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Summary:

One of the reasons I love my job is there is always something new going on. Given the volume of new business ideas and trends that I have to…

Lulu Phongmany

One of the reasons I love my job is there is always something new going on. Given the volume of new business ideas and trends that I have to evaluate on a day-to-day basis, it’s absolutely necessary to be rigorous. For every Google (NSDQ: GOOG), there are a hundred Pets.coms.

For the past two years there are very few conversations that I’ve had or media that I’ve consumed that did not involve the words “Twitter” or “Facebook”. Don’t get me wrong – I do believe that social media is a game-changer. It’s as important as search and mobile when it comes to how it’s impacted the way that people use the internet.

My issue with the current social media frenzy is that as a result of this buzz, businesses are feeling the pressure to just jump right in and ask questions later. And most of them are. But what is the actual return on investment?

Here’s what I know about social media:

Social media is not a new phenomenon

Despite what you may have heard or read, social media did not begin with Facebook and Twitter.

Online communities have been in existence for decades and they are still thriving. Message boards and price comparison sites, which I consider to be as social as Twitter and Facebook, are still very relevant to online audiences.

According to Forrester (October 2010), 60 percent of online adults in the UK post on a message board weekly – versus 38 percent who update their Facebook status weekly. From the same study, 72 percent said they trusted price comparison sites – compared to just 34 percent that trusted brand profiles on social networking sites.

Social media doesn’t drive as much traffic as search

Let’s not kid ourselves. When it comes to driving users and traffic, there is nothing that comes close to search.

As paidContent:UK pointed out last June, UK newspaper sites are seeing about 50 percent of their traffic coming from Google alone (47 percent of our referrals at iVillage.co.uk come from Google sites). In contrast, Facebook accounted for 0.1 percent of referrals to newspapers, and 0.2 percent to iVillage.co.uk.

This figure should not surprise publishers. Remember the days when we thought distributing our content on a portal was going to bring us all kinds of new users and lots of traffic? Distribution deals drive some traffic and provide some new users, but mainly what it does is gets you better results in terms of organic search, which is what is actually driving your traffic. Social media is really just an evolution of the online portal in this aspect.

Social media will change online brand spend

Publishers know that there are two advertising budgets – brand and performance.

Before social media marketing, ad networks and search marketing provided cheap, performance-based alternatives to advertising on premium sites. It got the job done, but it hardly did anything for your brand.

Social marketing is different. It offers you an opportunity to run a branding campaign at direct-response prices. Given the exposure and brand perception you can gain for a Facebook campaign, versus running a search campaign or on an ad network, you can put your branding dollars toward social marketing and theoretically achieve the same branding result.

According to eMarketer, social marketing spend is expected to reach £185 million, a 42 percent increase from 2010. While it remains to be seen if this spend will come from budgets that went to traditional media (TV and print), premium online publishers will definitely need to work hard for their share of those branding budgets.

There are ROI questions that remain unanswered

At this point, examples of how social media drives ROI are merely the the low-hanging fruit.

The fact that retailers like Dell and gaming companies Zynga are thriving with the growth of social media makes absolute sense, since social media really just extend existing offline behaviour around retail and gaming. You tell your friends about things you buy and deals you’ve scored. You play games with your friends.

However, we’re not yet seeing consistent evidence of significant ROI outside of retail and gaming. Now that there is significant spend coming from brands and an
increased investment in social media efforts from publishers, the expectation to produce ROI will be more important than ever. It’s make or break time for social media.

The one really positive thing I can say about the social media frenzy is that, for the first time in a very long time, it’s been the catalyst for getting offline business excited enough to dip their toes in a more meaningful way.

When insurance corporations are setting up Facebook profile pages you know you’re in for some interesting times. It’s also got brands actually spending their marketing budgets in a more experimental way, which is important for online innovation.

However, let’s all keep a little perspective. If I’ve learned anything – the more frenzied the hype, the more disappointing the product. Star Wars prequel, anyone?

 

» Lulu Phongmany is head of business development and marketing for NBC (NYSE: GE) Universal’s iVillage.co.uk

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This article originally appeared in iVillage.co.uk.

  1. Hi Lulu, this is an interesting take on things.

    I agree that it’s really very important that companies take the time to plan their approach to social media strategically, leaping in without doing research first is a sure-fire way to fail. That said, with a considered approach it is wrong to claim that there’s no measurable ROI available. We recently began an ongoing campaign providing answers to questions on digital marketing forums, based on our existing research and reports (If you are interested I wrote about it here:http://ecly.co/cKRXqw ) It’s a simple, straightforward approach that has provided us with real, measureable cash value.

    It’s also rather sweeping to suggest that social doesn’t provide the same amount of traffic as search. While Google is our largest driver, our own Twitterfeed provides far more traffic than Bing or Yahoo, and we also receive significant percentages of traffic from social bookmarking sites. I’d say this is strongly dependant on your industry sector and your aims.

    I do broadly agree with your point about social extending existing offline behaviour, but I do feel this represents a slightly outdated view of the market. Increasingly I believe we are seeing the demise of dedicated ‘social media’ and the rise of truly integrated marcoms. Social’s value for business is as a facilitator. It’s a way to plug the gaps in strategy, giving your customers more choice about how and when they engage with you, while helping you track multiple touchpoint customers.

    Overall I strongly agree that it is about strategy, targeting valuable customers in a helpful, straightforward way -provide the customer with value, and that value will be returned.

