Marginal Notes: Social Media

Social media is an industry that not only weathers economic recession but flourishes under such conditions. Indeed, The Economist argues:

The downturn will also accelerate the use of social media, such as blogs and social-networking sites, by consumers looking for intelligence on firms and their products. As trust in brands is eroded, people will place more value on recommendations from friends. Social media make it harder for brands to pull the wool over consumers’ eyes, but they also offer canny companies a powerful new channel through which to promote their wares and test new products and pricing strategies.

It is in this context that we must consider Empire Avenue -- a new social networking and marketing site. Empire Avenue or EA is an online 'influence' stock exchange combined with an advertising platform that allows individuals and organizations to buy and sell virtual shares in people and brands, with stock prices determined by influence and activity on blogs, Facebook, Twitter and other social media applications.

Writing for The Province, Harris reports that the recession has dimmed our view of conspicuous consumption while impacting traditional symbols of prestige:

According to researchers, pricey cars and similar luxuries are now just one part of a vast new "statusphere" that includes everything from a person's eco-credentials to their number of Facebook friends and knowledge of local restaurants. Think of it as the democratization of snobbery.

"As the priorities of society change and diversify, so do the ways in which consumers can get their status fix," says Chris Turner, head of research and analysis for Trendwatching.com, the consumer behaviour clearing house behind the report.

"The first priority for brands [must be] to move away from an assumption that their customers' status is necessarily based on the old priority of 'bigger, better, harder' consumption."

Recognizing this shift, the new virtual stock-exchange Empire Avenue uses a person's online contributions -- not their bank statement or worldly possessions -- as a yardstick for their worth. The more influential someone is in their social networks, the higher their share-price and thus their potential appeal to advertisers, which the Edmonton-based startup will approach on members' behalf.

"It's really hard to say what status is these days," says Duleepa Wijayawardhana, CEO of Empire Avenue. "To me, it's not about who has the most toys; it's about who has the most knowledge. It's about who is willing to communicate and who's willing to go the extra mile to share information."

It is fascinating to consider the motivations of consumers and producers (or marketers) participating in Empire Avenue. From my experience, EA seems to attract a diverse group who appear to have equally diverse motivations for participation. A large segment of players are people who have careers in social media and marketing. (I imagine that they are also among the consumers who are best targeted by social media!)

There are also many people who approach Empire Avenue purely as a game and social networking tool. I would argue that real world status and 'influence' is not a significant motivating factor for this group. (That's not to say that the fun of a growing stock price is not significant motivation.) They are driven to participate for fun, leisurely competition and socializing.

One thing that I've enjoyed about Empire Avenue is the ability to encounter and network with new and even unlikely people. In my experience, Facebook is a good mechanism for connecting with friends from the physical world, networks of bloggers and networks of politicos. My Twitter network is very much dominated by people with an interest in local, national and/or global politics.

Just like a physical marketplace, Empire Avenue connects me with a diverse group of people who don't necessarily share similar interests or views. And, while EA is still dominated by participants from Alberta - and, in particular, Edmonton - the number of international participants is growing. Even today, I had to interrupt work to negotiate with a contact in Sri Lanka since it was already 2:00 AM his time and he was eager to get a 'deal' done! I do think, however, that Pitcher makes a solid case that the social networking and gaming aspects of EA need to be developed. There's limited room for social connection within the EA itself. In my experience, there's little discussion in the segmented communities. More discussion seems to occur via Twitter or blogs. (In fairness, I have not put too much time into the communities so I may explore that road more.) I do think it would be nice to have a general Empire Avenue community for all users. Like Pitcher, I don't want to 'flood' my non-EA friends and followers with every thought I have when geeking out over the site.

So far, participating in Empire Avenue has not significantly changed my online behaviour in other social media spheres. I have, however, occasionally considered how my online interactions will affect my stock. Suddenly, in the middle of a tweet-off, where I am espousing strong political views, I wonder if I will see the sudden departure of stockholders! I am pleased to report that virtual dollars have not compromised my integrity. And, so far, people seem to be hanging on to my stock.

I must say that I am fascinated with what I am discovering about social media as an industry. I recently wrote to the incredibly patient CEO of Empire Avenue - Dups - to see if I could get information about the algorithm used to determine stock price. I was actually seeking a tidbit of information for this blog entry. For instance, I asked: "Is the total amount of online activity points weighted differently depending on the percentage of shares sold? For example, if person X and person Y both score 100 activity points but person X has 100% of shares sold and person Y only 70%, does person X then receive 100 activity points while person Y receives only 70 (100 times 0.7)?"

Dups responded that he absolutely could not reveal any of the math. At first, I thought the reason would be possible abuses of the system, but then I realized this algorithm is the real cash cow of Empire Avenue. All the simple equations in my head crumbled when I read this article comparing the algorithms used to simulate real-world company functions.OK, so I am a bit naive when it comes to this topic; it's clearly more complicated than I first imagined!

So what do we know about how stock price is determined?

Empire Avenue does offer some critical, if vague, information on share price:

Lots of different factors will affect your Virtual Share Price, and we can’t tell you all the little secrets. Just remember: other users buying virtual shares in you on Empire Avenue is an important factor in your Virtual Share Price, but just as important is your activity on social networks and your own blogs.

I would argue that buying shares and engaging in any activity on Empire Avenue (not just being bought) is also key. This is easily observable as you review profiles. One might discover an active blogger and tweeter who doesn't participate in EA itself - in my experience, their stocks don't get above 14 or 15 Eaves. (Eaves are EA's virtual currency.) Conversely, one may set sight on someone who is gung-ho about EA, but who rarely or never tweets or blogs. Again, these are stocks that often struggle.

While it is frustrating to not know exactly what makes one's stock soar, it is this ambiguity that lends to the addictive potential of the game. Indeed, the intermittent reward built into the game reinforces participation. Anyone who has taken a psychology course knows that rewarding a behaviour at varying intervals will increase the given behavior far more than will predictable and regular reward. Variable reinforcement is a critical addictive ingredient in gambling and games such as World of Warcraft.

Fortunately, I have yet to develop a full blown Empire Avenue addiction. Although, I recently became a bit psycho about it when I was up one night struggling with a cold. (That may be a story for another time.)

What began for me as a diversion in the form of an online 'game,' has become a personal adventure with significant discovery and sociological intrigue. My blogs have gotten a bit more exposure and I have made some new online connections. Most significantly, I can say that I really have a better understanding of the nature of social media. I've even landed myself on the Empire Avenue leader board...for the time being!

I'm sure some of you have waded through this blog entry thinking, "A little less sociology and psychology and a little more Empire Avenue, Lady." Relax. Below, I've linked to some good blogs with Empire Avenue analyses and updates. Among these, you'll even find detailed strategies to boost your stock. This list is not exhaustive so I encourage you to conduct your own search since new analyses are popping up routinely.

If you take nothing else away from this blog entry, do take this stock tip: Go buy (e)COSTE!

Happy trading.