Series: Social Media ROI «

Google’s ROI From Social Media

by Jay Deragon on 08/30/2009

This entry is part 5 of 20 in the series Social Media ROI

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):

Hours invested in social media activities x average hourly rate = SOCIAL MEDIA COST
Social media cost ÷ target contribution margin% = BREAKEVEN
Number of social media leads x lead value = SOCIAL MEDIA GENERATED REVENUE
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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Did You Fail 96% Of The Time?

by Jay Deragon on 08/18/2009

This entry is part 6 of 20 in the series Social Media ROI

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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ROI From Social Media, 100%?

by Jay Deragon on 08/05/2009

This entry is part 7 of 20 in the series Social Media ROI

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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What Is The NPV Of Social Media?

by Jay Deragon on 05/27/2009

This entry is part 8 of 20 in the series Social Media ROI

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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What Is The ROI on “Connections”?

by Jay Deragon on 05/09/2009

This entry is part 9 of 20 in the series Social Media ROI

There has been a lot of dialog around ROI from social media however the real measure is ROI on “connections”. Afterall social media is just a combination of technology and content used to “get” peoples attention and ultimately turn the attention into a relationship. So the real question is more centric to defining the ROI on “connections” and how does an individual or business create relationships with “connections” gained through the use of social media.

First the word “connection” seems a little impersonal and probably so given that the power of social technology enables us to have thousands of “connections” with a small percentage actual forming into a traditional relationship. One might argue that a connection is a relationship, although distant, and yet available to be engaged with the right conversation or content. The more I study the behavior of people intersecting with technology as a means of “connecting” the more I realize that we’re witnessing an entirely new “relationship dynamic” not yet defined or modeled enough to use as a benchmark or model of relational behavior which effects everything, anything and everyone..

What Relationship Dynamic Is Changing?

Historically relationships were born out of acquaintances with people we met at work, church or social events we participated in. The physical world created natural constraints to “how many” people we might meet from our physical social or professional activity. Then the internet (Web 1.0) enabled us to see other peoples communications through email, chat rooms and online publications published by the media. In comes Web 2.0 and now we’re enabled to witness the interaction of thousands if not millions of people communicating with “crowds” through blog post and commentary, Twitter, Friendfeed, MyBlogLog and the host of others “convergence conversational forums and applications”. Twitter demonstrates the exponential growth of virtual conversations with a growth rate of over 750% in 2008.

Many of the “virtual conversations” take place without any benefit of the traditional relationship dynamic, a physical interaction. Subsequently a new “relationship dynamic” is emerging which is grounded in conversations about anything and everything. Individuals migrate to said conversations based on affinity to subject matters, geographic places, professional interest and business segmentation. Additonally individual popularity grows from both the rate of participation, # of others participating or following and the “distributed presence” of both the individual and their conversations.

The related conversations are the glue that create the new relational dynamics. People grow in their affinity to the people and their conversations just as if said conversations were happening in person. Disagreements, agreements and disruptive arguements occur virtually and those very dynamics form the glue which define the virtual relational dynamics mirroring the same interactive exchanges that happen in our physical world. Just consider how many people you know virtually whom you feel “connected to” and when prompted you respond as if they were your long lost friend of years ago. This dynamic is the result of common and related conversations which tap into the very fiber of our human makeup, our self definition of who we are shaped by what we think we know or what others know about something, anything or everything we have an affinity with or to personally and professionally.

An Explosive Dynamic Which Will Reshape Mankind?

We no longer are we constrained by physical barriers to forming relationships rather technology has unleshed unlimited relationship potential which has always been the by product of a relationships….the creation of something, the resolution to something and the joy of the process. The power of relationships rest with what can be done with others to improve someones or everyones life simply but conversing and sharing perspectives which expand ones viewpoint of possibilities. Relationships are the fiber which drives, forms and progresses everything personally and professionally. Doing things by our self has limitations. Doing and creating things with others has no limitations especially when “others” now means hundreds, thosuands and millions of “connections” which possess the opportunity for a relationship.

The ROI on “connections” depends on what we do, create or solve with our connections which in turn creates a relationship. Get it?

What say you?

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Again, What Is The ROI From Social Media?

by Dan Robles on 05/06/2009

This entry is part 10 of 20 in the series Social Media ROI

The quick answer is that ROI is indeterminable – get over it.

ROI is a static measurement where financial decision makers look into the Crystal Ball to project a future economic outcome which is then be protracted back into the present to arrive at a value of an investment opportunity. In case you have not noticed, this valuation method is largely bankrupt.

