The Economy

Who’s Out There?

CFOs can&spamp;rsquo;t ignore social media. But what&spamp;rsquo;s the ROI?
David RosenbaumFebruary 1, 2012

In 1775, when Boston silversmith Paul Revere famously rode northwest to alert the countryside that British troops were on the move, Boston tanner William Dawes, bearing the same message, rode not so famously southwest.

When the British arrived in Lexington and Concord, they did not meet many militiamen from the towns Dawes visited. Why? In The Tipping Point, Malcolm Gladwell suggests that whereas Revere was a “connector,” blessed with “unique social skills,” Dawes was an ordinary man lacking Revere’s social network.

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Today, we’d call Revere an influencer. He’d have thousands of Twitter followers and Facebook friends.

He’d belong to the “Don’t Tread on Me” group on LinkedIn. Rather than knock on doors, he’d tweet “@samueladams @johnhancock Citizens, militia, resist. #redcoats #toarms #bostonpostroad.” Sound crazy? Consider that #Egypt was 2011’s most used hashtag and that Arabic-language tweets soared from 99,000 a day in October 2010 to more than 2 million a day by the following October as the revolutionary movement took hold in that part of the world.

The power of social media — or, at least, its potential power — is not lost on American companies. Many are using it successfully for everything from new-product marketing to employee collaboration to innovative and very effective forms of customer service. But most companies are struggling mightily to turn nascent, ad hoc efforts into something resembling an actual strategy.

Clearly, social media engages enormous numbers of people: how else to explain how Starbucks got 8,006,349 Facebook “likes” (as of early December 2011) for its Frappuccino. That’s a lot of thumbs up for water, salt, erythritol, xanthan gum, carrageenan, maltodextrin, citric acid, milk, and coffee. More broadly, the numbers on social media adoption are spectacular. As of December, Facebook claimed 800 million active users worldwide, with 50% logging on every day. Twitter reported an average of 460,000 accounts created per day late last fall, with an average of 1 billion tweets per week. As of November 3, 2011, LinkedIn had 135 million members in more than 200 countries; two new users join every second.

That action is not just limited to consumers. A survey of 4,261 global executives conducted by McKinsey late last year found 72% reporting that their companies deployed at least one social technology. A November 2011 Towers Watson study of 604 global organizations found 69% planning to increase their use of social media tools over the next 12 months.

And, while Coca-Cola claims top honors for Facebook fans (32 million), it’s not just giant companies that are staking a corporate presence in the social media world. A November 2011 survey by Social Strategy1, a social media data-mining service, found that 63% of small-and-midsize-business owners have a social media presence: 61% on Facebook, 48% on LinkedIn, 37% on Twitter.

To date, however, much of this activity has been akin to an aspiring actor having a professional head shot taken: it’s standard practice, but it doesn’t guarantee you’ll land any roles. As they rush to put their best faces forward, companies increasingly want to know just what they can expect to gain for their trouble.

ROI Is Where You Find It
According to a recent IBM report on social media, the top social media challenge for companies is “establishing an ROI strategy.” However, many experts caution CFOs against insisting upon traditional metrics to determine ROI for such a young technology. As Forrester Research principal analyst Nigel Fenwick says, “If you were a CFO back in the early 1990s and I came to you and said I wanted to implement e-mail, and you asked, ‘What’s the ROI?’ could you have gotten an answer? Social media has become table stakes.” Or, as Kelly Dempski, director at Accenture Technology Labs, says, “There are 800 million Facebook users. That’s not a fad.”

According to Justin Fogarty, social media manager at Ariba, a business commerce network, CFOs should avoid relying on what’s easy to measure. If, for example, “you start incentivizing around website visitors or page views, people will [find a way to] hit those numbers. But did they do it by finding the right customers, or by cheap tricks?”

More often, customer demand is driving the adoption of social media. At, CFO Gene Domecus says, “I can’t impose only financial-return expectations on social media investments. Social media is how the customer chooses to interact with us.”

