The Relationship Economy……

There is lots of chatter on the web relative to the ROI from social media. As we start a new year  more and more people and organizations will become consumed by defining the ROI.

The Rising Tide of Expectations

People and businesses don’t like spending time and money without defining the return on their efforts.  At the same time people and businesses engage in non-productive activities without even considering an ROI on those activities. So one must ask why do they think  social media activities will produce an ROI? The reason is that social media has become in vogue and everyone seems to want to capture value from it rather than with it.

Now Social Media ROI is in Demand Connie Bensen predicts for following trends for 2010 as it relates to this ambiguous thing called social media ROI.

1. Companies will expect ROI from their Social Media efforts.
2. The Social Media Specialist (Community Manager) position will become mainstream.
3. Cultural shift inside of companies.
4. Social Media Monitoring will be a necessary component
5. Agencies and companies will hire data analysts
6. Integration of platforms and processes will be critical.

Connie’s predictions are sound and the market activity in 2010 will likely follow form.  I have my own take on social media ROI. My take is there is no ROI from social media. Watch the video below and give us your thoughts.

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As 2010 begins a new year it seems that the marketplace is  consumed with measuring the return on investment from  social media activities.  The demand for measurement of ROI will distract the marketplace from learning new methods to create ROI or it will create new leaders who focus on the “intent” which produces an ROI.

In an article in Mediapost titled 2010: The Year Social Marketing Gets Serious Laurie Sullivan writes: “Marketers will need to start justifying social marketing plans with business cases, objectives and metrics, as the medium moves out of the test phase.”

“Forrester Research released a list Monday of social computing prediction for 2010. The report suggests that companies that create social councils — cross-functional teams aimed at sharing ideas about social media — will begin to get serious about budgets and structure for these groups. Expect the teams to become strategists. Efforts will likely include policies.”

“The report also suggests that an increasing number of marketers will adopt listening platforms to monitor social media, Twitter will become more profitable or get acquired, Facebook will take a hands-on approach to protecting members, and incompatible mobile devices in siloed application will shatter the social experience.”

“Forrester Analyst Augie Ray says in 2010, those who hold the purse strings for budgets will want to see results. “It’s the year social marketing gets serious,” he says.”

Input+Process+Output=Results

Engaging in the marketplace of conversations has become main stream, expected and simply the new method of how markets should operate. Since the process is still new many are trying to apply old methods and old thinking with the ability to engage with many for difference purposes. Markets are now trying to measure the benefit of engagement and screaming for an ROI on the investment of time and expense.

The irony of current behaviors is that the intent is transparent. Marketers want to produce results from us and don’t realize how transparent their intent is to the new marketplace. Intent is the real measurement of effective engagement and the measure of intent is reflected by how well you serve the market of interest.

The focus and demand on results is akin to playing tennis by watching the scoreboard. Demanding measures for results is typical of old management thinking without taking the time to understand that which creates the results. Being consumed with marketing elements of social technology is silo thinking. Unless any organization learns to “connect” communications and understand the issues that impact the sentiment of communications then all “intents” to create a result will be misguided.

The banking industry chased results. They got the short term result only to create an collapse of our entire economic system then they had to be rescued by we the tax payer. The irony is that using “social media” to create results is reasonable but using it wrong may created the wrong result. Wrong results and measuring the wrong thing will create long term rejection with no rescue.

Input into communication processes creates output which leads to a result. Social media input represents thinking about the intentions of the marketplace you want to reach and serve. The intentions of the marketplace may be and usually are different than the intentions of the supplier. To influence end results means suppliers need to match their intentions with that of the buyer. Notice that buyers typically do not market anything rather they express wants, needs and desires reflected within their conversations.

Try measuring the ROI of your intent. Maybe 2010 ought to be focused on serious thinking about intent.  Chasing implies you are not leading. Lead and you can influence others to follow.

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Some people think there is nothing to this thing called “social media“. Then there are those who think it means everything.

