Valuing Facebook

Reports that Facebook has raised $500m from Goldman Sachs and a Russian investment company, in a deal that values the social networking company at $50 billion, take me back to the good old days of 1999 when Freeserve was valued at around $2 billion.

OK, it’s not quite as bad as that. Freeserve had around 1 million users, which meant that each one was valued at about $2000.

In contrast Facebook has well over 500 million Unique Visitors (according to Google), valuing each one at around $100.

At least Facebook has valid business model in terms of its advertising, even if it doesn’t yet necessarily justify such a robust valuation. According to the Guardian, Facebook is predicted by eMarketer to be heading for $2 billion ad revenues in 2011, making around $4 in ad revenues per user.

Given that it is hard to square $4 with $100, Goldman Sachs presumably feels that there is other value contained within the site. There might well be.

It is possible that the advertising could generate more value. At present the industry undervalues Facebook advertising because (in part at least) click through rates aren’t great. People are generally highly engaged when visiting Facebook and so less likely to escape to advertising.

Engagement doesn’t mean they don’t see the advertising, however. And highly engaged visitors may well be more highly swayed by advertising when they see it than they would be if they were less engaged. Certainly there is evidence to that effect from the world of TV.

And the data they collect means that Facebook can deliver some great ad targeting – by age and gender as well as by keyword association.

So if Facebook were successful in selling their site as a premium branding site rather than a commoditised cpc site, then they might generate a far higher yield from the advertising inventory.

It is hard to see where else they could generate revenue, though. A premium subscription service would surely be a very niche product.

And the data they collect may well be less robust, and less valuable, that they like to think (don’t tell me you have registered your real birthday with them, or that all your Facebook friends are people you engage with socially).

There are of course opportunities to make money out of e-commerce, but beyond that it’s hard to see where real opportunities lie.

So the $100 valuation per user does seem optimistic.

And of course it does assume that Facebook is going to be a leader in the social media space for a good while: remember MySpace, remember GeoCities…

Twitter or TV?

At the iMedia conference in Brighton this week there was a good deal of discussion about social media and how best to measure it.

Oddly though, there was little consideration of the fact that different verticals will be able to benefit from social media in very different ways.

One way of looking at verticals is to place them on a grid where one axis runs from low to high emotional importance and the other axis runs from low to high rational importance. Verticals with high emotional importance contain products that we buy because they “say” something about us. Verticals with high rational importance contain products that we buy because we need them.

Using the emotional-rational grid we can divide verticals into four sectors:

High rational, high emotional (HRHE) verticals like travel, motor cars and electrical devices. These are verticals where the functionality needs to be right, where we are risking relatively large amounts of money, and where part of why we buy is because we feel comfortable with the brand

Low rational, high emotional (LRHE) verticals like fashion, print media and charity. These are verticals where we are not risking a great deal, where we don’t really need the products but where we do feel emotional engagement because the products we buy “say” a lot about us

High rational, low emotional (HRLE) verticals like banking, retail and utilities. These are verticals where the functionality needs to be right, where we are risking relatively large amounts of money, but where we are not emotionally engaged with the brand

Low rational, low emotional (LRLE) verticals like washing powder and petrol. These are verticals where we are not taking great risks and where there is no emotional involvement with the brands. While products in these verticals are important the functionality they deliver is generally simple.

HRHE verticals can use social media very creatively. As well as using social media to research the marketplace by listening to conversations and to manage their reputation they can actively “campaign” messages through social media.

LRHE verticals are in a similar position – able to exploit their emotional connection with consumers through social media, although they may need to work harder as there is little they can say about rational benefits.

HRLE verticals however will find it far harder to exploit social media for campaigning. They have little emotional connection with their consumers and proactive use of social media platforms will frequently be considered intrusive – who wants to hear from their bank on Facebook? They can however use social media for market research and importantly for managing their reputations. For instance few people are likely to praise a bank’s service to their friends but many will criticise it if something goes wrong.

LRLE verticals are the Cinderellas of social media. No one is interested in them: why would you blog about washing powder or review a cleaning fluid? For brands in these verticals social media are far less important. While they should monitor conversations just in case a big issue starts to brew, they need to do little more than that.

Both HRLEs and LRLEs need to employ advertising techniques to add a layer of emotional connection to their brands. But for HRHEs and LRHEs that are considerable opportunities to enhance their brands through social media.

The lesson here is that brands should consider whether they are in a vertical that can usefully use social media for active campaigning or merely for research and for more reactive communication. A failure to understand this can result in wasted budgets and in losing the opportunities that more powerful media activities can deliver.

Kill the Bill!

