Word-of-Mouth Economics, or What Comes After Amazon

Abstract

Marketplaces absolutely dominate e-commerce nowadays. Amazon’s market power creates and destroys entire industries. The major marketplaces have by now implemented most of the pamphlet horrors of monopolistic ultra-capitalism so popularized by nineteenth-century Marxist discourse. Had Karl Marx lived today, he would have turned his journalistic spear toward Jeff Bezos. But this cannot last forever. What e-commerce formats are to come to replace marketplaces? The answer is the ones that unlock the potential of social commerce. Basing on the theoretical model properties, the authors predict global trends of the 2030s: word-of-mouth economics, where there is no place for either Amazon or Google.

1. Introduction

“The Chinese market has proven that it is possible to take the status quo and flip it upside down in order to build a business model that operates completely different — resonating with the local consumers’ needs, and mixing entertainment, social media, consumer reviews and e-commerce together in one big ecosystem. We can already see some elements from China emerging in Europe and North America. Social platforms, such as Facebook and Instagram, are piloting in-app shopping features. We see brands experimenting with livestreaming shopping events and influencers launching their own fashion and beauty brands” [1].

In 2021, sales through social e-commerce in China reached $363 billion. This is 36% more than in 2020, and three times more than in 2018 [2]. American social e-commerce will show an increase of almost 2.5 times over 4 years and will reach $67.3 billion [3].

Thus, the growth rate of social ecommerce is impressive. Looks good! However, let us look at the market share.

“The share of social e-commerce in China in the next four years will increase from 12.7% to 15.5% of the total e-commerce volume. In the US, social commerce will account for about 5% of digital retail by 2024. In the US, social commerce will occupy about 5% of digital retail by 2024, up from 3.4% in 2020” [4].

We see the insignificance of the segment’s volume in comparison with the common sales channels: one sixth of the market in China, one twentieth in the USA.

Isn’t it amazing!

“As social commerce places people, rather than products, at the center of the purchasing process, it instills a greater level of trust, which, in turn, boosts online sales” [1]. To put simply, if we communicate with a person, we cannot ignore him (otherwise there is no communication). At the same time, we daily train the skill of not noticing advertising.

According to Nielsen, in its global Trust in Advertising Study in 2021, which surveyed 40,000 across 56 countries, 88% of consumers said that they trusted recommendations from people they know, above all other forms of marketing messaging [5]. Sixty-four percent of marketing executives believe word-of-mouth is the most effective form of marketing [6]. McKinsey & Company reported that word-of-mouth is the primary factor behind 20–50% of all purchasing decisions [7]. The Boston Consulting Group (BCG) reported that word-of-mouth was 2–10 times more effective than paid ads [8]. Nielsen found that consumers were 77% more likely to buy a product if their friends recommended it [9].

The colossal communication advantage of social commerce is literally obvious. However, it does not convert into market share. This is a paradox that requires explanation.

Let us assess the scale of the problem. The global e-commerce market is expected to exceed $6 trillion in 2023 [10]. Let us arbitrarily assume that the “fair” share of the social commerce market, adequate to its communicative advantage, is half of the entire global e-commerce market. Thus, global social commerce should turn over 3 trillion dollars against 0.5 trillion dollars it turns in fact [2].

Something prevents social commerce from growing. The cost of the obstacle is trillions of dollars.

What is this obstacle? Is it possible to remove it? How to do it? In this chapter, we try to answer all the questions posed.

2. Study

2.1 Definitions and methodology

2.1.1 Product knowledge and its sources

The first and necessary stage of the product purchase process is to gain knowledge that this product exists (product knowledge).

Let us divide the sources of product knowledge into two large groups:

1. business structures of any kind, from a street shop to a TV channel. These are institutionalized social structures. Let us call them institutional sources

2. humans, who are our communication partners in social interactions of any kind (social sources).

In fact, how do we know about a new product? Either from advertising or from people (maybe passers-by on the street).

The generation, routing and monetization of product knowledge flows by institutional sources, in essence, describes the information landscape of classical economics.

