Abstract:We study the market for apps on Facebook, the dominant social networking platform, and make use of a rule change by Facebook by which highly engaging apps were rewarded with further opportunities to engage users. The rule change led to new applications with significantly higher user ratings being developed. Moreover, user ratings became more important drivers of app success. Other drivers of app success are also affected by the rule change; sheer network size became a less important driver for app success, update frequency benefitted apps more in staying successful, and active users of Facebook apps declined less rapidly with age. Our results show that social media channels do not necessarily have to be managed through hard exclusion of participants, but can also be steered through "softer" changes in reward and incentive systems.

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We study the market for applications on Facebook, the dominant platform for social networking and make use of a rule change by Facebook by which high-quality applications were rewarded with further opportunities to engage users. We find that the change led to quality being a more important driver of usage while sheer network size became less important. Further, we find that update frequency helps applications maintain higher usage, while generally usage of Facebook applications declines less rapidly with age.

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In times of web 2.0 and its strong focus on user interaction in business models, entrepreneurs and investors of internet businesses often back up their ambitious growth expectations with the argument of viral distribution. However, there exists little evidence on the determinants of consumers willingness to voluntarily and actively exchange information about internet applications.Based on survey data of 475 Facebook users, this paper makes a contribution to fill this gap. Key findings are that passive (observation of other users) and active (purposeful recommendations from peers) viral channels are equally important to make users aware of a novel product. Active viral channels, however, dominate in convincing users to actually start using a product or service. We also find that users are altruistically motivated to recommend applications and predominantly use built-in invitation mechanisms in the application as a communication channel for recommendations. This paper contributes to the field of electronic marketing in two ways. First and foremost it brings forward empirical evidence on the interpersonal aspects of the mechanisms behind viral distribution and word-of-mouth marketing. Second, it presents the illustrative case of Facebook which has become a fore-runner in online marketing when it comes to taking into account user interaction and behavior.