Social Media Marketing ROI – The Business Value of Friends, Followers and Connections

Peter Brooks
Principal, International Institute of IT Economics

More than 95 percent of companies currently use social media marketing. Is there a financial benefit? I performed extensive research – including a review of over 100 articles, blogs, white papers, and e-books – to answer the question.

We performed a meta-analysis of all the research. Here are some results:

• Social media is an opportunity for CIOs to show business leadership

• Few companies – 15 percent to 20 percent– quantify social media ROI

• Linking social media results to sales/revenue is hard but can be done

• What other businesses are doing – top social media platforms

• What is the quantified value of social media?

• Fear not! There are success stories – Dell, VMWare, and Starwoods, for example

• What to do?

 1. CIOs Need To Be Involved In Social Media Marketing

As a CIO, should you be involved in social media marketing, or more broadly, digital marketing?

YES! YES! YES!

Why?

Philosophically – Social media marketing is an emerging opportunity for a company to obtain strategic value from the use of technology. IT should lead these types of efforts!

Pragmatically – An IT organization can provide significant social media marketing value to a company:

• Reduce technology sprawl and costs via consolidation

• Lead or contribute to a cross-functional (sales, marketing, product development) social media focus and strategy

• Understand compliance and privacy issues

• Integrate social media data and analysis across channels

• Measure results

 2. Only 15 Percent of Companies Quantify ROI (but Everyone Wants to)

The CMO Survey shows only 15 percent of companies quantify ROI. Social media vendor surveys state the rate is about 25 percent. Let’s go with the more objective source and lower percentage – 15 percent.

The CMO Survey (August 2014), Highlights and Insights Report

 3. Social Media is Hard to Measure - Why?

Measuring the business value of social media is difficult. The top problems in measuring social media ROI:

• Lack of experience. Most companies are experimenting with social media, proven techniques are hard to come by.

• Lack of strategic intent. Few – less than 25 percent of companies - use social media to drive revenue. The top benefit: Eighty percent to 90 percent cite increased brand presence and awareness. Brand presence is not a CEO-friendly measure!

• Only what is easy is measured. Eighty percent of companies want to know how to measure social media ROI. Less than 50 percent currently measure results. The most common metrics measured: reach (# of friends, # of followers) or Web analytics (clicks, website visitors). One bad approach: AVE – ad value equivalent – determining value based on the cost of ads that would have been needed to obtain the equivalent results.

• Difficulty measuring campaigns. It is hard to tease out the effect of social media within a multi-channel campaign. Tracking the last click is relatively easy, not the path from first click.

• Complex data and tool integration is generally required. Each platform has its own measurement and data analysis tools. Coherently tying Web analytics, lead gen, and sales data is difficult.

• Trivial/bad calculators. Many social media ROI calculators are similar to:
  
  Get 1,000,000 Facebook friends -> 10 percent of them will become a lead -> 2 percent of your leads become sales -> You will get 2,000 new customers!

 4. What Others Businesses are Doing - Top Social Media Platforms

No surprise here, Facebook and Twitter are tops. LinkedIn is used as a social media platform 69 percent on average (however higher for B2B companies and lower for B2C companies).

Peter Brooks, International Institute of IT Economics

 Some examples, chosen to show varying social media approaches and platforms:

• Dell achieved $3 million in sales for its Dell Outlet via Twitter

• Starwood made $2 million via one Facebook campaign

• VMware obtained more than a 1,600 percent ROI hosting a live Google+ Hangout

5. What is the Quantified Value of Social Media? 

Let’s pick the most popular platform: Facebook. Surveys show that the value of a Facebook “Like” can range from nothing to $215(!), typically based on higher sales from a business’s Facebook fans compared to non-fans.

These surveys show that the business value of a Facebook Like can be calculated, though widely varying by company. But does Liking a company result in higher sales or do people who are already high spenders tend to Like companies that they buy from?

6. What to Do? 

Get involved! Some relevant links:

• Find out what are others doing. Check out three good research reports: the 2014 Social Media Marketing Industry Report, Forrester’s The 2014 State of Enterprise Social Marketing Report, and The CMO Survey Report. There are others. Research your own customer base.

• Figure out your goal. Is the social media goal brand awareness? Better market research? Or – shudder – increased revenue?

• Identify the costs of social media. Costs are critical input to an ROI analysis so if you can so if you can nail costs down you are on the road to insights and effective management.

• Link social media to business results. Recommended business results are revenue, new customers, or economic value / customer lifetime value. The basics, though easier said than done. A potentially interesting new measure: Avinash Kaushik’s conversion rate, amplification rate, applause rate, and economic value metrics.

• Start focusing on measurement tools. To get integrated, real-time or close to real-time results across your social media you can use perhaps a half dozen individual tools or investigate comprehensive tools from Adobe, HootSuite, Hubspot, Marketo, and other vendors. 

Good luck friend (and follower, and connection, and …) Remember: “What gets measured gets managed.” *

Social Media 01 by Rosaura Ochoa (cc by 2.0)

* Often attributed to Peter Drucker, but original source is unclear.

