Driving Value In Social Media

My friend Tim Freestone reminded me of something recently that is so fundamental and simple, yet often forgotten in the world of community building and social media marketing.  He said “If you can drive value you can write your own checks”. Tim works in direct marketing for B2B clients and has a very clear path to revenue contribution.  It’s measurable.  It’s obvious.  You either generate transactions or you don’t.   In Tim’s world, value is measured by a clear increase in revenue that is greater than the cost of the marketing services he offers.  Tim generates value.

Social media, depending on how you define it, works differently.  Marketers often analyze what they’ve invested in social media and don’t see lift in revenue, or they may see a lift in revenue but it’s impossible to correlate with their social media efforts.  Social media tends to look ineffective when measured directly against revenue growth (this is very similar to the Public Relations industry issue- but that’s a different post.  For this post, I’m talking about social networks and blogger outreach).

Today I want to play with the equation up top.  ROI is calculated by measuring what you made, subtracting what you’ve invested, and then dividing that sum by what you’ve invested (expressed as a percentage).   So, if you spend $1, and you make $2, then your ROI will be [(2-1)/1= 1]  = 1.00 = 100%.

I believe social media generates a lot of value for brands, but I believe it shows up in strange places on a financial statement.  Here are a few examples of why it’s difficult to measure:

Most of social’s revenue contribution is credited to other channels

A lot of consumers who engage with brands in social do not take a revenue-driving action directly from Facebook, or blog, or any other social network.  Some do, but a lot don’t.   Most of them consume some type of content, maybe interact, and then go about their day.  In the digital space, it’s often insightful to look for correlations between increases in direct traffic and search volume against social media efforts (try this and let me know what you find).
Just because a consumer doesn’t click out of a Facebook status update does not mean that they haven’t been impacted.  On the contrary, getting “into the stream” is far more effective than being on the periphery (in a digital ad).  Marketers who think of streams as ads are often missing the point, or not looking closely enough at their digital presence.

Most of the value in social media comes from cost savings and increased customer lifetime value

If you are a consumer brand and someone has an axe to grind, you really need to be in social media.  Consumers are fickle and tend to drag brands into a very public conversation when they feel wronged.  On the other side, people use social platforms to evangelize brands and you’ll probably want to be around for that, too.

Creating a platform for customer engagement decreases customer service costs (as less people lodge complaints through other channels), but more importantly decreases the cost of having to acquire new customers (to replace the ones you lose by not being respondent).  These metrics go into the “what you made” section of the ROI equation, but they don’t directly affect revenue growth, they affect profit by lowering operating costs.  New customer acquisition costs are usually the highest marketing expense a company has.  I can’t understand why more brands don’t measure the customers they keep.

Increasing intangible asset value isn’t necessarily a revenue driver…

By extension of the point above, maintaining brand awareness, increasing customer lifetime value and increasing brand affinity also show up in intangible assets (brand value). This isn’t something that marketers with short and mid-term goals look at, but it’s definitely something CEOs want to look at.  Again, contribution from social media to brand value is difficult to measure, but it’s certainly one of the biggest pieces of value offered.

Social media can increase lifetime customer value, decrease your customer service costs, and make a significant long-term contribution to revenue through the viral nature of word-of-mouth marketing.   But I think marketers need to stop looking at their social media efforts with the same microscope that they measure their SEM campaigns- it just doesn’t make sense.

Facebook Fans are worth $136.38 per year

A new study was just released by Syncapse, a Canadian social media agency, that tries to calculate an annualized dollar value for a Facebook Fan,  and has landed on $136.38 per year.  Gigaom posted a great, quick writeup summarizing how this value was derived, and the folks at Syncapse have posted an easy to download PDF,  so I’m not going to regurgitate on this post what you can read elsewhere.  I think that the agency did a wonderful job performing their research and making their arguments, and because I think that the number number is a bit silly, especially as an annualized value.

There’s No Causality

The report hits the nail on the head by identifying that a Fan base is a self-segmented group of highly valuable customers.  That is absolutely true.  What is also true is that the majority of value accredited to these fans is based on the fact that Facebook Fans surveyed spend over $71/year more than their non-fan counterparts.  Well,  that’s great–  but it doesn’t imply causality. These consumers aren’t necessarily spending more because they are fans.  From a behavioral standpoint, I believe brand evangelists will tend to flock to communities where they can wear the badge of being part of the brand.  I’m a little less sure of the causality going the other direction.

