How valuable is social media to business? The answer probably depends more on your opinion of social media than it does hard facts.
But a new study makes a bold claim: "deep engagement with consumers through social media channels correlates to better financial performance".
Those words appear in a press release issued by Wetpaint and the Altimeter Group. Wetpaint offers a community platform for brands and consumers and Altimeter Group a digital consultancy founded by Charlene Li, previously of Forrester Research.
According to their study, the top 10 corporate "Social Media Mavens" are:
- Starbucks
- Dell
- eBay
- Microsoft
- Thomson Reuters
- Nike
- Amazon
- SAP
- Yahoo! and Intel (Tie)
Wetpaint and Altimeter Group calculated that socially-savvy companies "grew company revenues by 18 percent over the last 12 months, while the least engaged companies saw revenues sink 6 percent on average over the same time period".
The findings are part of the ENGAGEMENTdb Ranking the Top 100 Global Brands report (PDF) which is a must-read for anybody interested in social media use amongst the world's biggest brands. There is some great information, including details on the size of the social media teams at some of the top-ranked brands.
For instance, you might be interested to learn that the top-ranked brand in the study, Starbucks, has a dedicated six-person social media team that keeps the company active across 11 channels. But the report is more than just numbers; it goes beyond the quantitative to provide interesting qualitative insights that should be of use to companies looking to learn from social media case studies. Useful stuff.
That said, the conclusion that the claimed correlation between social media and financial performance is meaningful seems a bit specious to me. Correlation is not necessarily causation; as interesting as the ENGAGEMENTdb report is, there is little provides no real insight into the mechanisms by which social media is driving revenue. For instance, there is no explanation of how 1,406 comments and 12,382 "likes" on Facebook when Starbucks announced its mini-Starbucks card translated into dollars and cents.
Both quantitatively and qualitatively, there are broader problems.
One only need look at the lowest-ranked companies to understand why revenue at these companies declined over the past 12 months. The bottom of the ENGAGEMENTdb list is heavily weighted with major financial firms and one would have a very difficult time arguing that Merrill Lynch (#75), Citi (#90), AIG and Allianz (#99 tie) struggled in the past 12 months because they weren't using Twitter. 'Toxic assets' and the bursting of a global financial bubble were to blame here, not a lack of customer engagement online.
Conversely, not every top-ranked company is a financial stud. Take top-ranked Starbucks, for example. In Q2 2009, it saw a less-than-pleasant 7.6% decline in year-over-year revenue. While Starbucks' social media prowess is definitely an admirable trait, it's pretty clear that its social media efforts have done little to reverse troubles that started even before the full-on financial collapse. Which begs the question: if you make the statement that "deep engagement with consumers through social media channels correlates to better financial performance" but the company that you rank as the most engaged has seen steady declines across many key business metrics (not just total revenue), how can you legitimately suggest cause and effect?
In my opinion, this is a good reminder that social media needs to be looked at in the context of the big picture. There's no doubt in my mind that social media offers great opportunities to companies willing to take a strategic plunge. But like most things, it's easy to get carried away and social media's credibility has already been strained by snake oil salesmen. Now legitimate operators will have to contend with the expectations that social media is somehow a driver for financial success, even though that's sort of like saying that companies advertising most with PPC or on television, for instance, perform better financially than those that don't. I'm sure it wouldn't be too difficult to come up with statistics showing both.
In the overall scheme of things, social media, like most marketing mediums, is best thought of as fuel, not an engine. For companies with an engine that isn't working so well, additional fuel is of limited use. Just ask Starbucks.
Photo credit: greggoconnell via Flickr.
Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.
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9:38AM on 21st July 2009
Very insightful read and loved it :). I completely agree that social media engagement or marketing is more like a catalyst than entire solution for any company or brands efforts to reach out & engage with consumers.
