Social media and the acid-bath of ROI.
Run a Google search on “social media ROI” and you’ll get 1,140,000 results.
It makes sense: companies understand that the social media have taken off as a cultural phenomenon, but they don’t know whether it’s worthwhile for them even to participate on social media platforms, much less pursue them actively as channels for business. So managers do what they’re trained to do — what they should do — and ask “How will we know when we win?”
Unfortunately, this inquiry often gets oversimplified as “What’s the ROI?” — which prompted this heretical thought from me during the Inbound Marketing Summit:
ROI is a fine thing.
It’s fine because it gets at a fundamental, laws-of-Newton relation of business: How much will we spend? And how much will that bring us? Good.
ROI works best, though, when we’re using it on known entities. Examples:
- If we start hiring today to add 20 more salespeople, how much business can we expect them to book in the next six months? This works great because we already have salespeople, we know how long it takes to find new ones, we know how long it takes to get new ones ramped up, and we should be able to venture a solid guess at how much business they’ll close in the early going.
- If we build a state-of-the-art factory, how long will it take for it to pay for itself? As complicated as this question is — and consider what Intel faces when it must decide whether to build a multi-billion-dollar fab — there are great tools in place, down to the last decimal of tax treatment of amortization, to help make a decision on it.
- If we increase our spending on Marketing Program X, how much sales lift can we expect to see? Even in the often-murky arena of marketing, there are areas that we understand very well in a quantitative sense. A good e-mail marketer can tell you in seconds how much sales lift to expect from a 2% increase in click-through rates, for instance.
There are always many unknowns in the world of business, even with the best projections and in areas that we understand well, but in cases like these we can at least go forward on our ROI calculations with a good degree of confidence.
Unknowns abound in social media.
Social media, however, in still so new that there are many more unknowns than we’re used to dealing with for lots of other areas of business. I like to compare it to the U.S. automobile industry in 1900, when there were scores of companies making forays into car-making. At that time, automotive technology was up in the air, Henry Ford hadn’t yet revolutionized how manufacturers were organized, and the makers hadn’t even settled on which fuels to use. Beyond all that, there weren’t many good highways joining major cities. Everything was in flux.
Don’t get me wrong: the fact that the same state prevails today in social media doesn’t mean we just throw up our hands and start spending without thinking. But plenty of what we try will be experimental, even if only because the examples we have to study come from companies of different size, in different industries, with different strategies and parameters. So we have to be in test-and-learn mode, understanding that we’re going to have to take some calculated gambles and then, in the words of Paul Gillin, “fold your losers, double down on your winners.”
The good news is, much of what you can do in social media today is cheap. That low “I” means that if you can hit even modest “R” numbers, your ROI gamble will pay off.
Social media is not just marketing.
For reasons that aren’t hard to understand, many companies’ social-media programs have started from within marketing and p.r. units. But social media is a hydra-headed beastie, with both internal and external faces.
Without diving into specifics, social media is already finding good fits, for different companies, in:
- marketing
- sales
- operations
- customer support
- training
- product development
- market research
- recruiting
- . . .
Consider the parallel to e-mail. There might be only one person in a company with “e-mail” as part of a job title: an e-mail marketing campaign manager. Yet every person in the company uses e-mail to get their jobs done. That’s what we’ll also see — what we are beginning to see — with social media.
In the face of this, how will you calculate — or even guess — at the return on investment?
So, to summarize:
- By all means, keep asking, “How will we know when we win?” Social media deserves as much discipline as any other area of business.
- In those areas where you can measure ROI connected to specific social-media efforts, by all means do so. ROI is a useful tool — a fundamental tool — when it’s used right.
- Understand that, sooner or later, social media will probably become as pervasive for your business as e-mail, phones, or face-to-face communication. That’s neither good nor bad — but it’s a good idea to be ready for that day before it’s staring you in the face.
Your thoughts?
~
Photo by Daisy Romwall, used under a CC-Share Alike license.
Category: Management,Social media
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37 Comments so far
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Tim,
I think you hit the proverbial nail on the head.
