BzzAgent: An Effective Management of Network Effects
Mitigating negative effects of network congestion and a clever monetization of the network participants’ needs leads to a sustainable high-margin business.
Two-Sided Platform
How to attract customers’ attention in a word already so saturated with advertising? BzzAgent, Inc.’s approach is to revert to the most primal form of advertising – recommendations from trusted friends. The company is monetizing on this idea by creating and carefully managing network effects within a two-sided platform.
BzzAgent is a Boston-based fast-growing word-of-mouth marketing firm that aims to increase the effectiveness of marketing campaigns by employing everyday people to promote their clients’ products. BzzAgent is a pioneer of the word-of-mouth (WOM) marketing strategies that are built around the premise that consumers are significantly more likely to purchase products recommended by their friends or acquaintances in a casual conversation rather than those seen in a TV commercial or an internet advertisement. In fact, according to the data presented by the company, “71% of interviewed people said that a friend’s recommendation would make them more comfortable with a brand, while only 15% said the same thing of seeing an advertisement.”
The players in BzzAgent’s two sided platform are: i) top class corporations and ii) regular customers who get a chance to try out products and are encouraged to share their honest feedback. BzzAgent’s list of top-class corporations includes Nestle, Kraft, Tropicana, CVS, Philips or Logitech. There are several aspects of value creation for these large corporations. First of all, it is a cost-effective method for gathering customer feedback, as BzzAgents are not hired employees and are not compensated for their time. Second, the campaign allows to reach thousands of self-identified early adopters who enthusiastically spread the word about products they test to their networks. Additionally, reports submitted by agents on a regular basis, offer a real-time feedback to corporations. Finally, in a world accustomed and increasingly indifferent to media advertising, a personalized approach of BzzAgent stands out.
Interested in Becoming a BzzAgent?
What is more interesting is what value BzzAgent creates for its network of Agents. These people are not paid, yet they sign up in hundreds each month and are putting their time and personal networks to work for the obvious benefit of large corporations. First of all, joining the BzzAgent’s network is quick – interested individuals sign up to become a BzzAgent and create their profile. New client assignments are posted on BzzAgent’s homepage and all eligible Agents can sign up as long as a cap on the number of Agents per campaign has not yet been reached. The immediate visible value stems from receiving product samples. Doesn’t it feel like receiving a birthday gift? Additionally, every time when a product is being promoted, an agent can fill out a report that will earn them reward points. These points can be used to purchase products on BzzAgent’s Homepage. Yet, reports indicate that only a small portion of BzzAgents claim their rewards points. The key here is that Agents are looking for non-material rewards such as recognition, the feeling of being a trend setter, or a venue for expressing their opinion.
What is BzzAgent’s Secret Sauce?
Understanding and tapping into the above mentioned needs of one side of the platform is a part of the secret sauce here. Based on the BzzAgent’s case, let’s summarize some of the best practices for harnessing network effects in a two-sided platform.
- Capturing value from participants: What sets BzzAgent apart and allows them to achieve high-margins is that one side of their platform is comprised of clients generating revenues while the other side is a community of practically unpaid enthusiasts.
- Growing your network: It is worth to invest in initial free campaigns to gain the trust of well-established clients.
- Managing negative direct network effects: More Agents would mean that it would be harder to sign up for an assignment. BzzAgent manages these constraints by: i) assigning Agents to campaigns based on their profiles and ii) does an excellent job selling this new marketing model to new clients, thus leveraging indirect network effects.
- Non-material benefits: Research your target audience. Find out what makes them value your platform and under what conditions would they recommend your platform to their friends. In the BzzAgent’s case, Agents are encouraging their friends to join, despite the potential higher competition for projects, because they feel they are building a community.
I am curious how BzzAgent is able to find and employ enough people who are somehow connected to potential buyers to gain the scale necessary to attract a multitude of clients. To me, the true value of WoM (especially with friends and family) is its perceived unbiased nature. Therefore how does BzzAgent get around the agency issue of employed ambassadors wanting to give honest feedback on products to their friends/family, and clients wanting their products to be advertised in the best light? If BzzAgent is able to get around these problems, there is a lot of value to be had, but I am skeptical that it is possible. Great Article.
Thanks for your comment. Great point, I agree that signing up new clients might pose a challenge, as adding more Agents creates congestion and potentially limits the opportunities for existing Agents. The way BzzAgent mitigates this problem is by creating a deep sense of community among its Agents. They noticed that agents’ joining spurred new ones to join at even faster rates. The word of mouth marketing works well for their own platform. As for the issue of giving honest feedback: they provide a BzzKit to each Agent with instructions on how to lead a conversation. They also encourage disclosing Agents’ affiliation. There is a threat of a negative feedback, yet this information will likely be reported back to the client, which still serves as a good source of data.
Interesting! How much is this model scalable (i.e., how many true enthusiasts can you find for different products)? What do you believe will be the main “playground” of BzzAgents? Would it be blogging? Reviewing products on Amazon? Sharing their experience on Facebook? Talking to a friend in person? Would it influence the award program for BzzAgents?
Emilie, thanks for your comment. All are valid questions. I believe that the main playground for BzzAgent would still be one-to-one conversations about the product. They bet on the value of a deeper engagement with a consumer, whether to introduce them to a new product, and ideally make them love it, or just to get a thoughtful feedback in return. I do agree though that scaling this platform is likely to pose challenges.