How we view things shapes our perspectives and subsequent actions we apply to life, business and relationships. Our actions can create change or resistance to change.  Change is created from communications. As a man speaks so shall it be….that is if enough people speak and think the same thing.

Social Media Conversations

Everyone, at least those paying attention, seems to be talking about social media and some are doing more than talking about it. Conversations about social media a fueling debate, stirring possibilities and changing how people think. When people change how and what they think they are enabled to see things differently. Subsequently when we can see things differently we are enabled to share what we see with others and collaborate around possibilities.  The possibilities of social media and its impact on how markets behave and people interact will fuel even more change…..stay tuned for “The Intention Economy”.

Some people think believing in something as simple as communications is crazy. While others begin to think about how communications can change everything and they create the crazy things others don’t believe in……at the click of a mouse.

Do you think you can create unheard of results from and with social media? Some say yes and some say no. In a group discussion on Linkedin titled “Social Media for Business is Crap” over 900 people responded with their perspectives (a record for Linkedin). Subsequently a group under that name on Linkedin was formed. Which perspective would you consider crazy?

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It seems that online and off line conversations are consumed with measuring the ROI from social media.  Much of the dialog is a waste of time and focused on the wrong thing. Yet organizations seem to be demanding a measure of ROI from this thing we all call social media.

All businesses represent a system of inputs, processes and outputs. Most businesses measure output, or results and said measures are purely financial results. The irony is that results do not tell you what may be wrong with the process or the inputs into a process. Results just tell you what you’ve produced as a result of the inputs and processes you’ve used. Social media does produce results but all those results can tell you is whether your inputs and processes were operating effectively. To change the result you must focus on both the inputs and the processes. But who measures those? Not many if any.

A Problem With Thinking About ROI

If you use existing social media metrics most of them will tell you about the reach of your message and its popularity with the market of followers. Reach and popularity may not be the right measure of effectiveness and efficiency. Getting reach is easy thanks to the power of social technology. Popularity only equates to well being popular. The question is are you popular with the right audience whom has an interest in your conversations or an interest in a relationship. Relationships beget opportunities for a transaction if the basis of a conversation has an affinity to the markets needs and wants. Getting lots of followers, connections and massive reach could create results that are meaningless. Yet many organizations measure these results (outputs) and use them to justify their presence, their efforts and the time and money spent doing so. It is a lot like the days of measuring advertising and marketing effectiveness which was justified by a 3% or less response.

So How Do You Measure ROI?

If you understand systemic thinking you know that all results are produced by the quality of your input and related processes. For social media the input is reflected by your thinking. The process is distribution of communications. Fundamentally it is that simply and should be looked at simply. On the other hand the input is what you communicate to whom, where, when, how and why.  Now those elements of social media aren’t so simple and if they were everyone would be applying the thinking behind each element and creating massive ROI, which they are not.

The questions of what,where, when, how and why are deep and wide and require critical thinking. Critical thinking is purposeful and reflective judgment about what to believe or what to do[1] in response to observations, experience, verbal or written expressions, or arguments. Critical thinking might involve determining the meaning and significance of what is observed or expressed. It seems that today most organizations are chasing social media ROI without even considering whether there is adequate justification to accept the conclusion as true.  Subsequently everyone is consumed with measuring the results without thinking through the inputs and processes that produce results that can go beyond your expectations.

Unless you think critically about the ROI from social media your thinking is not likely to produce any results. Thinking is the input, communications is the process and well the results reflect the quality of your thinking. The quality of your thinking is reflected by what you know or don’t know.

The web requires a new knowledge domain that most businesses do not have. Knowledge about what? If people are looking for solutions will they find you? When they find you will your web site reflect conversations that enhance relationship? Does your content engage and provide value? The market will decide that is less then ten seconds. Get it?

What say you?

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Using social media just because everyone else is does not mean you should, at least not yet.

Before jumping into all the chatter and all the advertising organizations would be better served by asking themselves a series of questions. Finding the answers to the questions will require you to “think” about critical issues which will have serious impacts on the use of social media.