The only thing I would add is that for a company to succeed in social media, at least in the short term, there needs to be participation at every level within the organization.
Sure this increases the inputs…but it also pays off in terms of apparent transparency, engagement with the higher levels of management, increased trust among the public, etc.
This approach IMHO bumps up the “R” Part of the equation.
Social Media is simply not just for marketing anymore…it is fast becoming everyone’s job.
Great article!
Jen
Thanks for the thoughtful comment, Jen — but I wonder if you’re describing ideal conditions rather than necessary ones for success in social media?
In a *large* company, especially, it’s quite possible that you’ll never get the CEO writing a blog, tweeting, etc. — and that may be fine depending on the context. I always think of the example of Hank Paulson when he was running Goldman Sachs: he had never used *e-mail* in his life, and wasn’t about to start. He was too busy working the phones (his preferred method) to close deals & address problems across Goldman’s far-flung operations.
For many companies/brands, better transparency means *any* transparency. E.g., Comcast customers benefit from knowing @comcastcares is available to talk to via Twitter. I’m sure many (most?) of these customers don’t care who the Comcast CEO is — they’re just happy that Frank and his crew are on the line at @comcastcares.
Small & entrepreneurial companies . . . we could be talking about a very different scenario.
What do you think?
As a former Controller I am surprising not a fan of ROI. My observation is that if someone wants to do something they can always find numbers to make the return work. That can be a huge waste of time.
I follow Rule #1 – First understand the problem.
When I first implemented eMail it was just HPDesk and it allowed me to move spreadsheets back and forth across the world (from Tokyo) which was much easier for non-technical people who needed the reports at HQ. At the time – 1987 who would have thought where eMail would go.
In defining the problem you can find the win. If you can make the cost work then redefine the problem. Einstein and Edison were notorious problem redefiners. They defined problems differently then everyone else and that’s what lead to their success. The same will hold true with social media.
- David
Absolutely, David — great points. Two elaborations:
1. In my experience (not so extensive as yours!), I’ve seen how easy it is to game ROI figures. You tweak the assumptions until the right end numbers come out. Heck, Excel even has a function specifically to help you do this.
Making *some* assumptions is justified, and even necessary. But if you go into a project plan wanting to justify a course of action, you can get the numbers to do the dirty work for you.
2. “First understand the problem,” it seems to me, ties closely to “How will we know when we win?” It lets you separate *activity* from *progress*.
Hey Tim,
Thank you for re-addressing the issue of executive involvement in social media.
I will hold that it will be imperative going forward that executives be involved in at least some form of direct communication with their customers for this reason:
Trust. Trust is increasingly becoming the mental currency in customer decision-making. Case in point: Zappos. I have personally chosen to do business with Zappos over other online establishments for one reason: trust. I know that if I have a problem, or something isn’t right & it was unresolved through the normal channels, Tony Hsieh is a tweet away. Zappos is not the cheapest place to buy shoes, but that does not figure into the equation for me.
As for the inverse: I trust Hank Paulson about as far as I could throw him. I believe I speak for many when I say that I am sick & tired of the large corporate executives playing the part of the man behind the curtain. They hide behind the marketing & PR departments & depend on the “spin” to hide their misdeeds. In my mind & in the minds of many, this raises an air of suspicion and can be the deciding factor whether or not to do business with a particular company.
From this point going forward, In my humble opinion, corporate communication is going to change dramatically. Yes, we are all happy that Comcast has decided to jump in to the social media arena and help stem the tide of negative sentiment, however, it is still not enough to turn it completely around. For that to happen, the leadership needs to jump on board and communicate.
Transparency, constant communication and availability at EVERY level will be of great importance as social media becomes the new communication paradigm.
This is just one little recruiter’s opinion.
Thanks again for the thought provoking article!
Jen
Jen — Thanks for the essay-length comeback!
Let me make a key distinction right off the bat. We’ve been talking about top execs’ use of social media, but in your comment here you lead off with execs’ “direct communication with their customers.” These two things overlap, but they’re not identical.
