Last week saw the LinkedIN IPO. Whether it will be a seminal moment in Social Media valuation remains to be seen. However, last week in Chicago, two events happened where some people familiar with social media offered up their opinions. At Illinois Launch, Brad Keywell gave a short talk on inspiration and happiness. The other was the Chicago Management Conference. Professor Steve Kaplan moderated a panel discussion with Brent Hill, Eric Lekofsky, Rishad Tobaccowala, Jean-Pierre Dube, and Matthew Gentzkow.
It’s not clear what the actual “economics” of social media are. We know it’s potent. We know it’s a game changer. But, it’s terrifically hard to quantify. One comparison is advertising. What is the ROI of advertising? Truly, social media if used correctly is a lot more powerful than any ad.
What drove the advance of social media?
The drivers of social media were Facebook, the proliferation of mobile devices, and broadband access. Ten years ago, there were small focused networks and message boards. Now, those networks are public. A company like Twitter or Groupon wasn’t possible ten years ago.
What is the immediate impact?
More accountability. Brands and companies are more accountable to their customers. Businesses are more accountable to employees. The example given was the Girl Scouts. Troops organized a boycott of selling cookies when they found out the cookies were made with palm oil.
But, unless the responsiveness is grounded in facts, that accountability could be damaging to a business. Rumors run through social media rampantly-it’s worse than gossip and the old “telephone game” played at parties. If SM is used correctly, the rumor can be quashed quickly and forgotten. Who can forget all the rumors started about McDonald’s beef in the 1970-80′s? Social media used efficiently would nip those rumors in the bud.
Social media has changed traditional marketing. It is now “integrative marketing”. How you manage that integrative social media portfolio will determine success or failure. Marketing is now sourced down to the end user. If you don’t meet the needs of the customer, you will hear about it. It’s a completely new way to sell stuff.
The measurement of success is done by clicks and impressions. If you are getting a lot of activity on your website, a lot of eyeballs, you are probably doing something right-or you have a big problem that you need to take care of! There is no quantitative measure for this stuff, although there are metrics that show the percentage of clicks and impressions that become actual purchasers. Rest assured, academics somewhere are crunching numbers to try and measure the impact and reach of social media spend.
One key point that was raised that needs to be remembered; When the lifetime value of the customer is greater than the acquisition cost of that customer, investment in social media is extremely valuable in getting that customer, and keeping that customer.
There are some observable things that are happening because of social media. Traditional media spending gets even more quantifiable. Your ad budgets for TV, print, and radio can be correlated to how well you are doing with your social media strategy. SM empowers the consumer, and it creates buying efficiencies. SM blows up distribution channels. They become flatter and more horizontal, allowing direct communication between customers and producers.
Another interesting phenomena, SM creates better employees through the use of private networks, like Yammer. It also allows retirees of the company to continue to contribute via a social media platform. Companies don’t lose as much human capital when employees leave.
Companies that use social media correctly have some common characteristics. First, they are focused on their end user base. It’s not just B2C, also B2B companies. The end user is held up on a higher pedestal. We always used to say, “it’s about the customer”, but SM is forcing companies to live it. Successful companies care less about things like Wall Street. Facebook doesn’t even look to Wall Street to see what’s going on. They have audacious long term plans.
For the individual, SM requires a few things. Number one, you are now more targetable than ever. Even if the “web” doesn’t know exact facts about you, it can infer facts about you. Privacy is an issue. Second, you need to filter, filter, filter who you follow and where you go. A lot of the responsibility for privacy rests on your shoulders. Go into it with eyes open and you will create a SM for yourself that is fulfilling and can bring you more opportunity. Follow a narrow band of people and you get narrow information. SM becomes an echo chamber.
SM isn’t a flash in the pan. It’s not going away. We have seen that it has the power to move societies, with the whole Middle Eastern spring, it has the power to move profits, and it has the power to move politics. It is crucial to understand it, and figure out the best way to strategically use it to further your business or brand.