First you need to understand what it should be used for vs. what it shouldn’t be used for. To answer these questions you must think about how effective are your current communications, internally and externally. Why? Because communications is the essence of an economy, your economy, and unless you master it you will indeed hurt your economy.

Think About Your Communications

Kevin Kelly writes Because communication–which in the end…… is what the digital technology and media are all about — is not just a sector of the economy. Communication is the economy.

This vanguard is not about computers. Computers are over. Most of the consequences that we can expect from computers as stand-alone machines have already happened. They have sped up our lives, and made managing words, numbers, and pixels quite extraordinary, but they have not had much more effect beyond that.

The new economy is about communication, deep and wide. All the transformations suggested in this book stem from the fundamental way we are revolutionizing communications. Communication is the foundation of society, of our culture, of our humanity, of our own individual identity, and of all economic systems. This is why networks are such a big deal. Communication is so close to culture and society itself that the effects of technologizing it are beyond the scale of a mere industrial-sector cycle. Communication, and its ally computers, is a special case in economic history. Not because it happens to be the fashionable leading business sector of our day, but because its cultural, technological, and conceptual impacts reverberate at the root of our lives.

Results Are Fueled By Communications

The blogosphere is filled with commentary on how to get an ROI from social media. There are dozens of tools to use in measuring your social media campaign and its effectiveness. However measuring the output of social media is like playing tennis by watching the scoreboard, you will loose the game.

Social media is a way to communicate. Unless you know how to communicate in relational terms rather than marketing and advertising terms your result will be failure, wide open and transparent for everyone to witness. Learning to communicate in relational terms goes against everything most people have learned in business. Subsequently before using social media organizations must unlearn and rethink everything they previously learned and thought about relative to communications and market relations.

Using social media effectively demands mind-sets and capabilities that are unfamiliar and sometimes even counter intuitive to many business managers. It requires building  trusting relations with your market, internal and external, rather than enforcing top-down out dated policies. Business managers should allow themselves and the entire organization time to unlearn and rethink everything before they “jumping into” social media.  Most are following those who haven’t unlearned and rethought how, where, when,who, why and what they communicate which ultimately produces results, good bad and indifferent.

Results are the end result of how well and what people and processes communicate. You shouldn’t use social media until you know how well and what your people and processes communicate to all markets, internally and externally. Using it without knowing this is like jumping out of a plane with no parachute. Splat!

What say you?

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A manager tells the workers “People, we need results from all this social stuff,not excuses. This business operates on cash flow, profits and capital. Unless you produce the results the business can’t operate. Now go get the results from social media we need”.

Maybe you haven’t heard it in those specific words but you’ve heard it proclaimed in most every business you’ve been employed by.  Every business needs results but what most businesses don’t realize is what produces the results.  Telling people to get results doesn’t produce results. Talking about the need for results doesn’t produce results. Pushing people to create results will create false results because people feel the pressure of giving you results.  Pressured for results people will take the short road and produce the result but the result doesn’t last.

What Results Do You Want?

Individuals and businesses expect to get results from social media. Results are typically defined as a sale. However for some marketers the first result they seek is an audience. Get a “false audience” on Twitter, Facebook, Linkedin or any social network isn’t difficult.  What you get from a false audience is not results rather it is nothing more than numbers.

Gaining sales from any business is about building, sharing and sustaining value. Value in the forms of products or services and value in the form of relationships.  Selling products and services is about selling value that fills a need at a price that reflects the value delivered.

Relationships are built on providing value in a relationship and the equity of the relationship built reflects the price of the capital required to establish and maintain the relationship. Relationship equity equates to trust because your actions, deeds, products and services that create value both expected and unexpected.  Expected value is the foundation of the relationship. Unexpected value is the pillars that build stronger relationships.