Product knowledge flows between social sources are monetized by social commerce (“…a subset of electronic commerce that involves social media and online media that supports social interaction, and user contributions to assist online buying and selling of products and services” [11]).

2.1.2 P2P contact

Let us call a moment of interpersonal communication of any kind (including a fleeting eye contact between strangers in a crowd) a p2p contact.

During a p2p contact, one (minimum) of the parties transmits and the other receives p2p messages (Figure 1).

Figure 1.

P2p contacts.

The transmission of p2p messages can be one-way: for example, a live broadcast of a fashion blogger with thousands or millions of viewers. Communication even in this case remains person-to-person: thousands of p2p contacts (from blogger to viewer) occur in parallel and independently of each other.

The content of p2p messages can be as varied as desired. We are only interested in p2p messages containing product knowledge.

2.1.3 WOM impulse, transmitter, receiver

Imagine that one of these messages aroused the receiver’s interest (not necessarily an instant purchase). Maybe the receiver is planning a purchase for the next month. Or he went to look for more information about the product.

In any case, if we are talking about a certain product of a certain brand (not just “we need to buy winter tires,” but “a neighbor advised cool tires “NanoRubber”, I’ll go read the reviews”), then we register the fact of the transfer of the word-of-mouth impulse (w-pulse).

The w-pulse is such if the following conditions are met:

• it contains product knowledge about a specific product of a specific brand

• the receiver is interested in this product (otherwise the impulse is not considered accepted)

In other words, the w-pulse can be converted into a purchase with a previously known beneficiary (brand, supplier, etc.).

In all other cases, the pulse was either not transmitted at all, or the transmission was not successful. For example, the receiver missed the message about the cool rubber “NanoRubber,” or the p2p message of the transmitter was not so impressive as to be interested in this product.

One w-pulse is one product. If during the p2p contact the receiver became interested in several products, then we are dealing with several w-pulses.

Using the example of Instagram Shopping. Viewing a fashion blogger’s stories by a subscriber is a p2p contact. Each Instagram Shopping tag on the products shown in the video broadcasts a separate p2p message to the viewer. The user’s click on the label means the successful receipt of the w-pulse (Figure 2).

Figure 2.

W-pulse transmission.

Thus, Instagram Shopping can be defined as a tool for mass broadcasting of w-pulses.

2.1.4 WOM reproduction number (w-RN)

In epidemiology, the basic reproduction number, or the basic reproductive number (sometimes called the basic reproduction ratio or basic reproductive rate), of an infection is the expected number of cases directly generated by one case in a population where all individuals are susceptible to infection [12].

Let us define by analogy the term WOM basic reproduction number (w-RN) as the expected number of retransmissions of a w-pulse by one receiver. Of course, in reality, each node can (and will) have a different number of children, and the w-RN value for individual nodes will be different. Therefore, as with BRN in epidemiology, we take the average value among all nodes within a given tree.

We emphasize that w-RN is determined for a specific product. W-pulses relayed by the receiver-transmitter spread product knowledge about the same product.

The formal criterion for the success of a word-of-mouth campaign is the w-RN > 1.

2.1.5 WOM conversion rate

Conversion rate (CR) is an indicator for e-commerce that measures how many of a website’s visitors perform a desired action by responding to a call to action.

By analogy, we define the WOM conversion rate (w-rate) as the ratio of the number of purchases of a given product by all receivers to the total number of transmitted w-pulses for the period.

$$\mathit{\text{WRate}}\left(t\right)=\frac{N_{\mathit{\text{purchases}}}}{N_{\mathit{\text{WPulses}}}·t}$$E1

Like other indicators above, w-rate is calculated for a specific product.

For example, the w-rate for the product “red handbag “CoolBrand”” is 27% per year, or 11% per month.

2.1.6 WOM commerce

Let us narrow down and clarify the concept of social commerce by defining the term WOM commerce (w-commerce).

The criterion for attributing an arbitrary purchase to w-commerce is the type of source of product knowledge.

Was product knowledge obtained from a social source (human)? Then it’s w-commerce, and not in all other cases.