Earned Media Is Still the Best Metric

Assuming this is true (the core fans flock to pages),  it presents a fantastic opportunity for brands to engage a core group of their ambassadors and get brand messaging distributed organically.  A more meaningful metric that Syncapse discusses in their report is the earned media value measurement.  The idea that Facebook Fan (being a brand evangelist) is likely to share content and spread brand messaging seems more valuable to me than stating that a fan spends more than a non-fan.  This word-of-mouth recommendation system is still the number one reason for any brand to exist in social media.  Organic fan and customer growth cannot be accomplished with media placements and Facebook Pages are a proof of concept that supports this idea.

According to Syncapse,  68% of Facebook Fans indicate they are very likely to recommend a product.  This is incredible news for brands that want to spread value through connections with their customer base.  The issue that most brands (and agencies) are suffering under with this new medium is that it does not scale to the levels of purchased media (Chris Brogan has good things to say about this).  My personal take is that,  often in traditional media you can reach scale of impressions while generating very few connections.  Social media (ideally) starts with connections and grows from there.  It’s a different approach, but highly valuable if leveraged efectively.

Tablets and the Publishing Revolution

Yesterday I attended a panel discussion about tablets at Time Warner.  The panelists included  Terry McDonnell, editor of the Sports Illustrated Group.

Time was hyping up it’s new tablet applications and, I have to admit,  it was really exciting to see print veterans talk about the limitless possibilities of delivering a new experience on these new devices (Mr. McDonnell calls them appliances).

First, there are the obvious benefits of creating more in-depth experiences for a magazine reader.  But the conversation really starts to become interesting when the discussion of ads and ad rates come up.  New Time magazine issues will have only six (maybe eight) ad spots in their tablet editions, but the experience in these ads will be extremely rich experiences.  The company showed a few ads yesterday and they really were incredible proof-of-concept videos (one for Gatorade and one for Mustang).  The rates for these ads were hinted at being as high as print advertisements.  The jury is still out on whether advertisers will help sustain these rates,  but that’s great news for creators of in-depth content.

By creating a new experience that can only be had on tablets, the print industry is going to drive demand for the devices and find solid new ground to generate revenue.  This is exactly the opposite of how the music industry acted in the face of MP3 players (and we all know how that turned out).

An older video example of the Sports Illustrated application is below (Time hasn’t released the videos it showed yesterday).  Time’s applications were designed and developed by the Wonderfactory.

Display Ad Spending vs. Search

The story of the week has largely been about the growth of online ad spending.  While this seems like a well-trodden, tired conversation,  it got a pretty nice boost this week from Fred Wilson (which was inspired by a presentation posted in The Atlantic here).  In an earlier post I wrote I talked about the semantic web and Facebook’s bold venture into becoming the servers that will deliver relevant advertising based on what we like (here).  I want to continue down this road and talk about content sites and advertising.

Over the past several years,  “clicky” sites have beat out the “sticky” ones because of the economics of intent-driven, performance-based media (Chris Dixon explains this far better than I can).   Content has taken a back seat to sites like Google, which generate a lot of visitors who spend very little time on the site before clicking out to purchase (or to consume content).   This type of behavior generates a lot of revenue, is highly measurable and marketers like it because they can calculate a direct ROI (spend $100 on performance-based media like Google Pay-Per-Click, generate $150 in net income from the refers and you’re just made money) .

This development has been great for growth in the online economy; it has fueled innovation and brought transparency and validity to the space when it needed it.  But, while SEM is a highly efficient means of advertising, it’s a terrible way to create brand equity.  I believe that display will get a shot in the arm from companies like Facebook, who will be able to generate relevant, targeted ads to consumers. I think this will be a good thing for the web because it will likely drive demand for more rich, content-heavy experiences online.  Display advertising (I’m not necessarily talking about IAB ad unit banners) works best in places where a user stays on a page for a while and consumes content (I have no proof of this, but I like associating brands with experiences and I believe that most people feel the same way).

Of course, the real win for online display advertising will be when someone figures out a way to really measure engagement.  The way the system currently works, people see ads everywhere, but when they decide to buy they go to Google, search the keyword and click on a sponsored or organic link.  It’s unfair to credit Google with 100% of any given sale;  a user might have read a review on a blog, viewed a few display ads, or even (say it ain’t so) read an ad in a newspaper.  Right now all of the credit for the sale goes to Google  when in reality the credit should be shared across  the marketing funnel.  Engagement marketing is an important part of the equation and is often ignored by marketers at the risk of brand dilution.  As the web becomes a more personal experience for us all,  I think we’re going to see growth in the engagemnt side of things again.