Last summer, the Prime Minister Gordon Brown claimed that modern broadband services are as essential to people as access to water, electricity and gas.

It seems odd then that his government is pushing through the Digital Economy bill that will mean people being cut off from this “essential” service for being suspected of misusing it by downloading copyrighted material illegally.

Note that they only need to be suspected. No legal proof will be needed. No court will be convened to decide whether a particular user has been guilty of piracy.

If I don’t pay my water bill I can’t get cut off. Rightly so as water is essential to my life.

Broadband access at home isn’t essential (pace Gordon Brown) so perhaps I shouldn’t really mind if my broadband access is cut off!

Well, I do use the internet quite a lot at home, mainly for work. And so if someone in my household decides to pirate copyright material I, as well as they, will be punished by having my business (and my ability to pay tax) damaged.

Now, you could argue that if my children pirate information then I am, as their parent, responsible (even if they are over the age of criminal responsibility).

But you can’t really argue that for my wife!

Punishing me (and the rest of my family) for the suspected illegal activities of one member is surely immoral. (Not, I hope you realise, that I am accusing my dear wife of piracy!)

This bill is a muddle and rushing it through with a minimum of debate is typical of the approach governments tend to take when they don’t really understand an issue.

Why can’t our government get its collective head round the reality of the digital economy.

1. Web access isn’t as important as water

2. Giving free web access and computers away to poorer households will not automatically result in children in those poorer households becoming digitally literate (although it may result in them becoming exposed to many of the ills of digital media). It would be a far better use of tax payer resources to provide good school and library based internet access

3. Even if everyone is given a “personal web page” (whatever that is) to access government services, as we have been promised, this doesn’t mean that everyone will want to use it. Lots of people (and not just the elderly) will want to continue to access services offline. And some services (claiming benefits is surely one) are better delivered face to face

4. Denying people access to internet services because they are merely suspected of illegal activity is immoral.

End of rant.

By the way, if you really think that government, and government sponsored organisations, are capable of using data effectively and accurately then please explain why the NS&I have just sent my wife a replacement certificate for a premium bond that was apparently bought for her 10 years before she was born!

De-fuzzing social media measurement

In the bath thinking, as one does, of social media it occurred to me that measuring the effectiveness of social media is potentially a very fuzzy activity.

Putting a little structure around it might therefore be of some value.

So I thought – well, there are three main types of measurement you can consider. There’s absolute data – data that measures size.  There is trend data – data that measures change. And there is comparative data – which you could use for benchmarking.

Absolute data is factual – I have 5000 Twitter followers (I wish), or 37 people have commented on this blog post (ditto). Or 6000 people viewed my video on YouTube. Or my brand was mentioned 5000 times in forums. Etc etc. Some of this can perhaps be assigned a value in media terms. And while it isn’t always easy to assign an appropriate value (what is a Facebook fan worth?) at least you can make a start.

Trend data is also factual – but as you are comparing two sets of data, as you can with tools like Alterian’s SM2, the important fact is the change in the data. Thus if there are 10,000 positive mentions of my brand through social media in August that may or may not be good: it’s hard to know. But if there were 9000 in July and 12,000 in September I can be pretty confident that I am going in the right direction and that the value of those mentions in September is 125% of the value in July. (There are some big assumptions being made here, but the principle is I think valid.)

And there is comparative data. I might have 12,000 positive brand mentions in September. But if my competitor got 50,000 that month I’m not looking so bright!

Then there are the results of the social media conversations: these may be conversations, actions or effects. I’ll explain.

Conversations are simply mentions of your brand or your competitors  in various places – forums, blogs, file shares etc. They can be good, bad or indifferent (and you should be measuring that). At its simplest it equates to your PR agency counting the press clips.

Next there are views. Sometimes it’s possible to measure the number of people who have seen some of your social media conversations – for instance by measuring visitor numbers to your blog. You won’t always be able to measure that – but where you can this may be a helpful metric. 

Often these numbers will be small – perhaps too small to be relevant in media terms. But they might not be. If Sony Bravia gets a couple of million views of its ad on YouTube then that’s worth something. Probably more in fact than 2 million OTSs on TV.

Then there are actions. This is when people have done something – taken an action of some kind, perhaps signing up to follow you on Twitter, or responding to a comment you have made in a forum.

Again often the numbers here will be very small – and the real value may not be in terms of media but in  terms of the opportunity they bring to engage with brand advocates.

And then we have effects. This is when you can see that social media activity has had an effect on something else you are doing. For instance, and at its simplest, you could measure the effect (or at least some of the effect) of social media on web traffic by tracking people from appropriate sources such as social networking sites. Some web analytics tools like Coremetrics are able to automate at least part of this.

