Goldman Sachs and Wells Fargo, and bought 341 000 Facebook Shares.

Why would Soros buy Facebook stocks?

The decision to buy Facebook stocks that have been steadily falling since the IPO  is at least intriguing as the share price dropped 45% since the 18th of May 2012, the day when Facebook went public. Even more intriguing is Soros’ decision to sell his financial companies shares over Facebook.

Let’s look at the chart and then a quick set of facts:

Is this the end of Facebook stocks nightmare?

As you can see the drop in shares price seems to have leveled out. I suppose that might be the lowest point Facebook will see in a long time. After all the company is doing great in terms of users and revenue (next to 1 billion users, Q1 2012 revenue up 45% from Q1 2011).

LATER UPDATE: Facebook unlocked its inside investors shares and the share price dropped 6% and than bounced back to ~$20 per share.

What does George Soros know that we don’t?

George Soros is known as a very informed investor. He knows when to sell and when to buy. He also sold his minor stakes in Intel and Dell.

I can only assume that George Soros bets on one of the following:

  1. A large partnership Facebook is about to join. Last week I’ve noticed some Apple-Facebook motion and discussed the possible implications. Such a move will have positive implications on Facebook’s stocks.
  2. Facebook stocks will begin to rise as the company will provide the market with evidence of its increase in revenues, in the future.
  3. George Soros’ is attempting to trick the market into increasing demand for Facebook stocks. His actions can be enough to increase the Facebook stock price.

I believe that by the end of the year Facebook stocks will see a positive trend and pass a 25$ /share price. After all Facebook is a very valuable company and will continue to be so in the future.

Gift economy – an idea to change the world

We live in a society organized on the principles of scarcity as driver for profit and social recognition. Our free market system works on a pretty simple principle: people exchange goods with each other with the help of a monetary system. As a result the ones that are better at playing this game get more social recognition, live longer, better and attract better mates.

Open markets vs Centralized planning.
Capitalism vs. Communism

The last hundred years proved that the open market is a better response to people’s needs and wants than the communist economic theory. Communism failed to deliver the results it promised. Centralized economic planning eventually lead to mass social movements, frustration and eventual destruction of communist regimes. The communist governments were parasitic in essence, planned the economic development and backed their decisions through military force.

There are still some communist states at the moment and the highest profile is clearly China. With a booming economy one might wonder what did China do and other communist states (such as the former Soviet Union) did not.  First of all, given time, the Chinese regime will have to change its approach to governance. It already started doing so. Right now China is not as communist as we expect it to be. Collective ownership and central planning are rarely found in China’s economy as every business is at least partly private.

Although there is still just a single party, the almighty Communist Party, the economy is a mixture between capitalism and communism, with very few Marxist methods. Local leaders are evaluated based on economic growth indicators and are encouraged to find innovative ways of fostering growth.

Therefore – the one communist regime that did make it is not that communist to start with. Basically the Chinese government managed to reach a smooth transition to capitalism.

We can see that capitalism was a better bet than communism but is there something better than capitalism? I believe so and we can see this in a very old type of economy that resurfaced in the Internet Age: the gift economy.

The gift economy

Think about the the post you are reading right now – you are getting information that was distributed freely. It is hosted on a free blogging platform, developed as open-source software, based on an open-source programming language, having data stored in an open source database. This is an example of how “free” and “open” can happen. You are able to read this because I wanted to share this information with others, some people thought of the idea of hosting blogs for free, some other people contributed freely to the blogging software and some other people developed the tools to make this happen. Asking nothing more in return than gratitude and recognition.

“I can’t buy food with gratitude and recognition”. Of course you can’t but you gratitude and recognition mean prestige and prestige is a very good way to land a good job or deal.

Have a look at what some of the best developers in the world are doing: they write free software, they get recognition, they get people using their free services and then get founded by venture capitalists to expand their software into large companies. Take Facebook for example: it charges nothing, its prototype was built and distributed freely by Mark Zuckerberg. In time the social network made Mark very rich and it all started with a gift he offered to the world.

If you think about it, what we call wealth is basically a recognition of our contribution to the world. We provide a service or product, the price people agree to pay for this is just quantified recognition. That’s basically the whole basis for our current economy.

If we were to take out the monetary system we would basically have a gift economy that would cycle through groups of individuals.

Why did the internet develop a gift economy?

I believe the Internet is not just a technology. It is a world in itself. It has its own rules, its own citizens, its own localized governing groups (highly influential internet users that can provide leadership for their friends or fans). It must develop its own economy. As this economy does not (yet) have a specific largely spread monetary system (we still use offline payment methods) we needed to find a way to address this issue.

Books and ideas as gifts: Paolo Coelho allows people to pirate his work.

Gifts are the solution and intellectual property is exactly the kind of product we can offer without losing anything and at the same time gaining prestige and recognition. Best selling writer Paulo Coelho was talking about piracy and the S.O.P.A. (Stop Online Piracy Act) in some terms we would not expect from someone that makes a living (actually a fortune) from selling his books:

As an author, I should be defending ‘intellectual property’, but I’m not.