Shootout at the TCO Corral

A few weeks ago VMware released a blast at Amazon’s recently released total cost of ownership (TCO) bake-off model that compared AWS cloud services with the on-premise vSphere suite of virtualization products. VMware called the AWS online tool “biased and inaccurate.”

Oh my! That’s sort of like Manet criticizing Seurat because his dots are too small.

The truth is, as a rule vendor-based TCO, ROI, and Value models are biased and inaccurate. Every major and many minor IT providers have focused on TCO as a key function in their marketing and sales strategies. They often become the basis for ROI projections and business case justifications. And virtually all of their models are biased and inaccurate “out of the box.”

I have reviewed dozens of vendor models over the years. I have also used the VMware model extensively in the field and as a developer. My team and I have also dug into the AWS model. Biased and inaccurate, every one of them.

So where do the biases and inaccuracies lie? (No pun intended.)

All of these models are based on spreadsheets, some of these are also modified to work online. Errors can be in the logic, the arithmetic, the output, the complexity or the assumptions.

The assumptions are a likely spot for inaccuracies and one that VMware targets in it criticism of Amazon. There is a litany of allegations ranging from inaccurate server numbers to useful life of the installed base to having any installed base at all. These assumptions come from “industry data”, “field experience” and “expert knowledge.” Very few of these assumptions are documented. Proceed with caution when accepting these numbers as valid for your environment.

Many of these models are very complex with multiple tabs, many links between tabs, scalars, hidden tables and factors that can easily be broken during development or in field use. The more complex, the greater potential for arithmetic or logic errors that might be difficult to isolate.

So what does an IT decision maker to do?

Here are five absolutely necessary steps for buyers that will make a vendor-based TCO model and your business justification case to senior management more defensible:

1. Know your own numbers and take ownership of them. Vendor assumptions are really just placeholders for customer specific costs. Every one of them should be replaced with your numbers if possible. I gained some notoriety at Gartner for two things. First I created the first IT TCO model for PCs. Then, on stage in front of 100s of clients, I stated that the Gartner numbers were B.S. – that we just made them up! The lesson here was that any cost or time estimates are biased and inaccurate unless you own them.

2. Challenge the models. The definition of IT TCO is: A holistic view of IT costs across the enterprise over time. If the model does not consider relevant line items, such as your installed base, your current skill sets, or change management maturity, ask where they are and work with the vendor to provide a complete picture.

3. Determine if an objective third party has vetted the models. Most models are created by marketing, sales or field engineering that may introduce biases and inaccuracies. Models developed by a contracted specialist are still subject to biasing by the paying party.
4. Spend the time needed to have a defensible model that can be sold up the line as part of a business case justification. Ask for the spreadsheet model to internally review and test. These are also great for what-if analysis that might not be part of the original presentation. If the vendor won’t leave the model, lock the vendor's value modeler in a room and do a full cavity inspection of the tool.

5. Follow up on the costs and benefits through the projected life of the business plan, or at least through the projected payback period. This is both validating the model and a valuable tracking tool for the implementation where corrections can be made to keep the project on track.

Most, if not all, large IT investments are scrutinized at the highest levels and even smaller spending requests are challenged by finance, procurement or other stakeholders. Regrettably, most IT departments do not have the in-house resources to develop TCO or ROI analyses for their projects. Nor do they often bring in outside consultants to create business cases. Therefore, the vendor is charged with running the numbers, which they will be happy to do. I am amazed at how often the actual numbers are unknown by the customer, vendor defaults are taken as gospel, and they often fail to pass muster in the enterprise sign-off process.

Who are the International Institute of IT Economics?

The International Institute of IT Economics (IIIE) is dedicated to better understanding of the costs and benefits (TCO and ROI) of Information Technology investments. Our mission is to validate the value proposition of IT investments through rigorous methodology, market insights and extensive experience. IIIE provides research, audit, certification and consulting services to IT vendors and buyers.

IIIE works with IT vendors that use Total Cost of Ownership (TCO) and ROI as a competitive differentiator and marketing tool. All major and most small and medium IT vendors have a TCO story and many have developed models that demonstrate the cost difference between their solution and the competition. The competition may be another vendor’s solution or the status quo – i.e., no decision.

IIIE offers an independent audit and certification of the baseline models used to perform these analyses, the specific analyses themselves and the follow-up to determine actual cost/benefits realization.

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IIIE works with IT vendors to act as "expert witness" to review and audit the value proposition of specific deals that are on the table.

The role of IIIE Deal Desk consultants provide independent third party support for IIIE Value√ certified models in real world sales motions.

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IIIE works with IT Buyers to validate ROI and TCO during any and all phases of a project lifecycle.

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IIIE is an active participant in the IT market.  We participate in cooperation with industry associations and academic institutions to research and present our findings on the latest trends in IT economics.

Check out our websites at iiievalue.com to review our services and read the latest news on IT economics.