Like lipstick on a pig

Yet ROI Persists. B-schools teach SWOT; Strengths, Weaknesses, Opportunities, and Threats as a means of dressing up our projections with yet more projections. All the ROI in the world may predict the economic future but as soon as people react to the market condition through improved information in Social Media, all those models fail. This is called reflexivity and it is becoming a dominant influence in all financial projections in the age of Social Media.

Fortunately, the true visionaries of the next economic paradigm are increasing in numbers and rapidly moving away from the ROI model into something far more valuable simply by asking the serious questions……

Hey, what exactly is the currency we’re using?

David Bullock and Jay Deragon from the Social Media Connection Network are producing a series of videos investigating the currency of social media where they astutely ask the tough questions, “What are people trading?” and “what is a Tweet worth?” While these may seem like simple questions, they have many an ROI expert stumped.

Nobody really cares if I had bacon for breakfast; so the ROI on that tweet is exactly zero. However, if you get 15 tweets in an hour on the same subject – there must be something important related to bacon today. The more people sending bacon tweets, the greater is the value of my “option” to react to what looks like a bacon pandemic. Still, I hold the option, without the obligation, to expend my limited resources in response.

Options have value

The value of social media is counted in options – not ROI. Social media is dynamic, not static. Therefore “Strengths, Weaknesses, Opportunities, and Threats (SWOT)” are also highly dynamic moving targets that are highly contagious in social media and cannot be foretold in the next 5 days let alone 5 years. The cardinal rule of business is to collect assets and reduce liabilities. An option is an asset and an obligation is a liability.

ROI fails.

ROI is a future projection brought to the present. Options are collected in the present and projected to the future – there is a fundamental difference between the two that must not be overlooked. People are doing something, they have a plan, they are cooking up a new trick and the ROI is indeterminable…

Options have value and obviously people are willing to pay for them with their time at a keyboard, therefore, they are willing to pay for them through any medium of exchange. This is what people are doing on social media – collecting options. The Next Economic Paradigm will provide a means to cash in those options. Hold on to your chips, the social media game is far from over.

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Why Doesn’t Social Media Payoff?

by Jay Deragon on 05/05/2009

This entry is part 11 of 20 in the series Social Media ROI

The marketplace is full of businesses “jumping into” the world of social media. We’re also witnessing a continued upward trend in adoption of social media by inividuals globally. In many cases both businesses and individuals are chasing the “holy grail” of an ROI from their efforts.

The consulting firms are creating new metrics to measure social media ROI. Brands look at social media as a new extension to the old game of marketing. Individuals start blogs, run banners and google ad sense hoping to turn revenue. Advertisers are flocking to the major social networking platforms hoping to “grab a few click throughs”. Broadcast media, branded show host and most all of the reality TV shows are integrating Twitter and other “social tools” into their market presence. Music artist are vying to have the most followers on Twitter and it seems everyone is racing to adopt the latest and greatest “trick and trend” using social media tools. However few have a clear intent or defined method as to how to create social currency or revenue from all their efforts. Most are just following the crowds and wondering what all the noise is about.

Why The Payoff’s Will Be Limited

Everyday the marketing messages flood the internet promising to make users money with some secret sauce, a new software program, a new Twitter utility, a new MLM scheme or a “how to” book and all for a fee. Those focused on finding quick results or money from using social media buy into the hype and exaggerated promise of short cuts to building revenue. Millions of dollars, if not billions, are spent every year on false promises that don’t deliver bottomline results rather just increased business and individual expense rather than improving revenue.

A payoff from using social media comes to those that understand the difference between a tool vs. a craftsman. A tool, which is available to all, is used to build or fix something. A craftsman can build or fix something of value and get paid for it. The tool is simply something used to create something of value. A craftsman possesses unique knowledge and skill required to build or fix something better than others and thus he/she uses tools to create value which generates revenue or social currency. A craftsman of distinction possesses the skill and the knowledge that sets them apart from all the others whom use the same tools as they do. A master craftsman is paid for their value as a “master” whom can produce unique creations or fix perplexing problems that others can’t.

Social Media payoff’s will be limited to the master craftsman of business, of relations and those that are skilled and have unique knowledge concerning the markets of conversations.

Why doesn’t social media payoff? Probably because you or the suppliers supporting you and your social media efforts are not master craftsman. Rather they are much like the masses whom have all the same tools but don’t possess the required skills and knowledge needed to be a master craftsman at building valuable conversations or fixing old ones so that you can convert the social currency of conversations to revenue. Get it? If not find a master craftsman who does otherwise you’ll waste a lot of time and money from those claiming to know how to use the tools but do not know how to create something unique or fix something that can create the innovation you or your business needs.