Other effects might only be measurable through data analysis, for instance identifying links between social media campaigns and calls to a call centre or online sales. This is the sort of analysis that direct response media agencies do all the time for their clients.

Of course the effect might well be softer than a measurable and identifable action. It may be a shift in purchase propensity or brand favourability on the part of people exposed to your social media. That’s harder to measure although not impossible using standard quantitative research techniques. (The branding effects of online display are often measured this way.)

So there you have it. A little 3 by 4 matrix that should help you put some rigour into the process of evaluating social media. It isn’t perfect by any means. But at least it isn’t fuzzy!

I’m not bitter. I’m on Twitter

Several clients have asked me recently about how they can evaluate their social media activity. I’m tweeting like mad, they say, but I’m not sure it’s doing much good. Well, unless they have thought hard about what they want to achieve on Twitter it probably isn’t doing much good. But that’s another story.

What they want (and need) to understand is how they can measure what they are doing and whether it is having any positive effect.

So how can you measure social media?

Well, the simplest thing is to monitor conversations. Personally, I use Alterian’s excellent SM2 tool (www.alterian-social-media.com; it has a great Freemium version) but there are plenty of other tools, some free and some that you have to pay for.

You can use a tool like SM2 a little like a search engine (SM2  “listens” to conversations in social media including Twitter, Facebook, LinkedIn, thousands of blogs, Wikis, product review sites etc) .  Type in a keyword (your brand, a competitor, a concept…) and see how much “noise” it is generating, how many people are talking about it.

SM2 will generate a list of conversations about your brand, as well as letting you cut  the data in various ways such as by location, author, type, time, sentiment, publication etc.

Using this sort of tool you can look at changes in the overall “share of voice” that your brand has in the social media space. Have conversations about your brand increased during your latest campaign? Has the launch of a competing brand reduced the interest shown in your brand significantly?

This won’t provide you with an “absolute” value but it will show you whether the value you are generating is rising or falling.

The difficulty in providing a robust ”absolute” value is caused by the fact that, in most social media conversations you simply don’t know how many people have seen the mention of your brand; you can only measure those people who have actively interacted with it – and these are likely to be the minority. Perhaps though it is justifiable to make an assumption based on the generalities of social media behaviour.Thus if a hundred people have contributed to conversations about your brand it would probably be reasonable to assume that two thoudand people have seen those conversations.

You can also look at the share of voice your brand has compared with competitors. SM2 is great at this but if you just want to look at blogs then blogpulse (www.blogpulse.com) is a brilliant and simple-to-use tool which provides great graphing.

Again this is a comparative tool that won’t give you an answer in pounds, shillings and pence but it will tell you if you are doing better or worse than your competitors.

You can also start to measure the “sentiment” associated with the conversations. Are people saying nice or nasty things about your brand? Increases in positive sentiment within conversations is obviously a good thing! 

Measuring sentiment  isn’t an exact science (what does “wicked” really mean?) and ideally you will use a tool that allows you to customise the sentiment measurement, rather than one that is fully automated.

Another very useful tool is Search. Use Google Trends to monitor changes in search activity on particular relevant search terms. If new social media activity coincides with an increase in search terms relevant to your brand  then it is possible that the two are related.

You can start to prove the relationship between social media and search by examining your web analytics.  If you are seeing an increase in website visits you need to look for two things.

First, are the search terms being used to find your site relevant to the conversations going on in social media?

And second, how much of the new traffic is being driven from social media content such as blogs and communities? And is this traffic more (or less) engaged and valuable. 

You may find this hard to measure without the right site analytics tools and processes (but if you haven’t got them right you are probably missing a whole bunch of other stuff too!)

Take care though. It may be easy to see the traffic driven directly to your site from social media as you can see that they are arriving from blog sites etc.  But other traffic will be arriving at your site as a result of your social media conversations, but not necessarily directly from those conversations. In other words social media is probably delivering more than you can see.

Another way of valuing social media is to look at “brand participants“, people who are actively engaged with your brand online. For instance how many followers do you have on Twitter; how many fans on Facebook?

And how many people  have shared or forwarded content your content – e.g. retweeting, email this page, forward this email etc.

It may not be possible to put an exact value on these activities but again comparative values are simple to achieve and with some imagination absolute values can be guesstimated.

At the moment though the only robust way of measuring the effect of social media will be through new research where changes to brand perceptions can be linked to social media activity though the use of quantitative research tools. For instance you may be able to prove a change to ad awareness, especially when a social media campaign has been used to enhance an ad campaign.