To take the example we’ve already been discussing: love him or hate him, Hank Paulson spent acres and acres of his time at Goldman calling on clients, on the phone or in person. He traveled all the time and worked the phones all the time, with his efforts grouped around internal management tasks and external engagement with customers. And, by the way, plenty of these customers *loved* Goldman because it delivered results for them, over and over.
All that to say this: I agree with you *wholeheartedly* that top execs need to be available for customers. Absolutely I agree with you that Hsieh is doing a great job of this for Zappos. But social media isn’t (or isn’t *yet*) the only way, or even the primary way, for many execs at many companies in many industries to do this.
I get a skewed view, because Hoover’s has been a Web-based company for so long and because so many of our customers (and prospects, vendors, etc.) are highly comfortable with online communication. But there are plenty of industries where this *isn’t* true, including plenty where it won’t be true for a while.
What do you think?
Tim, you and Jen need to do a point-counterpoint podcast like the old SNL routine. But this is great dialog.
My humble opinion: it depends on how your customers want to engage. Let’s pretend there are only two media (Twitter and telephone) and only two companies (Goldman and Zappos). Goldman’s customers overwhelmingly prefer the telephone, while Zappos’ customers all prefer Twitter.
Paulson would be irresponsible to spend any time on Twitter in that case (unless there’s a case to be made that he’s cultivating new prospects not reached through traditional channels). By the same token, Tony Hsieh shouldn’t waste a minute on the telephone if his customers prefer Twitter.
It’s never so black and white, of course. And Tony Hsieh, in his SXSW09 keynote, focused on customer interaction – not tools. Good telephone service was as important to him as a strong Twitter presence.
So, in short, it’s not about the tools. And it’s not about the execs. It’s about the customers. How do they want to interact? Whatever the answer is, that’s where a smart executive will go (and will lead his team).
Some social media tools do have advantages here – it’s easier to @zappos than it is to find Tony’s direct line. But that’s a choice of transparency, not of tools. There is nothing preventing Hank Paulsen from publishing his direct phone number, and nothing preventing Tony Hsieh from hiding behind a secret Twitter handle.
Tim,
I see your hand & I’ll raise you.
I seem to recall during one of the presentations during the Inbound Marketing Summit a story of a company (dug through notes & hashtags & can’t seem to find it) that you would not think could benefit from social media but succeeded anyway.
As I recall, it was an industrial widget maker, or something like that.
The point is that they began to harness the power of blogging and engagement with their customer base from the executive level to the engineers and down. This increased trust among their customers and positioned them in the marketplace as experts.
Mind you…this is an example of a company that you would not typically think of as benefiting from a social media presence…yet they did.
Of course I am not saying that companies should not engage in more “traditional” means of communications with their customers. In fact, I am of the opposite opinion. Naturally you should call them, spend face time with them, etc.
I believe that social media offers the next layer of engagement…a prequel to the main event so to speak. It is certainly not the *entire* conversation.
It is evident how social media benefits B to C companies such as retail & services, but I believe that B to B companies would find great value in exploring and participating in these activities especially as it is an emerging communication channel.
Your turn :-)
Jen
Russ — Typically cogent way to bring it all together.
Jen — I get what you’re saying. I recall the instance you’re talking about, because Bernie Borges talked about Indium, the maker of solder paste, in the panel I was on. The blog, in that case, was written by some of the engineers at the company.
*My* point in our discussion, and please pardon a lot of emphasis, is that social media *won’t* be a good answer for *some* EXECUTIVES — in B-to-B, B-to-C, whatever — for at least a while. For *some* of them, it *shouldn’t* be part of the equation.
Getting back to the original post: we’re facing extraordinary complexity here, in terms of various dimensions like industries, layers of management, job functions, and different social media tools. That’s just four dimensions out of many possible, and if we were able to imagine a four-dimensional grid, it’s impossible that every one of them would contain a green light in terms of social media. Complex and nebulous as ROI can be sometimes, there are cases where it clearly *isn’t* the answer, or isn’t the answer for *now*.
Hi Tim,
Trying to measure ROI of social media is stupid. It’s like measuring the ROI of sending emails or talking on the phone.
These are communication tools.