So, w-commerce is only about p2p contacts. Modality, place and technology of making a purchase do not matter. Only type of source is important. If you saw the product you were interested in in the Amazon search results, this case is not w-commerce. Even if Amazon’s seller is a private entrepreneur, and the product is handmade. The source of product knowledge in this case is institutional (Amazon). And vice versa, if you saw a red handbag from a colleague, it’s w-commerce. And it does not matter if you bought this handbag: in “CoolBrand” boutique, or on the same Amazon.

All parties to the p2p contact must be voluntarily motivated to participate in it. If the receiver gets product knowledge from a live stream that he watches on his own initiative, this is w-commerce. And not, if the same product knowledge was obtained from unsolicited advertising. Even from the same live stream, but forcibly inserted into your feed by the advertising algorithm of the social network. The real source of information in this case is the social network (institutional source). If you were attacked by a particularly diligent street vendor, it was undoubtedly a p2p contact. But even if you bought something so that he would fall behind, this transaction cannot be attributed to w-commerce, since this p2p contact was undesirable for you.

“E-” does not matter. Whether the w-pulse was transmitted online or offline, the only difference is communication technology. “Do you remember the traditional teleshopping ads — the protagonist selling the jewelry or home care apparel on TV with a smiling assistant? Teleadvertising is still a multibillion-dollar industry in the U.S. Likewise, in 2019, 21 million Germans were still “interested” or “highly interested” in watching teleshopping programs on TV” [1].

2.2 W-commerce abstractions

To remove barriers to w-commerce growth, you first need to identify them. Let us build an ideal w-commerce model.

2.2.1 Thought experiment

You have purchased product A.

In the month since the purchase, you have demonstrated product A to 20 acquaintances, of whom 12 definitely paid attention to it. Speaking w-commerce style, you transmitted 12 w-pulses with product A.

Let us say three of your friends purchased product A (w-rate = 25%).

Is it a success, from the vendor’s point of view? Undoubtedly. An additional three pieces of product A were sold without additional advertising costs.

And if not three, but two pieces were sold? One piece?

It is clear that for vendor A, any additional sales without advertising costs are relative windfall.

Let us change the initial data a little. Let us assume that none of your 12 friends have bought the product yet. Does this mean that 12 w-pulses were wasted? Not at all.

Recall that the fact that the w-pulse is transmitted means that its receiver is interested in this product, specifically for purchase. The receiver would not mind owning this product.

The transmission of the w-pulse does not guarantee that the receiver will ever purchase this product. For a million reasons, the most banal is the lack of money.

However, the lack of money for the purchase of product A cannot prevent the receiver from transmitting knowledge about product A to many other friends. In the terminology of w-commerce, the receiver can retransmit this w-pulse (thus becoming a w-transmitter).

This is how biological viruses and social viruses (memes) spread. And we come to the tree model.

2.2.2 WOM tree

For a marketer, a WOM tree is a trajectory for the dissemination of product knowledge. For the programmer, it is a log of w-pulse transmission events. In mathematical graph theory, w-tree is connected acyclic undirected graph (Figure 3) [13].

Figure 3.

W-tree architecture.

The complexity of graph theory terminology is redundant for our purposes; let us come up with a simpler one.

Let the nodes of the w-tree be, quite predictably, w-nodes. A node with descendants corresponds to a w-transmitter, and a node without descendants, respectively, to a w-receiver. The first node of the tree we name the root.

Based on a transparent parallel with family tree, we define the concepts of w-descendant (w-son, grandson, great-grandson, etc.) and w-ancestor (w-father, grandfather, great-grandfather, etc.). Let the set of all nodes of one generation be the w-generation. Generation numbers and kinship relationships are relative values calculated for the node in question.

2.2.3 How do w-trees grow?

For any value of w-RN greater than 1, in each next generation the number of nodes grows exponentially

$$S_{\mathit{\text{nodes}}}=N_{\mathit{gen}}^{\mathit{wRN}}.$$E2

It is also a model for the chain reaction of a nuclear explosion, and for the unlimited proliferation of bacteria (Figure 4)¹.