It’s early days for social media in marketing. Attrributing accurate absolute values is difficulties and requires many assumptions. And you are as likely to undercount as to overcount! Nonetheless, there are plenty of instances when social media activity has coincided with a rise in sales or brand values. Social media isn’t just about disarming brand critics. It’s about building real brand value. Even if we can’t always prove it!

Building online networks

In the last few weeks I have witnessed a couple of occasions when people who have been asked for “friendship” on social media sites have reacted aggressively.

In one instance a woman (we’ll call her Eva) on LinkedIn asked for reassurance when someone she had tried to connect with rebuffed her approach and told her not to “misuse” the system. Unsurprisingly she received a lot of support and sympathy from other members.

And then, more recently, I read a vigorous discussion in the Association of Internet Researchers (AoIR) about the rights and wrongs of someone (we’ll call him Reid) on the list asking another member for friend status on Facebook. In this case the reactions were far more mixed with as many people decrying this as an intrusion as supporting the attempt at building a network.

So who’s right? What is the etiquette here?

In LinkedIn it seems perfectly in order to ask to connect with someone who is a member of the same professional group that you are a member of. Surely that is what online networking is about.

It’s like being at a party or a business networking event: you may not know someone there but you talk to them because you have friends or colleagues in common. And if the person you approach doesn’t want to connect with you all they have to do is say “no”. There is no need to shout and scream about “misusing” the party!

But is Facebook any different? Well, I suppose Facebook is often more closely aligned to friendships in the physical world. But not always.

Increasingly Facebook is used to set up interest groups (in a similar way to Ning I guess.) And in the case I am talking about the “victim/criminal” was using Facebook to promote a professional grouping on Ning. So it seems perfectly reasonable for him to get in touch with people asking them to “friend” him and join his new group. And again, if people don’t want to connect, all they need to do is say “no”. (I did accept Reid’s invitation, even though I have never met him.)

My conclusions?

First there are plenty of plonkers in the world and if you ever raise your head above the online parapet you should do so in the expectation that one of them may well have a pop at you. So make sure that your skin is at least reasonably thick.

And second, if you are approached by someone you don’t know, and don’t want to know, in a social networking environment, just say “no thanks” politely. To respond to a social invitation with rudeness implies that you are either bizarrely terrified of other people or massively puffed up with your own importance. Neither says much about you.

Using social media for marketing

Perhaps it’s the result of some deeply buried childhood experience but I can’t help categorising things.

And one thing that does need categorising is the way marketers use social media, because a lot of people talk about it as though it is just a matter of reputation management. It’s not!

Of course reputation management – monitoring conversations and where appropriate responding to them and guiding them – is important. But there are several other parts of marketing that can use social media. We can start with search marketing.

Search marketing is of course focussed around keywords and key phrases. Some social media monitoring tools are great at helping with this, and add an extra dimension to the insights derived from Google’s tools. For instance Alterian’s excellent SM2 product will allow you to generate a cloud of keyword tags created by people writing blogs and other content. This is a really easy way of discovering concepts that people think are important on any day.

Tools like SM2 or Ice Rocket can give you instant insights which can also be used to influence messaging strategy. If you know what people are talking about, and what they want to hear about, then it is easier to create messages that will have impact. What are the big issues with cars at the moment: is it reliability, economy, safety?

For instance at the time of writing fuel consumption trumps reliability for motor cars – but only if the term “economy” rather than “fuel consumption” is used. And safety is more important than either.

Social media can also be used for driving traffic to websites. This can be done in two ways.

The simpler way (not that simple really!) is to identify people who are talking about your brand or an issue you are trying to get associated with and send them links to information that will interest them in the hope that they will post your links and other people will see them.

Alternatively you can listen out for people talking about your brand or issue and send them information. This is of course may well be more time consuming if there are a lot of people talking about you. However you can automate this to a degree using tools like SocialOomph which works with Twitter.

I had a sweet example of this the other day. Tweeting about late (early?) blooming camellias I was immediately followed by @lovethegarden (a web entity owned by The Scott’s Miracle Gro Company) who have a website www.lovethegarden.com of great interest to the camellia lover.

And finally there are marketing campaigns that use social media for launching products, generating awareness or favourability, or even generating sales. There is a great deal to say here so more on these another day!

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Should PR “own” social media?

The PR industry seems to be trying to own social media. I wonder whether this is really appropriate?

Recently I went to a seminar on social media organised. To be honest it was pretty poor although it was a competent, if dull, introduction to some of the basics of social media marketing.