An ROI from social media doesn’t come from the tools rather the skills and knowledge on how to use them for a specific purpose, value creation.

What say you?

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Is SM ROI Important?

by Jay Deragon on 03/03/2009

This entry is part 12 of 20 in the series Social Media ROI

The more business people I talk to about all this social stuff the consistent response I get is “Show me how to make money with it”. To this response I ask the following questions:

How much money do you make with email?
How much money do you make from your phone conversations?
How to you measure the ROI on marketing materials, sales brochures, attendance at industry events?
How much money do you make on a sales call?
How much money do you make from your web site?

The consistent response is similar to a deer staring into the headlights of an oncoming car. Most business people think they are managing by measuring results and for “soft issues” they make up measures to satisfy themselves. Measuring business results has turned into a “counting game” without regard to the quality of the inputs, the relationships and the quality of the business which covers many aspects. (Wonder why we need an economic bailout?)

I find this whole social media ROI discussion rather sophomoric and only reflects the old school management philosophies which need to be transformed in order to survive.

What Can Be Measured?

Stephen Smith writes: “The problem with trying to determine ROI for social media is you are trying to put numeric quantities around human interactions and conversations, which are not quantifiable.”

“To illustrate that point for all our measurement and metric geeks out there, what you are trying to do is assign multiple choice scoring to an essay question. It’s not possible.”

… “Ultimately, the key question to ask when measuring engagement is, ‘Are we getting what we want out of the conversation?’” And, as stubborn as it sounds Mr. CEO, you don’t get money out of a conversation.

“To further the discussion a bit, I sat down with Katie for an episode of SME-TV, which will be added to this post later today.”

“What Katie evangelized a bit in her session was that the conversation (comments on your content) was the best measure of a level of engagement. Avinash Kaushik says much of the same in his discussions on web analytics. This isn’t an end-around the need for ROI, it’s the answer. Or at least a big part of the answer.”

(Side note – Provided this is true, isn’t it sad that most companies haven’t even upgraded the technology used on their websites to enable commenting and conversation. Of course, it’s even more sad that if they had the technology right, they’re still afraid to use it. I digress.)

“When you ask businesses why they are participating in social media, what do they say? If they say, “to make money,” then they will fail because currency in the social web is found in both relationships and content. If they say, “to grow our business,” they’re just saying, “to make money,” in a nicer way. If they say, “to participate in the conversation,” which is the more appropriate reason to be involved in the social web, then why on earth would they not measure success by the value of the conversations they have?”

How and Why Do You Measure Relationships?

Any good sales person will tell you their number one objective is building relationships over time. Yet few if any company bothers to measure the cost of building relationships rather they measure the results of relationships. Measuring the results doesn’t tell you “how to build effective relations” or “which methods create the best relations.”

Relationships come from human experiences, not corporate spin and hyped promises. Human relationships are measured by trust, sincerity and common values. If you want a return on social media then focus on conversations that build lasting relationships based on value exchanged and create great experiences. Why is ROI so important? Because that is all you know how to manage. Get it?

What say you?

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Facebook Speaks to ROI on Social Media

by Jay Deragon on 02/23/2009

This entry is part 13 of 20 in the series Social Media ROI

Today, one of the biggest questions reverberating around conference, business and dinner tables across the globe is how to make money from the various forms of social media.

Monetising social networks is very possible, says Chandlee

This will continue to be a heated debate this year as models evolve and get fine-tuned.

That said, advertising formats in all channels – including portals – will continue to develop.

Consider where we are today versus only five years ago in terms of targeting, video and rich media.

Critics have suggested that it is hard for social networks to monetise their audience to the same degree as other media.

This is a myth – and one that is dispelled once social media is examined as more than a single category.

Facebook – ahead of the curve?

In a digital world fuelled by social media, the prospect of translating large social networking audiences into solid earnings presents more possibilities than disappointments.

Key to success will be targeted communication and advertising that facilitates increased relevance, engagement and interaction between brands and consumers.

As we develop new and innovative platforms for our advertisers, our core ethos of scale, efficiency and effectiveness are key considerations.

Only by embracing these will we will be able to deliver the value that ultimately advertisers want, and need.

At Facebook our mission is to enable people to share and make the world more open and connected.

Facebook enables people to connect and share information more efficiently and effectively than ever before.

As a result, the role we play in consumers’ lives is very different from that of a traditional media player and our advertising solutions follow suit.