Pirates of the world, unite and pirate everything I’ve ever written!

The good old days, when each idea had an owner, are gone forever.
First, because all anyone ever does is recycle the same four themes: a love story between two people, a love triangle, the struggle for power, and the story of a journey.
Second, because all writers want what they write to be read, whether in a newspaper, blog, pamphlet, or on a wall.

If we think about it his actions are actually very sound in terms of business: he wouldn’t sell anything unless people would know about his work. The more people know about his work, the more prone to buying they are. Behavior economics principles state that we care about other people think and we are prone to do the right thing. We know about the writer as we have read his books online. So did our friends. We know that he should get some kind of financial incentive for the work he put into writing the books. The easiest way to do that is to buy the books.

As a result Paolo Coelho, a writer that somehow pirates his own books, has sold more than 100 million books. “This has nothing to do with giving away your work for free” you might think. Yes it does. Uploading a free Russian translation of his book “The Alchemist” resulted in an increase in book sales from 1000 to 1 000 000 books per year.

Shockingly … Africa still has a poverty issue.

Piracy and Gift Economy

Piracy is an issue of great debate this days. Supposedly this form of information sharing is harming the media industry. I guess piracy plays its part. However, piracy is the cause AND effect of increasing knowledge, curiosity and need to access information.

Wealth distribution inequality

Wealth is not distributed equally. Not by a long shot and the gap is increasing fast. Here are just a few facts (Sources: The Conference Board of Canada, Fight Poverty):

  • 42 % of world income is distributed among the first 10% of world’s richest people
  • 1 % of world income goes to the poorest 10% 
  • half the world’s population lives with under 2 $ per day
  • 20% of the population consumes 86% of world’s goods

Those numbers are astonishing and poverty is not going to go  away unless we do something about it. Foreign aids do not help as corruption seems to go hand in hand with poverty. State loans don’t help either as the poorest countries seem to be the ones most prone to impose the repayment of loans to their already impoverished citizens. Humanitarian donations and philanthropic concerts performed by Bono don’t work either as they usually help the ones that need it less: the rich and powerful.

There is however something that does work: education. Studies showed that education is very effective in fighting poverty. Educated individuals improve their own life quality and help economic development.

Empowered, informed, educated

Empowered, informed, educated should be the three words on any agenda that addresses poverty issues. With the proper infrastructure anyone in the world can have access to information that can make the difference between famine and prosperity.

The gift economy can help those in need more than money can. Right now the motivated individual can find all kinds of information online regarding all sorts of topics from survival techniques to quantum physics and advanced health courses.

India GDP Growth
Source: http://www.marketresearchanalyst.com/2008/01/06/indian-civil-aviation-market-posed-for-growth/

Internet is already helping lives. The information should be free if we are serious about addressing world issues. Piracy helps. Software companies are outsourcing their IT departments to countries like India thus lowering costs. Fun fact: piracy rate in India is 64%. Do you see a correlation there? I do. Those people needed to learn  and increase their revenue before they could pay for software. If they would not have had access to software and information they would have never had the kind of skills that allows India to have the economic growth it has (see chart).

Looking at numbers and charts we cannot fully understand the impact gift economy and information sharing has had on countries like India. But think about the numbers of lives that were saved, the millions of people that could afford to eat each day and the impact this has on the future to better understand the bigger picture.

Gift economy is changing the world

Many people are worried about the impact gift economy has, the way information sharing is changing the world. That’s why we are seeing more and more talks regarding things like SOPA, ACTA or other intellectual property management acts. The media is changing, software is changing, access to information is changing and that means less money for those in control right now. It also means a better future, a future where everyone actually stands a chance at living a decent life.

There are 7 billion people in the world right now and the numbers are growing fast. Relying on centralized organizations to improve life is not the way to go. The individuals need to be empowered, informed and educated if we are to survive the next millennium. The gift economy is still in its youth but things are moving fast in the age of Internet. Ideas spread fast and the gift economy is the kind of idea that changes civilizations. As Voltaire said:

“An invasion of armies can be resisted, but not an idea whose time has come.”

Behavioral Economics and Social Media

Humans are not usually rational. The neoclassical economists were wrong. We don’t make the best economic choices given more information. We do not plan for the future. We care about what others think of us. We act on impulse. All these things are the basis for Behavioral Economics Theory.

This (rather) new economics theory has caught momentum and is now one of the hottest topics in theoretical economics. Well… as hot as an economics theory can be. It blends psychology and neoclassical economics (the thing we generally call economics) to help explain why we act the way we act and to help policy makers increase the likelihood of better economic decisions.