Figure 4.

Increase in the number of descendants in generations (w-RN = 2).

However, since the nuclear explosion of sales in social commerce is not visible, in real business practice of word-of-mouth marketing, the typical w-RN value is less than 1.

It’s probably not difficult to find examples when WOM marketing showed outstanding results. But the very need to postulate the existence of such examples emphasizes both the exceptional rarity of success cases and the scale of the problems of social commerce in general.

Unlimited reproduction of bacteria is hindered by limited resources. What hampers the multiplication of w-transmitters?

2.2.4 Major tree growth problem

Our version is lack of motivation. Lack of effective and universal motivation for w-pulse broadband transmission.

In fact, the actor in w-pulse transmitting is a person. The beneficiary of the w-pulse is the product vendor. What stimulates a person to transmit w-pulses?

The answer is obvious. And the tree sprout withers before it looks out of the ground.

The market segment of status consumption products is a rare, perhaps unique, example of the serial success of social commerce. Why?

A person demonstrates possession of a status consumption product to accentuate his own status. A person acts in his own interests, and receives a reward, although not material, but quite motivating. “Vanity is definitely my favorite sin, the all-natural opiate” [14]. The w-pulse transmission itself is an unintended consequence for the w-transmitter; he does not get paid for it.

The organic adaptability of status consumption products to self-promotion by WOM marketing mechanics is the secret of the unique success of this product category in today’s social commerce. Status products sell themselves (and no other products sell at all).

Thus, in the case of status consumption products, there is motivation to transmit w-pulses. However, this motivation is not monetary, and therefore it is not universal in application to other product categories.

2.2.5 “…and motivation for all,” or why referral programs do not work

Above we came to the conclusion that the Major Problem is the lack of universal motivation for w-transmitters.

At this stage of the study, our task is to build such motivation. In other words, to design a universal reward mechanism that satisfies the following criteria:

1. suitable for any product category

2. the size of the reward, on the one hand, should sufficiently motivate w-transmitters

3. on the other hand, financing these payments should be feasible for vendors

Of course, the first marketer we meet will gladly offer us a ready-made solution. “Having read the above, you will have been convinced of the power of word of mouth above all other marketing channels. You should look to identify and engage with your potential brand advocates to get them to talk about you in their social circles. The best way to do this is to have a referral program that asks your customers, employees and partners to refer you, provides them with an easy and safe way to do so and offers attractive rewards and incentives for each confirmed new customer referral” [15].

What can we say about the usefulness of referral programs in the context of word-of-mouth, given their long-term and widespread use? The absence of w-trees in observable reality offers a more than convincing answer. And although marketers cannot help but know about this, they, for lack of anything better, must offer customers at least something.

Why do not referral programs work? It would seem that their mechanics fully correspond to the logic of word-of-mouth.

The referral program tries to motivate w-transmitters to bring clients a share of the profit from the first sale.

How much does a cafe earn on one cup of espresso? Or a dog food manufacturer—on one package? Even if the cafe pays 200, 300, 400% of the gross profit from a cup of coffee through a triggered referral link, but only once, there is not enough motivation for the transmitter. Condition (2) is not met.

On the other hand, the laws of nature do not prevent the cafe from paying not one and a half, but, for example, one hundred dollars for the client brought in. This is more than motivating for transmitters, however, for obvious reasons, it is not feasible for a cafe. Condition (3) is not met.

We are facing with a fundamental conflict in the business logic of referral programs between the interests of vendors and transmitters. Vendors invest in a referral program, counting on profits from the entire life cycle of newly acquired customers. Transmitters who invest personal resources in promoting the same product, according to the authors of referral programs, should be satisfied with the profit from a single sale. As can be seen from the results, the broad masses of potential transmitters strongly do not share the point of view of marketers.

Therefore, our desired motivation mechanism should reward the transmitter with a portion of the profit from all customer purchases, and not just the first one.

To create an incentive for the growth of the tree, the transmitter should be rewarded not only for the purchases of his children, but also for the purchases of his descendants from more distant generations (grandchildren, great-grandchildren, and so on).