Twitter is growing rapidly

We are ultimately a technology company, so how we provide value to customers, consumers and advertisers is through our range of user-specific – and user-friendly – features, as opposed to an emphasis on content and traditional advertising formats.

Today, some of the largest brands worldwide are using social networking platforms to become part of the conversation both on and offline, thereby interacting with a massive community of users.

As a result, they are influencing behaviour with great scale, and meeting their brand objectives, whether these objectives are traditional above-the-line branded advertising or below-the-line direct response.

We are finding the brands that most effectively embrace these new opportunities are able to drive return-on-investment levels that compete with television in brand building and with search on performance.

This combination, along with the scale that is represented, is a new and exciting world for advertisers, and we are just seeing the beginning of the opportunities that will exist.

The debate at our dinner tables will continue.

But the opportunities this year, amidst a market in turmoil, will be hard to ignore as brands, companies and users are now, more than ever before, ready to actively invest in the digital social world.

:: Blake Chandlee is EMEA commercial director at Facebook

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A Valuation Model for Social Media

by Dan Robles on 12/21/2008

This entry is part 14 of 20 in the series Social Media ROI

In order for knowledge to become a tangible asset, we need to come to grips with the fact that human knowledge is fluid and mobile, whereas a condo or a piece of machinery is static. A machine can’t walk away if it does not like their management.

With knowledge assets, the typical “Return on Investment” (ROI) model breaks down. When assets have a mind of their own, there is no reliable way to calculate ROI without somehow corralling the asset inside some form of closed contract, a corporation, political system, social class, or by introducing barriers to exit, etc. In the modern financial system, human assets are held tangible by debt obligations – today many people go to work in servitude of debt, not in creation of new ideas.

An option* is the right, without the liability of obligation, to exercise a decision in the future. Human interaction accommodates this valuation model quite readily; it’s called free-will. Therefore the option valuation model is an adequate method to assess knowledge assets as a means of making them tangible.

The value of a financial option can be calculated if one knows the following 5 variables: The asset price, the strike price, the date of maturity, the risk free interest rate, and the volatility – or, the odds on the bet. By contrast, the ROI model requires us to know basically the same things; the cost today, the strike price (future sale price), the date of maturity, the risk free interest rate, and the probability of success – or variance of the expectation. The equations are just a little different. Option analysis estimates the present value of the right to change your mind tomorrow.

Individually, human behavior often appears chaotic and irrational, but in aggregate, we know that human behavior is really quite predictable. If you put similar people together, you get similar ideas. If you put extremely different people together, you get extremely unpredictable ideas. If you put a strategic combination of people together, you should be able to predict the variance of the ideas. This is all the information we need to place a value on our bet. If human behavior is predictable, it is tangible.

Suppose we enter into a ROI venture and it fails to meet projection. The knowledge accumulated from the attempt can be exercised in many ways in the future. While the Patent may turn out to be lesser than expected; the knowledge gained by the team can be used over and over again – this is the secret sauce of innovation that reduces future risk and therefore increases in value. We want to estimate that value. Suppose a new discovery is made midway or if tangential applications are identified. We would want the option to pursue all options. This is how a financial option works and this option has value. If the team were disbanded without somehow capturing the inventory of new knowledge assets, a very valuable set of options becomes squandered. Some companies such as Google, try not to kill an idea, they morph the idea into something else. Free-range knowledge tangibility must achieve those same objectives.

Today we see people feverishly building networks on LinkedIn. Social Networks explode during financial crisis. People are using Social Media to collect options on future opportunities. People post on social media to see and be seen by other knowledge assets as a means of collecting more options for their careers or actions. People would not be doing it if there was no intrinsic value. The next big leap will happen when knowledge tangibility is married to the financial system through the direct valuation and capitalization of options. This is done all day long on Wall Street, why not Main Street.

The Ingenesist Project specifies a method and system for knowledge inventory that would produce a variance for knowledge assets. The Percentile Search Engine would pull knowledge assets in combination that diversify variance into a highly predictable surplus assets and deficit assets. The Innovation Bank would match most worthy surplus to most worthy deficit thereby mass-producing options.

The idea of an innovation economy based on knowledge tangibility is well within our grasp technologically, culturally, and systematically. Social media has an astonishing opportunity to integrate social, creative, and intellectual knowledge assets to trade that single most important part of the puzzle, tangible knowledge assets. I suspect that this outcome will depend on whether these new tools are treated to an ROI valuation model or on an options valuation model.

* Italic used for clarity

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