10:06AM on 21st July 2009
Nice article Patricio. Glad to see some common sence finally entering the Social Media Value debate. Sure social networks have a place in the marketing mix for all progressive businesses, but they are simply that. PART OF THE MIX. Twitter/Facebook/MySpace/LinkedIn et al are no more the silver bullet than Traditional digital, TV or Print have ever been. The true mark of a skilled marketer is applying the correct weighting to the most appropriate audience at the optimal time.
11:28AM on 21st July 2009
It is great that social media is having results but we may be walking into a paradox of small businesses having less footfall and therefore more time to do social media online activities and when this has an effect and footfall comes back up the thing that gets sacrificed will be the social media. Still, onwards and upwards!
12:32PM on 21st July 2009
Great article! You have illustrated very well how social media can surge the financial figures of a company. Most businesses fail to realize the potential of social media because they cannot see any real-time results. They need to understand that social media optimization & marketing efforts work at a underlying level and contribute to the overall revenue generation. They are the roots that strngthen the company's presence in the market and build customer loyalty!
2:32PM on 21st July 2009
Patricio,
I like the angle you used with this post. I used a different approach to explain the findings of the study, and formed the opinion that the addition of human touch points to any engagement strategy really pays off, proving itself as a key enabler to brands successfully getting down to business in the social media space.
Joseph
@RepuTrack
5:36PM on 23rd July 2009
Social media by iteself doesn't have an impact on earnings. It only has an impact when the organization empowers people to make decisions and engage with customers the way customers want.
there is a huge positive buzz about social media. But what people are not talking about is the dark side of social media. Poor use of social media can impact financial results in a bad way.
The negative social aspects of the Internet that cannot be controlled. For example, financial institutions need to be aware of the reputational risk that is inherent on the Internet. Each institution needs to do more than reactively protect its data; it must also proactively safeguard its reputation online, where references to its corporate name alone can number in the millions. An institution must also guard against infringements against its logo, its trademarks or other graphic representations. This risk, outside the firewall, is the other side of the coin.
We authored a whitepaper on this topic if you are interested. It is available here; http://brandprotect.com/online-brand-protection-whitepapers-landing.html
11:20AM on 29th July 2009
Three years ago when I was talking to marketing people about "making conversations" and changing the relationship of corporation into a more "collaborative" way, people laughed at me.
They said "why should we bother to change?" It always worked like this!; and they kept on with interupting people.
This year, I noticed a radical change : "you know that conversation thing you mentioned, could you help us get it?".
Most of them, however, still think of it as a "magic gadget".
You are asked to build a profile in some social network, maybe even create an automated RSS sending some predefined feeds, but they still are not ready to consider the change and really engage.
They tend to consider the medium rather than the process.
What changes is not the medium nor the speed. This is about how you even consider talking, exchanging, taking into account feedback. And this changes organisation from a philosophical perspective.
Crisis has helped a lot in the way that they UNDERSTAND they MUST change.
However, the main debate, not that of ROI which is only for interest of shareholders, the PROCESS OF CHANGE, has not yet been integrated into people's minds.
C-level's hardly dare and middle management fights against the idea because this is totally the opposite of what they have been used to until now.
How does your manager values your job if "all you have been doing" today was chating on twitter?
Maybe this is about Europe. Maybe this is temporary (because I really saw massive change lately).
But corporation, tend to consider only the first level of social engagment : get a profile.
There is a lot more to it. Companies are not ready.
You know what happens when I mention those starbuck, Dell's example? Companies reply, "sure, but we are neither a multinational nor have the ressources to hire full times on this".
We work hard on convincing, explaning, evangelizing and those information you gave help, but there is still a readiness gap to consider. It is getting thinner, but it is still here.
12:16PM on 2nd November 2010
Interessting article.
However, I think you are overlooking the bias resulting from the financial crisis. In addition, social media strategy is part of nurturing the longer term customer life-cycle. This means that the lifetime-value of Starbucks' relationships are drastically increasing, leaving me in no doubt that an 11-man team is worth the investment for this company if you view in the longer run.