Impact of Online Word of Mouth on Channel Disintermediation for Information Goods

Abstract

With the recent advances in digital technology, creators of information goods such as books, songs, or videos can now self-publish and sell their work directly to consumers, without the help of traditional publishers. In this study, we construct an analytical model to examine the role of online word of mouth in this trend of disintermediation. Online word of mouth can reveal product quality for experience goods and raise awareness to accelerate product diffusion. Intuitively, one would expect that with online word of mouth, creators would be more likely to skip publishers and sell directly to consumers. However, our results suggest that online word of mouth may, in fact, encourage more creators to use publishers for high quality work. Our model also makes predictions on the conditions under which online word of mouth benefits publishers and for what types of products and creators it has the most impact.