The standard referral program mechanism stimulates the w-transmitter to transmit w-pulses primarily to potential buyers (to maximize the w-rate).

In the desired mechanism, in addition to w-rate, there should be an incentive to transmit w-pulses to potential storytellers—to maximize w-RN.

2.3 Solution

2.3.1 W-bonus is the answer

The solution (w-bonus) is the synthesis of elements of already known market practices:

1. bonus loyalty program (crediting a rebate for a purchase to the consumer’s bonus balance)

2. referral program discussed in Section 2.2.4

3. multilevel marketing

For ease of understanding, we will describe the business logic of the w-bonus mechanism using a specific example. Imagine that you need to organize a word-of-mouth (WOM) campaign to promote a microwave “Our Brand” with a recommended retail price of $150.

The first thing we do is to determine the w-bonus amount for one sale. Let it be 10% of the recommended retail price. Thus, for each sale, $15 would be distributed through the ascending chain of the buyer’s ancestors.

How will the money be divided among relatives? Whatever the campaign administrator chooses. For example, we (the distribution algorithm) climb up the ancestral chain, and each next generation is credited with half of the bonuses remaining after accrual to the ancestors of previous generations.

$$\mathit{\text{Bonu}}{s}_{\left(n+1\right)}=\frac{\left(\mathit{\text{Total}}-\mathit{\text{Bonu}}{s}_{\left(n\right)}\right)}{k}$$E3

Within microwave example Total = 15$, k = 2.

The campaign administrator determines the minimum amount of bonus accrual, below which accruals stop.

In our example (Figure 5), the cutoff threshold is set to $0.5.

Figure 5.

W-bonus accruals distribution.

2.3.2 Is w-bonus a universal solution?

Is the proposed solution universal?

Is the w-bonus mechanism adequate to the industry specifics of the countless variety of goods in the global economy?

Let us check with another thought experiment.

Let product A be arbitrarily expensive (for example, a jet or a nuclear power plant) and product B be arbitrarily cheap (for example, threads or chips).

Can product A be sold in small quantities over the long term (for example, 10 years)? Definitely. A high price implies a high margin, the expected small number of transactions is compensated by a significant profit from each.

Can product B be sold in small quantities in the long term? In a healthy economic logic, this is excluded, since the production of such a product is unprofitable. Either the vendor himself will withdraw product B from sales, or product B will leave the market after the vendor’s bankruptcy. Cheap goods in the long term can only be sold in huge volumes. The insignificance of profit on a single product can be compensated only by a colossal amount of sales.

All products of the world market in terms of price and sales volume are intermediate cases between extremes A and B.

Thus, to test the universality of our solution, it is necessary and sufficient to test two extreme cases:

1. High unit margin, and few sales

2. Low unit margin, and a lot of sales

Scenario (1) w-bonus fits perfectly. Due to the high cost of the product, the probability of conversion of each w-receiver into a buyer is minuscule (low w-rate). However, multilevelness compensates for the low probability of buying one node by multiplying nodes whose purchases fall into the calculation base.

Scenario (2) w-bonus also fits superbly. And again, it is multilevelness that saves the situation. Yes, the bonus amount for one purchase is negligible, but their number is colossal.

Ergo, the w-bonus mechanism is truly universal, and is suitable for any product in any industry.

2.3.3 W-bonus comparison with classic marketing and today’s social commerce

Both w-bonus and classic advertising channels are alternative options for using the same vendor resources (marketing budget) to achieve the same goal (profit increase). To compare the returns, we will have to wait for statistics.

Without having numbers, we can analytically compare the business models of classical marketing (including below-the-line (BTL)) and w-bonus (Table 1).

	Classic marketing	W-bonus
Money recipient	Intermediary (advertising agency)	Performer (effective storytellers)
Risk holder	Vendor	Performer
Risk scale	Entire marketing budget	A few minutes
Consumer trust level	<50% [5]	89% [5]

Table 1.

Classic marketing and w-bonus comparison.

