Who Do You Know

Who Do You Know? David Honig and Lewis Steckler Something extraordinary is happening: we are witnessing the creation of an entirely new Internet model that few people could have foreseen even three years ago. According to some analysts, as much as 70% of consumer time online is now spent viewing content created not by professional editors, but by fellow consumers. And let’s face it: most people aren’t boning up on their WWI trivia on Wikipedia. Most eyeballs are trained on social media sites like Facebook, MySpace, Flickr, and YouTube. These sites alone account for upwards of 20% of all consumer time spent online today in the U.S. Social scientists, among others, are fascinated by these developments. Many have noted that in social media we see a classic example of homophily: the powerful tendency of like-minded people to gather in closely-knit clusters around common interests, including brand affiliations. The Value of Social Graph Information Since the dawn of Friendster, figuring out how to monetize the social space has been a thorn in marketers’ sides; the industry has not been able to find a way to fund social media through ad revenue alone. In fact, even Google execs have recognized that “social networking inventory is not monetizing as well as expected,” but that may be because they’re trying to apply models from other online contexts to the social space. For example, CPM and CPC models have worked with traditional mass media display and search, respectively, but have had limited effectiveness in social media. It’s time to look old problem in a new way. In last month’s column, we discussed how incorporating social graph information into online advertising targeting methodologies will instantly add value to any behavioral advertising plan. Most marketers would intuitively agree that social groups of their existing customers (a.k.a. “network neighbors”) represent a desirable audience. Here’s why: 1) As summarized by the old proverb dating back to Plato’s The Republic, “birds of a feather flock together,” people tend to form social groups of similar, likeminded individuals both on- and off-line. This predilection to interact more and form stronger social ties with those similar to us is a classic sociological and psychological concept called homophily. 2) Members of these groups tend to influence each other through every day communications. 3) Members of these groups tend to engage in collective purchasing behaviors.

Today, we are going to focus on homophily. Marketers who can successfully leverage the power of homophily -- while respecting users’ privacy -- will find that they’ve harnessed an analytic tool that has the potential to be highly predictive on a massive scale. What is homophily? A simple definition of homophily is that “contact between similar people occurs at a higher rate than among dissimilar people” and that “people’s personal networks are homogenous with regard to many sociodemographic, behavioral, and intrapersonal characteristics.”1 Similarity in factors such as “ethnicity … age, religion, education, occupation, and gender” operating in shared geographic, family, and organizational environments play a huge role in determining how personal relationships are formed.2 Why does homophily matter? Homophily is a robust phenomenon because it forms the structure in which almost every type of social relationship exists. You will find homophily in “marriage, friendship, work, advice, support, information transfer, exchange, comembership, and other types of relationship[s]”.3 Whom does homophily affect? Everyone. Everywhere. Homophily is global cultural phenomenon: Researchers in the early 1990’s were able to find approximately the “same levels of homophily in a Chinese City as in the United States.”4 It is pretty amazing that two completely different cultures can have the same level of homophily. In our increasingly fragmented social space, it is essential for marketers who want to target specific groups to keep this in mind. How does homophily work? Homophily is highly predictive: In essence, the power of people’s self-selection in personal relationships creates social groups that rival the best segments created by demographic, behavioral, and/or psychographic targeting. Researchers have shown that marketing to people socially connected to an existing customer of a product have a three to five times higher response rate to advertising versus methodologies uniformed by this social information, including demographic and behavioral targeting.5 Homophily 2.0 Homophily was a concept originally observed and formulated in the 1920’s, but it has become increasingly relevant in the Internet and mobile age. New forms of technology allow people to interact with each other and form social ties and groups (through social networks, blogs, Internet chat, web video, mobile phones, texting, etc.) much faster and more effectively than ever before. In the 1950’s, your social groups would have been formed primarily from similar friends from your family, neighborhood, school, work, and social clubs. For example, if you 1

McPhersony JM, Smith-Lovin L, Cook JM. 2001. Birds of Feather: Homophily in Social Networks. Annual Review of Sociology 27:415-44 2 Ibid. 3 Ibid. 4 Blau PM, Ruan D, Ardel M. 1991. Interpersonal Choice and Networks in China. Soc. Forces 69:1037-62 5 Hill H, Provost F, Volinksy C. 2006. Network-Based Marketing: Identifying Likely Adopters via Consumer Networks. Statistical Science 21:256-76

lived in Tampa, cultivating numerous friendships with people in San Francisco, Chicago, and Dallas would have not have been easy for the average American. The advent of Internet and mobile technologies makes it extremely easy to interact and connect with people all over the world. Due to the popularity and high penetration of next-generation communications channels, geographical barriers have been drastically reduced, if not completely eliminated for many Americans. We can expect Internet users to use these new communications mediums to continue to seek out and bond with similar people and form even stronger relationships with their “real-world friends” online. New Online Marketing Paradigm The new world order online necessitates a radical change in the online marketing paradigm. Moving forward, it will often be more valuable to ask about your customers, engagers, and/or prospects: “Who do they know?” rather than “Where do they live?” The next generation of targeting methods will utilize a much more groupand social network-oriented approach than traditional demographic and behavioral targeting and segmentation. What’s Next? We are all familiar with “groupthink” consumer behaviors and how people cluster together with like-minded people in social media. We, as marketers, must create business models and innovative technologies that will allow this fertile new area to expand and flourish while driving revenue from successful brand-building platforms. That’s where you come in. About the Authors David Honig ([email protected]) is a Co-Founder and Lewis Steckler ([email protected]) is a Director at Media6°, a social graph targeting ad network.