They only provide value if you use the same fundamentals that make people successful in business and in life.
Connect.
Build relationships.
Provide value.
Be yourself.
Listen.
HEAR.
Respond.
Your Tweet from the Summit was dead-on.
Stephanie
[...] Moran of Converseon. It offers a nice counterpoint to the blunt assessment of Stephanie A. Lloyd in her comment on “Social media and the acid-bath of ROI”: “Trying to measure ROI of social media is stupid. It’s like measuring the ROI of sending [...]
I highly recommend Don Bartholomew’s recent post on ROI and social media.
http://metricsman.wordpress.com/2009/05/28/in-social-media-are-we-looking-for-roi-in-all-the-wrong-places/
He observes,
“If your customers want the option of customer service via Twitter do you really have an option long-term? If crises are often spawned in social media, how optional is listening/monitoring if you want to protect your brand? Increasingly, the corporate world will realize the options are all with the consumers/customers and how, how often, what and why we communicate will largely be in response to this dynamic.”
Good stuff, Larry — thanks for sharing that. As Russ pointed out earlier in the thread, it keeps coming back to the customer.
It’s funny how much of this newfangled stuff boils down to terms that Peter Drucker could have used in the 1950s or the 1980s.
Tim,
First off – thanks for writing this post. The viewpoint on the matter is sorely needed, especially as social media practitioners everywhere (myself included) encounter various forms of push back on the lack of proven and measurable ROI calculations. I would like to see execs calculating the ROI for other essential business functions like e-mail & meetings, as you brought up in your tweet and our conversation at IMS.
I agree that social media will wind up much like e-mail and phones in the future – essential for running a business, but where ROI isn’t necessarily the focus.
That said, for the moment, there has to be some defined measurements that help justify the amount of time that is required to maintain, grow and engage with social networks. And as someone who works for an agency, my time is measured in billable hours, and the clients who pay for those hours expect to see what was done and what it produced for their investment.
While I see the value in time spent with social media, others may not – unless we’re able to show measurable, value oriented results. Steps have been made in this direction – PR style measures, engagement measures, traffic referrals, etc. But, for better or worse, until we can prove some form of ROI, I think social media will continue to be a tough sell for a lot of business owners.
I love this discussion.
I think we need to dissect “social media” for a minute. To throw all of the types of social media into the SM bucket is a little like trying to find the ROI of “marketing.” Talk about being able to move the numbers around as you would like… So let’s talk about the specific forms of social media engagement and see how they develop or come into focus in the acid bath.
Again, Tim, you have inspired a much longer response than appropriate here . I will post the trackback when I have published it.
THIS is SOCIAL MEDIA at it’s finest. Smart folks trying to help each other uncover the value of SM.
Well done!
Back at ya in a few.
@jmacofearth
The Social Media ROI Acid Bath – Harmful If Swallowed (response to Tim Walker’s post)
http://bit.ly/ROI-acid
You inspire again Tim. Thanks for the jolt!
I think the psychology behind this thinking is anchored in the dot-com bubble bursting early this decade. The frenzy over “eyeballs” was rife with “I don’t know how to profit from it, but I’m gonna throw money at this web thing.” Many people who were once bitten by not thinking through use of a new communication medium are twice shy about the latest approach.
Like any technology, application of that technology to the real world requires experimentation. A measured amount of risk-taking is likely to pay big dividends, but it is too early to identify the exact method to earn that benefit.
I agree with you that new SM tools and approaches will become as embedded in the business world as email is today. Once that occurs, people will begin to shift their ROI discussion to specific viral marketing campaign ROI as is done today with email campaigns.
Tim – great article and post about ROI and social media and by the 17 comments I can see there’s a ton of interest in what you are saying and wide ranges in perspective.
My company does social media (we specialize in it). We deal with this question on a daily basis and speaking from inside the kettle I without question believe that social media can increase ROI.
Just as you point out that there’s so much about social media that we and (companies) don’t understand. This couldn’t be more true. The primary thing that companies need to understand is that social media is simply a tactic, just like television ads and just like a call center. How a company uses this tactic depends on a strategy – if the strategy is good then there will be ROI.