The Results Of Social Media

Everyone seems to be looking for the secrets to gaining results from and with social media. Social Media results  are conversational. When people and brands “push” their message with the aim of trapping people the result is mostly a rejection. When people push out pornography or scams and schemes aimed at tricking an audience the result  is “unfollow“.

The results of social media rest in the hearts and minds of people who have rejected mass media and are now rejecting anti-social media.  So to answer the question as to “are there results from social media” the answer is yes.  The results are the results of human interaction aimed at sharing, learning and helping others.  These results  have been and will always be what drives the hearts and minds of decent people.

If people, brands and institutions want to maximize the results of social media then they first must understand human vs. institutional value drivers.

You want results? Then simply do the right things and do them right. By the way that requires you to think in human terms rather than marketing and advertising terms.  Our thinking is influenced by 40, 30, 20, ten or less years of producing the same old result. You can’t force conversational currency all you can do is nurture it. A change in thinking is first required before you can change a result. That may take some time.

Get it?  Watch the presentation below

What Say You?

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Google’s Wave application is emerging as the next “shift” for enterprise social media. As part of their sales process Google has provided prospective customers with an outline to help them justify their investment in Wave. It is clear that Google foresees the “market of conversations” growing to a point that businesses will either jump in or fall out.

The way Google positions the need for enterprises to engage is in their statement which says  “Bottom line: More and more business is going to transact via Twitter, LinkedIn, Facebook and other applications yet to be developed.  This train is too important to miss.”

The Google ROI Pitch

Below is what Google suggest as an outline for measuring ROI from Social Media activities.

Average lifetime value of a typical account x expected new lead close% = LEAD VALUE

Next, calculate whether your social media efforts are paying off. Here’s an easy-to-use method. Choose a consistent time period for each calculation (monthly, quarterly or annual):

1. Hours invested in social media activities x average hourly rate = SOCIAL MEDIA COST
2. Social media cost ÷ target contribution margin% = BREAKEVEN
3. Number of social media leads x lead value = SOCIAL MEDIA GENERATED REVENUE
4. Social media generated revenue ÷ breakeven = SOCIAL MEDIA PAYBACK INDICATOR

If your social media payback indicator in step 4 is greater than 1.0, you are on track to experience a positive return on your investment. There are many ways to refine these calculations and tailor them to your specific needs, but at least this is a starting point.

You may still believe payback calculation is akin to the dark arts. After dealing with this admittedly imperfect science for most of my career, I can sympathize. Rest assured these calculations need to be done, not only for social media, but for any marketing activity.

Social media is here to stay. More personal communications are being sent via social media than email, which is mindboggling. Technological developments are on the horizon. Google has announced a new quasi-social media platform project called Wave which promises some interesting features. This and other intriguing tools have the potential to change the game.

And again they say :Bottom line: More and more business is going to transact via Twitter, LinkedIn, Facebook and other applications yet to be developed. This train is too important to miss.

A Game Changer…..

Business strategies are indeed a game. Who can predict where are market is going and how can your business be there before the competition. Technology has arisen as the #1 game changer for all industries. Yet, current leaders seem to be out of touch with how the game is changing. Don’t think so read this “Do Leaders Walk Or Talk The Talk”.  While the market of conversation is indeed changing the game leaders are listening to the wrong conversations, their own.

Corporate leaders demand that management follow them. managers demand that employees follow them. Organizations think the consumer will follow them and their offerings. The game has changed and people are following people rather than brands and institutions. To lead the game or change it you have to hear what the market is saying. Listening to your own rhetoric is not listening to the market. The ROI from social media is called listening and responding. Get it?

What say you?

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Everyone wants something but some think getting something is an exercise in “mass marketing”. We see it on Twitter, Facebook, Television, Newspapers (what’s left of them), Magazines, Direct mail, Spam mail and the list of “things that people and institutions think we want goes on and on.

Efforts to entice us into something that somebody thinks we want cost brands $1.5 Trillion a year and consumers spend lots of time and attention to sorting through the maze of offering.

