Social Media Investment Contributes to Financial Success?

Sarah Perez quoted a WetPaint and Altimeter study in her article on ReadWriteWeb which claimed that heavy investments in social media contributes to the financial success for a number of companies in 2008, including Starbucks, Dell, eBay and Google.   This became a hot thread instantly.  People disputed the claim that these social media “mavens” were financially successful because news reports seemed to say that they were suffering in the downturn.  This post will pull some real numbers to inject some facts into the discussion.

I actually thought the authors of the study did some good work in setting up a framework to evaluate social investment by companies.  Whether you agree with the framework or not, there is something concrete that you can review and comment on.

As for the financial performance part of these maven companies, let’s take a look at Starbuck’s net income by quarter for one calendar year, compared to McDonald and Burger King’s:

Company  (Net Income in Millions)	Q1 2009	Q4 2008	Q3 2008	Q2 2008	Q1 2008
SBUX (Social Media Maven)	25	64.30	5.40	-6.70	108.70
MCD (Social Media Wallflower)	979.50	985.30	1191.30	1190.50	946.10
BKC (not studied)	47	44	50	51	41

From a net income perspective, Starbucks essentially fell off a cliff after CYQ1 2008.  We read in the business press that they were taking drastic cost cutting measures and reinventing their business.  The claim that they were doing well despite the economic downturn is hard to substantiate.   In contrast, the more recession resilient fast food places like McDonald’s and Burger King seem to be taking the recession in stride.

Granted, this is neither a rigorous nor comprehensive analysis, but I feel it calls into question the conclusion that social media investment by Starbucks led to better financial performance despite the economic downturn.  Social media is an important part of customer engagement and brand building but I don’t think we have enough data yet to link it to the financial performance of a company.

Thoughts?  Flames?

Driving Continual Improvement

A few weeks ago, I wrote an article titled Begin from the beginning – IT Continual Service Improvement on a company blog about IT Continual Service Improvement (CSI).  Even though it was in the context of ITIL v3 and IT organizations, I think the points I raised were generally applicable to any process management situation.

You need to  measure, set baseline, choose realistic goals, refine process, measure and check again.  It is an ongoing process.  Even if you have succeeded in meeting your service and quality goals, you need to apply this methodology to keep the process within control.  Entropy is always increasing.  If you stop watching it, it will veer away from your target, I guarantee.

A colleague, Meri Gruber, provided some great insight after I told her about my blog post – once you have sufficient data, you can even apply business rules and predictive analytics for what she termed as “next generation CSI”.  Anyone interested in attempting CSI TNG?

Business Models for Social Media Startups

I just found this very informative article by Jun Laoyza which lays out the 5 business models for social media startups.  I like the fact that the author is not pedantic about each of these models being “the way” to be successful.

Ultimately, as you are starting out, you probably have to try different models, designs and maybe combine some of them.  However, as you experiment, you would want to set traffic and revenue goals ahead of time.  Then test your assumptions with A/B testing and other analytic tools as you move forward.  Otherwise, you could be tweaking endlessly in a dead end business model instead of knowing when to cut your losses and move on.  Fail early and fail often.

Succintly, the 5 models that Jun proposed are:

1. Freemium Model
2. Affiliate Model
3. Subscription Model
4. Virtual Goods Model
5. Advertising Model

Read the article “5 Business Models for Social Media Startups” on Mashable for the detail and the discussions.