China is called the social commerce capital of the world. “Chinese tech companies are at the forefront of digital innovation, driven by e-commerce powerhouses such as Alibaba Group and Tencent, and newcomers like ByteDance, the owner of TikTok. Indeed, over the last decade, China has turned into a destination for Western corporate tourism — offering a sneak peek into digital commerce and the role of influencers and key opinion leaders (KOLs), in particular” [1]. Similar to the previous one, let us compare w-commerce and the current state of social commerce in its world capital (Table 2).

	Social commerce	W-bonus
Industry applicability	Status consumption products	Any industry
Target participants	Celebrity bloggers	Any person
Technology of product knowledge transfer	Internet	Any
Basic p2p-contact type	Broadband live streams	Everyday communication
Impact on sales	One-time surge	Continuous background growth
Operating cost	Significant human labor costs at each stage	100% automatic processing without human intervention

Table 2.

Today’s social commerce and w-bonus comparison.

2.4 Notes on implementation

2.4.1 Soil for trees

Tree algorithms are used by many programmers every day. The capabilities of any known database management system (DBMS) are sufficient to implement w-tree data model and w-bonus transaction mechanisms (w-System). In short, anyone who wants to apply w-commerce mechanics in practice is unlikely to encounter insurmountable technological obstacles. In our own w-commerce practice, we used the Integrated Enterprise Managing (IEM) architecture software platform [16].

Below in this section, we highlight several architectural solutions that are typical for w-systems and may be of interest to database specialists.

2.4.2 Tree

W-tree is modeled by a set of father-son relationships between w-System agents. W-System simulates multiple independent w-trees. Each w-System agent can be a node of one or more w-trees, or not be a node of any tree.

Logically, w-System is a server for a forest of w-trees (Figure 6).

Figure 6.

W-commerce ecosystem domain.

In analogy with living nature, w-System corresponds to an island² or continent.

2.4.3 Impulse

The w-pulse event is registered at the moment the w-receiver follows the invite link received from the w-transmitter. At the same time, the receiver joins the tree as the son of the successful transmitter.

To simplify, an invite contains a link (not necessarily a URL) to an object of consumer interest (product, product category, brand, website) and w-transmitter ID.

How does the invite get to the receiver? There are many possible scenarios. For example:

1. from tags in the Instagram store of your favorite blogger. Clicking on the Instagram Shopping tag takes you to the online store

2. friend sent an invite on WhatsApp “look, what a cool handbag”

3. a w-pulse about new magical cosmetics was received verbally from the hairdresser. The digital invite was received by photographing a QR code from the hairdresser’s smartphone screen

An invite may include a welcome bonus, providing additional benefits to encourage purchases with it.

2.4.4 Roots and storefronts

Previously, we built a w-tree for a single product. Practically, working with product groups is more common.

If your company produces household appliances, in particular irons, in general there is no point in focusing on promoting a specific iron. You need to sell all the irons you produce. Continuing the logic, we can predict the demand for w-trees both for entire brands and for more complex product combinations. In addition, not only d2c vendors work directly with consumers.

W-System provides a one-stop solution by introducing the digital storefront abstraction.

In the context of w-commerce, a digital storefront is a set of articles selected at the seller’s discretion, a subset of the full product catalog (Figure 7).

Figure 7.

W-tree grows from storefront.

The tree is associated with the storefront (and not with the product or product category). Accordingly, the w-commerce mechanisms described above using the example of a single product work for all products in the storefront within single tree.

2.4.5 Multitrees and public trees

A storefront belongs to one and only one seller. One seller may have many different storefronts. On different storefronts, the same product can be presented in different versions, including a different catalog structure, name and price.

One storefront corresponds to one tree. At the same time, many storefronts can be connected to one tree. Such a tree we name multistorefront w-tree (multi tree, Figure 8).

Figure 8.

Multitree.

Inside a w-System may operate lots of sellers. If the storefronts of the multitree belong to different sellers, then we have a public tree (Figure 9).

Figure 9.

Public tree.

2.4.6 Tree crossing

A consumer can be a node of multiple trees at the same time and receive w-bonus accruals from each tree independently.

