Research Project

User Investment and Firm Value: Case of Internet Firms

Professor Erik Brynjolfsson, Dr. Seon Tae Kim, and Dr. JooHee Oh
 

This project quantifies business implications of the recent rapid growth of the amount of users’ online activities. Users collectively spend billions of person-hours creating user generated contents which is then becomes an asset that produces a stream of value for fellow users, and of course, the host site itself, labeled as user generated capital. This fact has important implications for business strategies and values of Internet companies because growth opportunities of many Internet firms are determined largely by the user activities, in particular, the users’ investment of their valuable contents and time. The relationship between the amount of users’ online activities and an Internet firm’s value has been, even though a popular topic discussed in press or in policy debates, under-studied in the academic literature and is studied both empirically and theoretically in this project. More specifically, we focus on addressing three questions: (i) what is the mechanism of user generated capital itself, (ii) what is the consequence of user generated capital for an Internet firm’s value, and (iii) what are the Internet firm's optimal strategies to manage user generated capital. For such a purpose, we document facts on the relationship between an Internet firm's market value and its tangible and intangible capital and the amount of users' online activities. Then we study them in a dynamic general equilibrium model of the user's time-allocation between online and offline activities. This project aims to enhance understanding more broadly intangible capital by studying a particular class of intangibles, user generated capital.