BookRenter works like Netflix for college students, allowing them to save money on textbooks by renting instead of buying. “College students live on Facebook,” says Domecus. “That’s where we now find out about customer issues and challenges before anybody actually contacts our call center. When we hear about an issue, we reach out to resolve it,” reducing help-desk costs. Indeed, many companies are beginning to monitor and interject themselves into customer conversations before those conversations turn into a wave of bad PR.

Method Products CFO Andrea Freedman, whose company sells eco-friendly cleaning products, got a related, and unexpected, ROI from social media. In 2010 she received a cease-and-desist order from Clorox objecting to Method’s use of its daisy logo, which Clorox argued it had trademarked. Method made a video proposing that no one could trademark a daisy and posted it on YouTube. Method never heard from Clorox again. The video “got brand awareness up, solved our legal issue, and was much cheaper than lawyers,” says Freedman.

Begin by Listening
“Most companies start their social media initiatives by monitoring what’s going on ‘out there’ so they can understand what’s being said, discover influencers, and target their audience,” says Christopher Koch, an associate vice president at B2B research and consulting firm Information Technology Services Marketing Association.

Nutritional-supplement retailer GNC sells vitamins and other health products primarily to a young, athletic audience. Listening to and analyzing online conversations with the help of software from Radian6, GNC noticed its target audience was suddenly talking about coconut water. GNC wanted to get in on the trend but, says Chris James, GNC’s director of social media, “coconut water by itself tastes terrible. That’s what people were saying online.”

So GNC partnered with Pepsi and in May 2011 launched Phenom, a flavored coconut-water drink. Part of its marketing campaign included a multipronged social media strategy, replete with a Twitter hashtag, buying the keyword “Phenom” on Google AdWords, creating a microsite dedicated to the new product, and working with Radian6 (which, according to its vice president of marketing, Rob Begg, “crawls north of 150 million sources”) to target influencers and gauge early reaction.

Ultimately, GNC discovered it needed to go back to the drawing board: Phenom’s taste was still unsatisfactory, and GNC is reforming the product. “Social media validated what we were seeing in our other data feeds,” James says, including point-of-sale information from GNC’s brick-and-mortar stores. Social media couldn’t light a fire under a less-than-optimum product, but it could give a fast and detailed read into the nature of the problem. Social media, says James, “is a tool. It’s not the tool.”

From Listening to Engaging
After learning how to listen, businesses must learn how to engage. One way is the popular “like” approach. As Bruce Parks, CEO of Chocolate Bakery, explains, “When we run a sweepstakes, you click ‘like’ on our Facebook page in order to enter. That increases our potential marketing field. We send out e-mails inviting the entrants’ friends to enter. Using Facebook is brand-building, versus simply showing up in a Google search if people are looking for your product.”

Parks read about Wildfire social media marketing tools “in a tech magazine,” and became a subscriber in February 2010. That helped him to connect to a Facebook fan base, grow it, build an e-mail list, and automate Facebook contests.

Parks says social media has transformed Chocolate Bakery from a company whose customers could all be found within an 80-mile radius to an international concern. “We’ve had people in Singapore order from us because they have Facebook friends in the U.S.,” says Parks. “Who would ever have thought that? It’s crazy. And it’s so inexpensive. It costs me roughly $500 to $1,000 a month for the sweepstakes with Wildfire. With Google AdWords, I was spending $2,000 to $4,000 a month.”

Measuring a reduction in cost is not the same as calculating a true ROI, however. And if matching a social media investment to an income-generating return is tricky, imagine trying to put a price tag on the ways that social media can enhance corporate performance. Yet that may be where the most promising payoff beckons. “We’ve seen the biggest transformation by using social media internally,” says Scott Travasos, CFO of Blue Shield of California Foundation.

A longtime client of, Blue Shield adopted the tool’s new communication platform, Chatter, which in many ways mimics a Facebook page. When an employee opens Chatter, she sees profiles of people and groups (with pictures and icons); a separate column allows her to search for anything stored by the application — client histories, analytics on deal close rates, price approval points, and so on. She can make recommendations, record “likes,” post stories about clients or events, or share files. Access is role-based, so people see only what they should.

“I post three to five messages a day in Chatter to update my department,” Travasos says. “Things like, ‘I was scheduled for noon to complete this part of the close; I won’t.’ It’s like an internal Twitter feed, integrated with sales to create a different system of communication.”