In a w-tree model, such consumer corresponds to a node, belonging to multiple trees at once (multinode,Figure 10).

Figure 10.

Multinode.

Multinodes are the most desirable consumers for any vendor. These are qualified and influential w-transmitters who receive significant income from the w-bonus. “About 8 to 10 percent of consumers are what we call influentials, whose common factor is trust and competence. Influentials typically generate three times more word-of-mouth messages than noninfluentials do, and each message has four times more impact on a recipient’s purchasing decision. About 1 percent of these people are digital influentials — most notably, bloggers — with disproportionate power” [7].

2.4.7 External cross-domain authentification

W-commerce infrastructure is invisible to consumers. They may not even know about the existence of w-systems, just as few site visitors think about the existence of web servers.

Consumers get the functionality of w-commerce through online storefronts of sellers whose tree nodes they are.

Direct consumer access to the w-System is excluded, therefore there is no need for its own login subsystem. The w-System business logic identifies nodes using accounts of popular ecosystems (Apple, Google, Alibaba, WeChat, Telegram—account domains).A priori, we assume that all new users have such an account and neglect exceptions.

The strategy of using accounts that potential users already have, on the one hand, reduces entry barriers (people do not like to register) and increases the conversion into purchases at sellers’ storefronts. Trees grow better and bear fruit more abundantly.

On the other hand, it is a kind of security import. Expensive and risky user authentication operations are the responsibility of the platform owners. In fact, w-System does not need to store users’ personal data at all, and its operator avoids General Data Protection Responsibility (GDPR).

2.4.8 Audience data absolute reliability

According to Nielsen’s research [5], two-thirds of marketers believe that first-party data are essential to building effective advertising campaigns. However, only 26% are confident in their data quality. While tech giants have not yet completely phased out third-party cookies, more than 40% of US Internet users already use browsers and settings that block cookies.

Meanwhile, the very logic of the w-commerce mechanisms functioning guarantees the presence of all the information necessary to analyze the effectiveness of marketing campaigns. W-System knows:

1. who, when, to whom and how invites were sent

2. who, when and on what showcases used these invites

3. what goods, by what nodes, where and when were purchased

Moreover, all these data are fundamentally consistent and reliable. All w-commerce transactions are made only by authorized users. The problem of attribution—Marketing Attribution Nightmare—does not arise at all.

2.5 Trends extrapolated, or dominant business models of the 2030s

2.5.1 No W for intermediaries

The platform’s consumer traffic is, at the same time, the One Ring for its owner, Pied Piper for sellers, and the basis for the monopoly of the dominant marketplaces.

Retailer monetizes traffic 100% for its own benefit, acting as a single and only seller. Marketplaces welcome third-party sellers, sharing the fruits of monetization with them. Actually, only the number of sellers (one or many) is the paradigmatic difference between an e-retailer and an e-marketplace. This is how things stand today. What’s next?

The widespread introduction of w-commerce commercial mechanics (w-economics, in 5–7 years, according to our estimates) will completely change the configuration of consumer traffic flows.

The monopoly of major marketplaces will be disrupted. Consumer traffic of the hottest and most profitable products will go into the endless jungle teeming with life (and money!). “Indeed, word of mouth is the primary factor behind 20 to 50 percent of all purchasing decisions. Its influence is greatest when consumers are buying a product for the first time or when products are relatively expensive, factors that tend to make people conduct more research, seek more opinions, and deliberate longer than they otherwise would. And its influence will probably grow: the digital revolution has amplified and accelerated its reach to the point where word of mouth is no longer an act of intimate, one-on-one communication” [7]. From today’s power—sic transit gloria mundi—will remain the dollar store assortment, and the monstrous infrastructure to fulfill the orders that will never be placed again.

Traffic loss will not bypass media monopolies, and Google will lose the most. If the information traffic of the most profitable products goes through w-trees past Google, then what will advertisers pay for?