We spend a lot of time trying to convince clients or that – not only do you need a Twitter account, but you need a strategy before you even create the account.
I like to think of social media as a boat. There’s tons of people that get on a boat, but where is the boat going, what kind of food are they serving on the boat and what other boats may you come in contact with.
Without strategy, your boat sits in the water with all those people, sure they like being on your boat, but it won’t be long before they find a new boat.
You need a strategy.
Good points, Michael. I keep coming back to Drucker: how does X [social media, a call center, a new R&D facility] create a customer? By extension, how does it build enterprise value? How does it differentiate us in the marketplace?
And . . . how does it fit in with the rest of what we’re doing?
The questions are often simple. Coming to smart answers can be a wrenching process. But it’s a process we must undergo if we want to harvest maximum value from our efforts. That’s just as true for social media as for anything else.
Hi Tim – You are on the ball this morning, I was doing something and saw your response and had to comment back.
Besides the strategy there’s also and ‘X’ factor to social media, people don’t often talk about it but it’s there. You touched on it a little in your article but the reason why I got into this game and the reason why social media will revolutionize media is this ‘X’ factor.
One more quick thought and then my explanation of the ‘X’ factor.
Companies say they forecast 2-3 years out (revenue, customers and what not) but they are only thinking about the next quarter (I don’t blame them). But they look at social media to fulfill a goal, thus ROI. So that’s why everyone focuses on that especially now with social media being so new and in the recession we are in.
Here’s the ‘X’ factor of social media. Recall back in your marketing class – what was the most sustainable form of marketing?
I believe it was magazines, because they sat on the coffee table and the ads constantly spoke to people – what’s the duration from that reach (maybe a year) and in itself that’s pretty long.
Social media’s reach extends past that and is sustainable forever. Forever, that’s a huge word. Think about it – when are things ever removed from the net? They aren’t – so in social media you have maybe the greatest sustainable source of branding, marketing, and support. I haven’t even touched on the reach yet. Facebook, Twitter and MySpace comprise more users and traffic than any site on the net.
My two cents – probably didn’t answer your question.
Any time Hoovers wants to do a story on us (SPECK Media that is) let me know.
Cheers
[...] media is not just about marketing. As I said the other day, there are good reasons that its use has started within marketing departments at many companies, [...]
Good points, Michael — and you’re absolutely right about quarter-to-quarter thinking as the root of the ROI questions here.
The big trick, which gets at what you say about “forever”: how can you drive business today WHILE driving business for the long run? Not one versus the other, but both at the same time.
The companies that get that right really have something.
[...] Social media and the acid-bath of ROI – Business Insight Zone [...]
Tim,
Tweeting about ROI today, so here I am.
I’ve learned quite a bit already just from the comments as well as your excellent post. It seems like we’re talking about whether or not measuring ROI should be a prerequisite for embarking on a social media program. Clearly, just listening on Twitter and other venues can provide all kinds of cost savings in terms of competitive intel, crm and r & d. These aren’t so tough the measure. Just lay out a baseline and do a before-and-after study. Planning is the key here as mentioned many times in these comments.
I guess we’re assuming that measuring ROI is either difficult or painful for some reason. If it’s ingrained in your corporate philosophy, then it’s a natural to measure the heck out of anything you do with social media. If not, then why worry about it? Consider your social media initiatives an investment in your future, not unlike building a great office environment.
John — In general I agree with your take here, but there are a couple of issues I would point out:
1. By no means is it commonly accepted (at least if what I’ve heard from other companies is common) that listening on Twitter provides the benefits you describe, or that its impact is easy to measure.
2. My big point is not that we shouldn’t measure what we do in social media, but that in some cases we won’t be measuring by the metrics that would seem to be obvious. Easiest example: social media seems like an obvious play for marketing — and in many cases it is — but depending on what you’re selling and how you’re selling it, it might not be highly measureable in the way that, say, direct e-mail campaigns are.
Tim, I am by no means as expert as many of the other folks responding to this, but I would like to add a couple of comments.
