The evolving worldwide web

The World Wide Web (www) represents a new medium for doing business that transcends national borders and attracts an ever larger share of social and economic transactions.

by Zsolt Katona and Miklos Sarvary
Last Updated: 23 Jul 2013

The commercial www is a decentralized network that evolves according to its members' activities, and revenues for website owners come from two sources, sales of content and sales of links. The network structure determines the flow of potential customers to each site, and understanding how browsers move around the network is important for analysing and generating demand.

Zsolt Katona, a PhD student at INSEAD, and Miklos Sarvary, Associate Professor of Marketing at INSEAD, have combined graph theory and game theory to the commercial www to try and identify how it evolves and perhaps indicate how website owners can maximise traffic and therefore revenue.

Assuming websites to be heterogeneous in terms of their content - or inherent value to customers - Katona and Sarvary model the www as a directed graph that emerges as the equilibrium of a game in which websites are utility maximising, and purchase in-links from each other. They find that the equilibrium structure that results from this represents the general empirical features of the www.

Katona and Sarvary take a single web page, or a single site with several pages, as their unit of analysis. Based on the Brin and Page (1998) Page Rank method, they add a virtual node that represents inactive users - browsers who go to a node with no regular out-links and so either jump to a random site or stop browsing. Revenue estimations are based on the assumption that the higher the public values a site, the higher the income from visiting consumers, and that revenue will be proportional to the total number of consumers visiting a site at a given time.

Sites also sell links, essentially advertising, and the price for links will depend on a site's traffic as well as content. Thus the higher a site's Page Rank, the more customers it will deliver and the more it can charge for a link. It is assumed that the gross profit of a site is proportional to the number of consumers and the site's content, and that the trade-off between keeping a consumer or handing them on to another site is captured in the price of the link.

The equilibrium network reveals that higher content results in more in-links, and the authors suggest that this provides an explanation for the success of Google through its use of Page Rank. In this instance, Page Rank acts as an indirect measure of content as, according to Katona and Sarvary's model, high Page Rank is correlated to high content.

The model also predicts that, as the number of users increases, a traditional media model emerges on the commercial www, with low-content sites specialising in selling links (i.e. traffic) and high-content sites tending to buy links (i.e. advertise). Further modelling reveals that search engines tend to make this type of structure more pronounced, and that less popular sites have an incentive to specialise by area to increase ranking and hence traffic.

The implications of this model provide useful guidelines for marketing managers on how to manage their firms' sites in terms of their connectedness on the www.

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