Online retailers, at first glance, could be able to save core business by supplementing the current sales channels with traffic from trees. Similarly, major retailers have been “complementing” retail for more than 20 years, trying to dock e-commerce to it. But no amount of effort will allow either retailers or marketplaces to retain Category A consumer traffic. Strong brands will grow their own trees, water the trees with marketing budgets and harvest the fruits of sales. Strong brands will always have many more resources for growing trees than retailers (margin as a first). Left with weak brands only, retailers will not be able to survive.

Thus, in w-economics, e-retailers will die out as a category, and e-marketplaces will shrink to the format of a bazaar with a no-name goods at the lowest price.

More broadly, the entire industry of professional intermediaries between brands and consumers (retailers, distributors, search advertising, etc.) will be redundant.

Among strong brands, d2c model will dominate.

2.5.2 Marketplace is dead: long live Marketnet

What will happen to weak brands whose loyal consumer traffic is not enough to grow their own w-tree?

Today, weak brands go to marketplaces, hoping for traffic, but most just join the army of weak sellers. Lots of weak sellers, whose traffic is individually negligible, together form a grandiose consumer traffic flow. Thus, a marketplace is a kind of laser amplifier for market power (market power laser), focusing the scattered photons of weak seller crowd into a super powerful beam.

Market need for such a market power laser is fundamental, since a strong brand is always an exception from the crowd of weak ones.

Marketplaces took over the market in the 2010s, when a storefront common to all sellers was the only technology for concentrating consumer traffic (despite the disadvantages of such a solution, this is a topic for a separate article).

In w-economics, market power laser is implemented by the public tree mechanism (see 2.4.5). Instead of marketplaces we will see confederations of independent sellers, collaborating to grow their united tree (marketnets) (Figure 11).

Figure 11.

Marketnet.

In Table 3, we compare the generic properties of both formats.

	Market place	Market net
Market power laser	Common storefront	Common tree
Cost of using	Most of seller’s profit	About zero
Social structure type	Vertical hierarchy.; One tsar—millions of slaves	Network.; Seller’s horizontal self-organization
Storefronts belong to	Marketplace	Seller
Consumer loyalty belongs to	Marketplace	Seller
Rule of Law	Dictatorship and arbitrariness.; Unfair advantage for goods, selling by site’s owner	Community charter

Table 3.

Marketplace vs. marketnet.

2.5.3 B2b by w-commerce

How will b2b industries change? W-commerce applicability to the b2b segment is beyond doubt (2.3.2). However, by definition, companies cannot be tree nodes. So, b2b tree nodes will also be people, mainly the stakeholders of suppliers and customers. They will also receive rewards from w-bonus (and their employers will not be able to stop them, although will try).

At the same time, companies will inevitably be part of w-economics, but only as a gardener, busy caring for the roots. The crown of all w-trees will be formed exclusively by the independent activity of people.

3. Conclusions

“It will not take long until Chinese players start expanding globally, so brands should get ready and define their social commerce strategies now” [1]. In this paper, we described the architecture and methodology of an entire class of social commerce strategies (w-commerce).

The widespread adoption of w-commerce technologies within the next 5–7 years will completely change the global business landscape (word-of-mouth economics):

• strong brands connect directly with consumers. The d2c model absolutely dominates among Category A vendors

• retailers and distributors leave the market

• weak brands gather into marketnets (cooperative network structures, synergetic multiplying the market power of participants) and displace marketplaces

• marketplaces, in turn, shrink to bazaars of no-name goods at the lowest price

• passive consumers self-organize into motivated storyteller communities

• Internet media monopolies lose most of profitable consumer traffic, which goes to w-commerce tree ecosystems

The media age, which began 200 years ago with the spread of newspapers and mass literacy, is coming to end. People are in the spotlight now.

“China’s shining social media stars can command vast audiences — sometimes millions of loyal followers. They are exceedingly powerful when it comes to social influence. It’s not a surprise that they build brands together with their followers” [1]. W-commerce technologies make creating and promoting a brand easier than ever before. The only condition: the product must appeal to consumers, not—to developers, journalists, management or investors.

Welcome word-of-mouth economics! Where each of us is a leaf on someone’s tree.