But only some of the basics. The focus was heavily on traditional PR techniques. Not only did the seminar fail to address advertising as had been promised, the speaker (and there was only one speaker all day!) seemed to feel that traditional PR techniques were the only key to social media.

Now of course some PR techniques do have an important part to play in social media. But you can go way beyond simply seeding blogs and posting photos on Flickr in this space.

Social media can be used very effectively for many other things including:

• customer service
• marketplace analysis
• new product development
• search marketing, paid and organic
• recruitment

None of these were covered in the seminar.

Perhaps that was because these disciplines are not central to PR.

In addition, PR agencies may be tempted to conflate social media with online PR techniques. So I was subjected to a lecture on SEO PR – which hasn’t got much to do with social media (and which, as explained, didn’t seem to have much to do with SEO either)! And I was told that the way to measure campaign effectiveness was to measure the effect of seeded blogs: there was no acknowledgement of the need to track blogs that hadn’t been seeded.

All in all, my exposure to how some PR people think about social media was, well, less than inspiring. So uninspiring in fact that I asked for my money back from the seminar organisers.

That was a week ago. I haven’t heard tweet from them so far. I suppose they thought I wouldn’t bother to blog about it!

[Later note - after 10 days (but only a day or so after this post - the power of social media perhaps?)  I had an apologetic phone call from the seminar organisers and the promise of a refund. So I have taken their name off this posting.]

Social media. Hype or reality?

Of course social media is (are?) at the top of the agenda for a lot of businesses. But is this all hype or should we be taking it seriously?

Unfortunately a lot of the noise around social media marketing is enthusiastic hot air. “Everyone’s doing it!”, “You can get a dialogue going with all your consumers!”, “It’s replacing advertising!” Etcetera. Etcetera.

None of these are real reasons for investing in social media.

But there are a number of extremely strong strategic business benefits that social media can deliver. They won’t all be relevant for all businesses. But the chance is that at least one or two will be relevant for your business.

Let’s start with marketing. Social media can help with acquisition. At its simplest you can use social media to inform and enhance SEO and paid search campaigns. And you can also use it to contribute to advertising campaigns by seeding discussions. It’s an important PR tool as well which you can use for monitoring and managing your brand’s reputation. All with the aim of getting new customers.

Probably best not to be too overt about direct marketing though (unless you are talking to a group of very strong fans who want to be sold to.)

And you can use it for retention as well. Establish a dialogue with consumers and you can tell them about new products and special offers as well as identifying (and addressing) areas of unhappiness.

As part of this you can also use social media for delivering customer service where it can help retention and also deliver cost savings, by enabling your customers to help one another. and by enabling a common problem to be addressed on a one-to-many basis.

 You can also use social media to affect product evolution and to guide new product development. Listen to what your consumers are saying about your products and you will have a good idea as to where your product set should be heading.

Undertake some competitor analysis using social media and you will have an even better idea about your marketplace.

Combining competitor and customer analysis will help guide investment decisons in staff, marketing and production (is your customer service up to scratch, are you wasting your advertising budget, are your products built robustly enough…)

Then there is recruitment: social media is increasingly used in this function, as a way of delivering marketplace intelligence, locating and evaluating candidates (with or without the help of recruitment agencies), and enabling candidates to find and develop positive feelings about your business. Don’t forget your current staff either. Social media can powerfully develop feelings of team and increase staff morale.

And finally one should not forget The City. Social media can be used very effectively for financial PR which can positively affect share price and business stability.

The noise surrounding social media is clearly not just hype. But that doesn’t mean social media campaigns are always delivered well. Far from it! But a structured and commonsense approach, combined with a willingness to experiment (and sometimes fail) will take your business a long way on the road to benefiting from these exciting new opportunities.

What is social media

I do take a degree of exception to Katy Lindemann’s comment’s on social media on the IPA newsletter:

http://ipaadvertising.newsweaver.co.uk/hsw5c7jl37s12n02gxybgi?email=true

She says she dislikes the term “Social Media” which to me seems a pretty convenient term and one that is well understood by most people in the online industry.

But what really irritates me is her dismissal of media practice when she says:

“As soon as we think about social media, the tendency is to focus on the ‘media’ – and to start talking about it as another channel or line on a marketing plan, instead of the really important bits – the ideas and the behaviour.”

Well, I don’t know who she has met in the media industry (or indeed the social media industry) but to say that they don’t consider ideas and behaviour is faintly ludicrous.

If media practice ever was just about choosing a channel (and I am not sure it was), it certainly isn’t now. Media involves understanding how to deliver the right message to the right people at the right time and at the right cost. In other words it is about ideas and behaviour (oh, and commercial effectiveness, something that too many creatives seem to forget!)