There are many variables and a lot of information on the subject but for a better understanding we can look at some principles outlined by The New Economics Foundation:

  1. Other people’s opinion matters: we take great interest in what others think or do. We don’t usually get informed on economic topics. We usually copy behavior and decisions. Why? First of all we are a social species. We want to be socially acceptable and we can do that easiest by mimicking. It’s also easier.
  2. We are creatures of habit: even if what we do is economically wrong we will continue doing it out of convenience or because we have a habit that forces us to do what we do.
  3. We want to do the right thing: we have an innate sense of justice that leads our behavior. Most of us pay our fines not because we might go to jail but because “it’s the right thing to do”. We help others because it makes us feel good, not because there is any financial incentive in it. Actually such incentives may actually be counter-productive as they take out the primarily motivation – doing the right thing.
  4. We act according to our self image: we care about our commitments and we like to stand up for what we believe in. We see ourselves in a certain way – that leads us to certain kind of behavior in order to avoid cognitive dissonance.
  5. We are more loss averse than gain interested: we hang on to what we believe is ours. We treasure our possessions more than we value what we could potentially gain.
  6. We are not very good with data: we don’t really understand numbers, we’re bad at calculating probabilities and we take decisions based on how information is presented to us.
  7. We need to feel empowered to take action: too much information can lead to the inability to act. Too many options make us feel helpless. People need to have a clear understanding on how their actions affect the world around them to fully commit to any activity.

Behavioral economics in social media

Feelings, sharing, likes, friends, fans are not words we usually hear in business economics. We do hear them pretty often these days in social media. Business are starting to understand the importance of customers behaving socially. Social behavior is what drives companies to success or into the ground. There are no formulas in financial economics that can describe the feelings people have toward one company or another.

Classic economic behavior can be described in numbers on a spreadsheet but is not the way real people act. It is a flawed economic model in an economy that results in debt and frustration. The first result can be seen in the financial models we’re currently looking at. The second one cannot.

There is a growing media that helps express and amplify the principles of behavioral economics. That is the Social Media. With the growth of such social networking companies such as Facebook or Twitter, people started acting more and more connected. We now have an way of observing behavior with the help of social media. As it turns out all the principles of behavioral economics can be seen in social media. Let’s have a look at them:

Behavioral economics principles at work in Social Media

  1. Other people’s opinion matters: we care what our (Facebook) friends think of us. That’s why we share interesting quotes, we “like” only certain brands and we are very careful before posting something online.
  2. We are creatures of habit: first of all have a look at your behavior today. You have probably checked your Facebook timeline or Twitter profile at least once today. Why? Because you are accustomed to Facebook. You can’t give up checking the news, the photos your friends posted or the new products your favorite brand advertised on Facebook. Increase in mobile internet popularity is only enhancing this behavior.
  3. We want to do the right thing: people are sharing more and more social causes through social media. With over almost 1 bn users, Facebook acts as a catalyst for social causes. Social causes spread fast and users are very likely to share social messages. But that’s not all. Individuals as well as organizations now know that anything wrong-doing can have a long term negative impact on their life. Here is a video of a police officer pepper spraying demonstrators that quickly lead to a large negative social media response. If you were to search Google for the phrase “Sgt. Pepper Spray” you will find no less than 213 000 pages that frown upon his behavior. Eventually his email address and home address leaked to the internet. You can imagine the outcome.
  4. We act according to our self image: People have a certain self image that translates into social media behavior. For example: Barack Obama’s “Hope” presidential campaign was not really about the soon to be president. It was about the people that he represented. People found in the campaign a positive message for change. They’ve seen that the presidential candidate expressed a need for better people to run the country. People such as themselves. A lot of Obama’s success story happened on the internet where people expressed their views on “Change”. The messages they’ve spread were positive expressions of self image. People were not “like”-ing Barack Obama. They were “like”-ing themselves and the way they wanted their friends to see them.
  5. We are more loss averse than gain interested: Think about how often you see messages like “don’t lose the opportunity”. Why? Because they work. Groupon cashed in on the feeling people have regarding limited time discounts. So did Woot. Using loss-aversion works really well in online retail.
  6. We are not very good with data: If neoclassic economics theory would be true and if we really were rational beings, Groupon would never had caught on. Buying a discounted sky dive or a night lamp when we have ten already does not make sense economically. However, people did buy those things. Why? Because social media goes hand in hand with presentation bias. Suppose we see a 70% discounted offer on blue handkerchiefs that were already bought by 300 people. We think – “oh my, I must buy that handkerchief now or they will go out of stock. Look – 300 people already bought it”. The information has been framed (70%) and enhanced by other people’s behavior. We do not think whether we need the handkerchief or not, whether it is an economically safe behavior. We see the deep discounted price, we see that other have already bought this (see point number 1.) and we “need” to buy the handkerchief. Now.
  7. We need to feel empowered to take action: there are millions of products on Amazon. Billions of web pages indexed by Google. If we were to browse rather than search we would probably get frustrated and quit. However – we still use Amazon and we still use Google. Why? Because of targeting. Both companies dig through millions of terabytes regarding other people’s behavior to serve us the products and results we are most likely to buy or open. That makes our choices easier and we feel empowered to act.

I believe behavioral economics are here to stay. The kind of human behavior they explain has always been here. Social media is just acting as a catalyst to this kind of behavior. If we are to look deeper into behavior economics we need to use social media data to better understand the way we act and how can we get to economic results. The internet economy is growing at a faster rate than any other sector because successful online entrepreneurs already know the seven principles outlined here even if they’ve never heard of behavioral economics.