Integrating the Social Network to Diffusion Model and Evaluation of the Value of Hubs in the Adoption Process

Abstract

In this paper we analytically study the effect of social hubs on the penetration of new products. Aggregating individual-level social network considerations to the market level, we identify boundary conditions for hubs' effect on diffusion. Our results demonstrate that seeding hubs has a differential accelerating effect on diffusion measured by the additional net present value (NPV) of potential future sales. On the basis of closed-form solutions, we find that where consumers’ decisions to purchase a new product are almost entirely induced by word-of-mouth communications, seeding a small number of hubs whose social-connectedness is about 10 times greater than that of ordinary individuals, may help initiate a valuable diffusion process in which the NPV is increased by several tens of percentage points. On the other hand, seeding such highly connected hubs adds less than 1% to the NPV. Tapping into a category of social influence that is characterized by the number and intensity of social ties, we find that a hub’s “area of influence” has greater impact on NPV than its tie intensity. Focusing on the evolution of adoption in a segment of hubs, we show that the product life cycle in this segment is about two to three times shorter than the life cycle in the entire market. We find that the ratio of hub-to-non-hub degree has the most significant impact on reducing life cycle length, and its effect exceeds other effects (i.e., the average proportion of hubs among individuals' neighbors, the intensity of external influence, or word-of-mouth communications). We examine the proposed analytical framework using empirical data from an online social network.