The waste is beyond comprehension. Telegraph.com reports “New research has shown adverts on social networking sites fail to engage 96 per cent of users despite a rise in the number of brands opting in for promotion purpose

According to the research, which surveyed 2,000 consumers, just four per cent of those polled had ever clicked on an advert on a social network and only nine per cent found them useful tools in assisting their purchasing decisions on the web.

Liane Dietrich, managing director of LinkShare, the affiliate network which conducted the research, said: “Less than 10 per cent of our respondents are interacting with adverts across social networking sites. This just proves that there is still long way to go until people using networks, such as Facebook, are converted to online shoppers through targeted advertising.

Dan Clays, managing director of digital media agency, BLM Quantum, doesn’t see the low click through rate as an off-putting factor when advising his clients (which include Domino’s Pizza and T Mobile) where to spend their digital advertising budgets.

“Advertising on social media also needs to be seen as a commitment by brands. Companies have to keep going with it once they have started a dialogue and actually think of innovative ways to bring their brands to life. It’s also important what also happens after a ‘click’ which defines the value.”

The research also found that less than a fifth (18 per cent) of respondents found adverts on social sites an interference to their activity “indicating that despite apparent low audience interaction, there is still an opportunity for brands to improve the success of their internet marketing campaigns.

A Failure To Recognize A Shift?

It would seem that the results reflected in the report above are indicative of old marketing and advertising methods that consumers have historically rejected and continue to reject today. The world of marketing and advertising has yet to recognize that a shift is underway and the old methods are nothing more than a waste of money. Some would justify it by saying they make enough revenue from the 4% successes to justify the 96% waste. The issue is larger than justfication. The issue is reflective of stinking thinking from the neck up and a lack of innovation.

If all brands stopped wasting 96% of their budgets what would the consumer loose? Nothing! What would the consumer gain? Maybe lower prices, a respect for brands that stop the madness and just possibly more time gained from not having to muddle through the distraction of advertisements.

There is a new paradigm emerging and it’s called “Conversational Currency”. The return on investment from the right conversations produces 100% ROI. However the currency is created by giving consumers an innovative way to make purchases they want at lower cost and higher efficiency when they want it not when you want it .  It is no longer about advertising the old way it is about value add-vertising. Get it?

What say you?

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Everyone seems to be seeking the holy grail of ROI from Social Media.

Some view social media as just another channel without considering its differences over other media. Some look at it as a “new innovative” method to reduce cost and gain efficiencies.

Old minds apply old methods to measuring ROI from conversations. Sometimes the quest for results blinds you from the obvious.  Innovation tends to created from the outsidde in rather than the inside out.

Throw Out The Old

Note the graphic above from EMarketer recent research. The overriding quest by the best in class is aimed at “Establishing methods for engaging  consumers in online conversations”.  W. Edwards Deming used to ask the CEO’s of the Fortune 500 “By What Methods?” as he pushed their minds to think about “how” results are created rather than simply looking a results as the predominate measure.

Since social media has attracted the masses everyone seems to be trying everything to get the consumers attention.  So we ask “what subject, topic or means, regardless of brand,  gets the most attention?” The frank and direct answer is money!

What individual or business does not want to earn more money?  What “friend” would not appreciate a friend giving them knowledge as to how to save or gain more money? The marketplace of conversations is driven and attracted to the most powerful influence ever, in and outside of any market, money!  Don’t believe it? Think again. What gets any markets attention most? Revenue growth, efficiency, innovation, cost reductions, jobs,economic indicators etc. etc. Money! Get it now?

Show Me The Money?

The old paradigm of marketing and advertising has created $1.5 trillion in annual spending globally. The old mindset thinks gaining 2% – 3% return on those expenditures is “acceptable, normal and an industry standard of performance”. Here is the definition of acceptable: : barely satisfactory or adequate performances varied from excellent to acceptable. Get it?