1. Comparing a Social Media ROI discussion to the current state of Email, Telephones and Automobiles in my mind is irrelevant. Without early stage ROI, none of those technologies would have started and none of the mentioned intangible benefits we enjoy today would exist. It’s like trying to discuss the ROI of tap water. We must compare what happened when those technologies started not what we see today.
2. There is no question that the evolution of Social Media (in all forms) will become the fuel of the next economic wave of growth. But, people do not spend money unless there is tangible value. Although that value may not accurately be measured by traditional methods, they are all we know today. If we as an industry really want to succeed, we must focus on what we know today and work to prove this economic value. If we do, all of the rest will happen as things evolve.
3. Business leaders will buy based on gut feel and look for solutions to those supposedly intangible issues that keep them up at night providing they can justify it in today’s terms to those who control their purse strings. The tangible justification in many cases has nothing to do with the intangible issue or benefit they believe to exist.
I totally agree with your last comment about the various reasons companies need to do things. If we focus on the distinct and current issues facing individual buyers and solve them with tangible capabilities (the steak) while understanding the intangible concerns they have (sizzle), this will move forward. If all we focus on is the “sizzle”, we’ll create lots of activity but no economic growth and the real value (the future value) of what we all believe in will continue to evade us.
Steve — Lots of great stuff in your comment, but I have some reservations about what you say. (Bear with me, I’m working from memory on all the historical details.) Item by item:
1. E-mail was developed so university and government researchers could talk to one another over Arpanet (and similar networks). I don’t think there *was* any early-stage ROI calculation — they were piggybacking off a subsidized network for their own convenience. Automobiles, similarly, started with hobbyists and rich folks who were interested in horseless-carriage technology for the novelty of it. And in ROI terms, the telephone followed a course already blazed by the telegraph.
2. In some cases, though, it seems clear to many folks that “all we know today” is mis-measuring the value (or the costs) of the technology. If you *know* the current tools are getting it wrong, you invent better tools.
3. I think you’re quite right on this point.
Thanks Tim, one out of three’s not bad!
I believe your comments are absolutely valid. The point I was really trying to make was that broad commercial adoption of these technologies past the research and hobbyist stage needed ROI validation of some sort.
To your point though, the commercial ROI determination for these products was based fundamentally on issues not “known” at the time (ie: Ford building cars the workers who built them could afford).
I believe you are correct in saying that this is the state we are in with Social Media today. And, as long as we continue to focus on developing that new “ROI” model, we’ll get there.
Given some of the new things coming out and the thinking that is being done by some very advanced and senior business thinkers, we’re not too far away from this being reality. And, when it is, this market is going to explode. Those who are first to this “new” ROI party with tangible approaches will win enormous rewards, just like Henry Ford and so many others have accomplished in the past.
IMHO
Excellent points, Steve. Thanks for clarifying.
[...] Understand that ROI may be complex to measure. (Yes, you’ve heard this before.) [...]
You make some excellent points here, in regards to social media and the expectations or ROI that people bring to it. Social media IS still evolving and probably will be for a while. That needs to be taken into account, as well as understanding that networking is an indirect way to get business as such is not always as measurable as one might like.
That said ROI can be determined if you follow the trends of your usage of social media. I recommend checking out http://getclicky.com for some excellent analytics tools you can use to measure traffic to your sites using social media.
[...] Social media and the acid-bath of ROI. [...]
[...] att gå under i samband med dot.com-kraschen. Men valde att utveckla Amazon. Hsieh och Zappos fick kämpa i en hel del motvind när de valde att satsa på sociala medier som kanal för att öka [...]
[...] Social media and the acid-bath of ROI – Business Insight Zone [...]
[...] then wrote wrote Social Media and the acid-bath of ROI and I could not help but [...]
[...] & I were talking about Social Media ROI and what it means. She shared an article with me by Tim Walker- Acid Bath ROI. TIm makes a really valid point that he wished they would do “ROI on email, meetings and other [...]
[...] so. Much hay has been made over what social media is truly worth as a marketing channel. As in the acid bath of roi The bare truth is that social media wants desperately to be seen as a viable investment for a [...]