As employees have rushed to adopt Facebook and other forms of social media in their personal lives, says Chatter senior vice president Kendall Collins, their workplace technology arsenal can seem “like an IT museum. The very simple premise of a photo doesn’t exist in enterprise software. There are tables and data, but no pictures of customers. All enterprise systems are based on reporting and control. New systems will be based on people and interaction.”

“It’s hard to put a dollar figure on the collaboration advantage we get from Chatter,” Travasos says. “It’s about efficiency. We spend less time on transactions and more time on strategic analysis.”

Getting Social
Sometime this spring, Wall Street is expected to value Facebook at an estimated $100 billion. Its shareholders aren’t the only ones who anticipate big things ahead for social media.

“We have a team of five people spending their whole life on digital marketing,” says Ian Marshall, managing director for the U.K. and Ireland for quirky San Francisco–based Benefits Cosmetics. The company tripled its spending on social media last year and expects to follow suit this year. “At the beginning of 2011, we had about 15,000 Facebook fans in the U.K.,” he says. “We ended the year with 100,000. This year we’re shooting for 250,000. It used to be that for every 10 hours of downtime, a woman would spend 9 hours reading or watching TV. Now she spends those hours online, most of them on social media. We’d be crazy to keep trying to speak to our customers through the old model.”

Ariba’s Fogarty suggests that companies get started by targeting the areas most relevant to them. “It’s not about big numbers,” he says. “It’s about the right numbers.”

Fogarty also encourages companies to make sure IT is in the loop so that systems can be properly integrated. At a higher level, social media effort needs to be coordinated and planned, not ad hoc. “Too many companies,” Fogarty says, “want to have a Facebook page just because everybody else does.” While ROI may be hard to measure, companies can track metrics to gain a sense of confidence. “How long does it take a customer to find what he’s looking for? You can take that metric to see if social media is lowering your call-center costs, or lowering time-to-resolution, or improving customer satisfaction,” Fogarty suggests. Given that 60% of the people who use social media also post reviews on products and services, the line between customer service and marketing has virtually disappeared.

That blurring further complicates ROI analysis, but also illustrates how transformative social media may be. Put another way, #movefast #movesmart #movenow.

Or run the risk of becoming William Dawes rather than Paul Revere.

David Rosenbaum is senior editor for technology at CFO.



When Mum’s Not So Dumb

Even as companies grapple with how to do social media right, they must also be careful not to do it wrong. Consider Netflix CEO Reed Hastings’s blog-heard-round-the-world, in which he announced that Netflix would spin off the streaming side of its video rental service, forming Qwikster, with fees adjusted in a way that struck many customers as unfair. The blogosphere and Twittersphere exploded with approbation, and Hastings quickly reversed himself, but not before Netflix lost 800,000 subscribers in one quarter and saw its stock fall 25%.

Companies should take note: as theoretically desirable as transparency may be, social media can shorten considerably the distance between a bad decision and its consequences. Another potential pitfall is violating Securities and Exchange Commission and Financial Industry Regulatory Authority (FINRA) rules around online communications. Jim L. Pierson, a manager at Beacon Hill Fund Services, which provides compliance and other services to funds, points out that financial institutions registered with the SEC or FINRA must now capture and track everything relevant to their business in social media just as they are required to monitor and archive e-mail.

According to FINRA Notice 10-06, “Every firm that intends to communicate, or permit its associated persons to communicate, through social media sites must first ensure that it can retain records of those communications.…” (Technological help is plentiful — Socialware, Actiance, and Hearsay Social all provide social media compliance software; Arkovi and Erado specialize in archiving services.)

John Calvin Slemp, managing director at risk and internal-audit consultancy Protiviti, suggests that CFOs make sure people are trained not to tweet or post anything that could be deemed relevant to the business, such as, “I can’t wait for the party on Tuesday after the earnings report comes out!!!”

With most IT initiatives, training comes at the end. Social media demands it up front. “We’ve all been burned by sending an e-mail we shouldn’t have,” says Slemp. “Social media is much worse. You’ve got to communicate that risk to employees and have a response plan ready in case someone says something they shouldn’t have.” — D.R.