Now the question is “by what method” could the marketing and advertising industry get and increased return on their methods?.  The answer is fairly simply while the execution is fairly complex. Enable the consumer to have your ad budget and apply the budget to a purchase. If they don’t make a purchase you don’t pay for anything. Thus a 100% return on investment.

Sound impossible? It’s not, so stay tuned for the release of a brand new method of engaging consumers online and getting a much higher return on that engagement.  Throw out everything else your thinking about and adopt innovation which usually rest outside any of your past experiences and thinking.  If you think the context of this post is impossible and just some hype, think again or continue doing what you’ve always done and get what you always got. The currency of a conversation is now enabled to produce a higher ROI than every before.

Want to know how? What say you?

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Businesses measure a lot of things in order to determine if their actions justify the cost.

In the world of accounting there has been a series of methodologies developed to measure numerous attributes of business activities.  There is IRR (The internal rate of return). There is NPV (Net Present Value) vs. Future Value. There is CLTV (Customer Lifetime Value) and the acronyms propagate as new knowledge reveals new measures.  Each of these methodologies attempts to put effective decisions trees around measurement of the cost and return from business activities.

So What Is The IRR, NPV and CLTV of Social Media Activities?

Phil Baumann writes: “As the Web stretches and as Moore’s Law continues to creep out of microprocessors and into our daily lives, predicting the future is getting harder every day.”

“If you’re planning on investing in social media based on what’s happening now, there’s a chance that your investment could face reduced returns as the game changes. We are now moving toward a Cloudy future and we’re just trying to figure that out. Investing too heavily in current technologies without taking into account the future value of those technologies could weigh an organization down.”

“So when enterprises invest their efforts in social media strategies, they will not only have to look at current measures of ROI (however that’s defined), they will have to understand the present value of future opportunity costs. This is more a matter of mind than matter: conducting business in the 21st Century demands a cunning appreciation for the nonlinear course of technological advancement.”

Can We Make This Simple?

Without applying the complex formula’s of IRR, NPV and CLTV lets try and use simple math to define the value of social media activities to a business enterprise.  Here is my simple example:

You are a fairly savvy social net worker and have acquired some impressive statistics. You have connected with 500 “friends” on Facebook, 500 associates on LinkedIn, 500 posts on your own blog and have 1,000 followers on Twitter. Let’s say you spend 10 hours a week (two hours a day five days a week) managing your social media activities and elevating your Web presence. That equates to 40 Hours a month or 520 hours a year.

Let’s also say your time – or the time of someone you hire – cost $50 an hour, which would mean, you invested $26,000 a year in social media related activities.  In this example you would have to make a sale worth at least $26,000 (IRR) within the year to break even, that is using simple math.  So out of roughly 1,000 or more connections you’d have to attract, connect and convert some of them in order to make a sale.  Do you think your conversations are valuable enough to attract relations that may represent a sale?

The other alternative is to spend $26,000 a year on marketing materials, print advertisements, web promotions and direct mail campaigns.  $26,000 won’t get you much reach using those methods and your marketing activities would be considered anti-social.

Consider this: By leveraging social media correctly you’ll reach even more people and create a deeper connection.  And with a carefully thought out “conversational currency” strategy then your practically guaranteed that your social media activities will generate an attraction.  A “conversational currency” strategy that takes into account where your current and potential customers are and is designed to reach them in such a way as to build an affinity adds value.  And it’s easier than you think – much easier than calculating sophisticated accounting formulas.

By simply doing the right things and doing them right will soon translate even the smallest (or largest) circle of friends into a healthy audience, an audience that can be grown beyond what you can imagine. Having a thriving audience is crucial to your success. Some in your audience will immediately identify with your offering and buy today (NPV), others will hopefully buy tomorrow (Future Value).  But some are going to buy again and again and again (CLTV).

The potential value added by using social media right  is significant for both today and tomorrow. It all depends on how you measure the IRR, NPV and CLTV of relationships. Do you want a wider reach, a deeper connection and a greater return?  Create better relationships and do the math. Get it?

What say you?

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