Social networking companies compete in different ways from other companies, say two professors at Virginia Tech's Pamplin College of Business.

In what they believe is the first systematic empirical study of its kind, faculty members Devi Gnyawali, an associate professor of management, and Weiguo (Patrick) Fan, an associate professor of accounting and information systems, investigated how social networking companies compete and how their competitive moves affect overall firm performance.

"Unlike traditional industries where firms try to build walls and protect advantages, firms in emerging digital industries, in general, and social networking companies, in particular, reach out to third-party developers and other partners," Gnyawali and Fan say. The firms undertake a variety of actions with these outside parties to "co-create value" in order to attract, retain, and satisfy their own users or customers and improve their companies’ performance.

Social networking firms have changed the way people communicate and socialize with each other, the professors note. Departing from previous computer-based communication systems for e-mail and online forums, companies such as Facebook, MySpace, LinkedIn, and Twitter use Web-based software to connect users with friends, family members, business partners, or other individuals through such formats as text chat, messaging, video, voice, file sharing, and blogging, in addition to mail and discussion groups.

The professors, along with James Penner of Blacksburg, Va., a doctoral student pursuing a degree in accounting and information systems, have written an article about their work for a special "digital systems and competition" issue of Information Systems Research, one of the top two journals in the information systems field.

Their findings, Gnyawali and Fan hope, will help managers develop appropriate strategies. "A better understanding of the nature of competition and implications of competitive actions will allow managers to think in nuanced ways about how to successfully compete in this rapidly changing industry," the researchers wrote.

More scholarship is needed on firms in the digital industry. Information systems scholars, Fan says, have examined the strategic roles information systems and information technology play in a firm, but "few scholars have systematically and holistically examined the digital industry's competition dynamics."

Management scholars, Gnyawali says, have extensively studied competition dynamics, but their research has focused on publicly traded companies in such traditional industries as airline, pharmaceutical, steel, and computer. "Thus, while newer forms of industries are emerging, and digital technologies are becoming very critical in these industries, we don't know the ways in which firms in such emerging digital industries compete,” he says. "Our research addresses this critical issue."

Building on research in both information systems and strategic management, Gnyawali and Fan developed a conceptual model to examine competition in the social networking industry from two strategic perspectives: "value co-creation" — that is, how firms "create perceived and real benefits for their users by engaging other parties as partners and contributors" — and "repertoire of competitive actions," which refers to the volume as well as complexity or diversity of competitive moves.

Their results, Gnyawali and Fan say, show that "firms that undertake value co-creation actions enhance their performance." Furthermore, firms that undertake a complex action repertoire — strategic actions on diverse fronts, rather than "a large volume" of actions or a concentration of efforts in a few areas — achieve better performance. Their study, Fan says, opens up many possibilities for future research.

Read the full story in this fall's Pamplin magazine.

Read a related story: "Social media and marketing: a Q&A."