  2. 【ツ】Ron Callari Thursday, January 27, 2011

    The social media metric should not be ROI, but rather ROE. Similar to last century’s public relations medium, there is no direct correlation between the message and the sale. However, differing from PR, social media allows brands to touch their customer in personal ways pertaining to branding, CRM, customer service, in addition to messaging. If a brand’s marketing team is asking for an ROI on a social media campaign, they need to employ other marketing tactics to get the job done, e.g. coupons, discounts, contests, etc. For pure social media campaigns, a brand should be looking at increasing a “return on engagement” vs investment. That’s the metric that needs to increase over time. Presently with a social media service we have developed for the travel industry, we have been able to track increases up to 40 percent engagement. There are very few campaigns today that can elicit that high an engagement stat- http://flip.to

  3. It is interesting to see that the question of social media ROI is still being discussed. According to the Altimeter group (Dec 2010), 48% of all corporate social strategists will focus on the social media ROI in 2011. We, Klurig Analytics, have provided a social media ROI solution for more than a year. Current customers include Cisco and Northwestern Mutual.

    Social media ROI is no longer a mystery but a business problem that has a business solution.

    Dag Holmboe
    President
    Klurig Analytics (kluriganalytics.com)

  4. As others have said before, what’s the ROI on your grandmother? Social media isn’t as much about traditional marketing metrics as it is connecting with customers and potential customers in a real and meaningful way, rather than an automated phone menu with six layers of choices before someone might actually find a real person on the other end of the line.

  5. My question is if Facebook is doing so well why did they need another round (1.5B) of financing? Is this for operating expenses (very scary) or product development? I don’t think Facebook’s income model is any different than the newspapers (advertising) and to me I don’t like it.Only television and radio seem to have a lasting income model based on advertising and radio is becoming suspect. If they have another income stream, what is it? If it only cost $1.00 a year to host each Facbook profile,they’re closing in on $600 Million a year just to keep the servers up. No one I know goes on Facebook to make a purchase. Do You? They’re there to socialize and keep up with their friends. All my friends told me they left Myspace because they got sick of all the ads, while Murdoch was trying to turn a profit. If the ads were a turnoff,hows does Facebook meet the challenge.? Being a financial analyst,I sincerely believe Goldman got involved just for the I.P.O. and a quick return off the suckers who think Facebook will be a good buy.

  6. TPC Online Marketing Thursday, January 27, 2011

    Love the post. Can’t say how many times we’ve had conversations like this with clients and potentials who fall prey to the social media hype and yet fail to significantly improve their search rankings. Agree completely on social media being a game changer, but is the game changing or the players? We are already starting to see significant interest in “blocking” technology as social becomes more intrusive, and more ‘disconnect’ as consumers simply become overloaded with the shear volume of info and junk thrown at them. Coupled with Zuckerberg’s insistence that no one wants privacy and the number of private networks suddenly popping up, it will interesting to see if social becomes another bump in the road of ineffective marketing for small – medium businesses or if it can start to generate returns for the businesses that use it.

  7. Imaginativepro Friday, January 28, 2011

    There are two measurements of social media return-on-investment. Financial and brand equity. The financial ROI measures my how much incremental profit I made from my social media expenditures (social media ads, staffing, systems, and so forth). If I came out ahead, then I generated a positive ROI. The brand equity ROI measures the effect on my brand. Did I gain incremental customers? increase my brand awareness? What affect did my social media efforts make on customer retention and customer service. For a brand to be able ROI you must have something to measure against, so you must know your starting point or benchmarks. Both ROI’s have measurement problems. Brand’s don’t often know which customer’s based their decision from their social media efforts. You must know the ROI’s by media channels and campaign. There is only such much a brand can spend on marketing, so it is very important to rank everything. If the ROI’s don’t measure up to established goals, then you either find out why, fix the problem or stick with what works. You really need to have good measurement systems in place that tracts visitors to your social site (Facebook, Twitter, etc.), how often they stayed, their online behaviors, what they clicked on, did they become a fan or follower? and so forth. That’s one way to measure your social “stickiness”. If the glove don’t fit you must acquit. Still you need to experiment a bit. Don’t expect immediate results or ROI’s. Big brands know this, so they are able to stick it out longer than small companies.

  8. I agree 100% with Phil Watson and Ron Callari above. Like PR, building brand equity and engaging customers is one of the primary reasons to invest in Social Media. Another reason is listening and monitoring what is being said about your brand, either using a monitoring device like Consumer Base (which I tried for 1st time this week) and interacting directly with customers via the mediums.

    Having said that, there is still direct potential for ROI that hasn’t been measurable in PR. ROI and ROE is not the same across all industries or companies. The traffic for iVillage.co.uk may not be high, but I’ve seen Twitter direct traffic leading to 5% of purchases around a particular campaign. You can’t ignore the amount of time and number of people that are using Social Media sites and most companies are right to believe they should be, at the very least, exploring. The key is to analyze what’s right for each company based on their goals, customer, and learnings from existing digital platforms and experiments.

  9. KPI’s? Yes. ROI? Hmm…You are correct: it’s make or break time. Let’s get to work.

    http://www.lizasperling.com
    http://www.twitter.com/lizasperling

  10. Andrew C Abraham Tuesday, February 22, 2011

    Lulu,

    While Search might drive more traffic to a company’s website than social media, that could be more a reflection of the brand’s lack of presence on social media in the first place e.g. their facebook page sucks and lacks engagement.

    Also, organic search is increasingly becoming more relevant as a result of social media. Engines such as Bing are now producing content such as friends’ “Likes” and Facebook profiles when conducting searches on various topics.

    So regardless of how you look at it, social media is either directly or indirectly driving website traffic.

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