Social Networking For Business

Closer to You A study on the Impact of Social Networking on Customer Relationships

Juha-Pekka Helminen Javier Cabrerizo Stephen Dean

Contents Contents .................................................................................................................................... 2 Introduction ............................................................................................................................... 4 Social networking – a definition ............................................................................................ 4 Web 2.0 and social networking ............................................................................................. 5 Broad Market Overview ........................................................................................................ 6 Scope ..................................................................................................................................... 8 Motivation ............................................................................................................................. 9 Innovation ............................................................................................................................... 11 Overview.............................................................................................................................. 11 Business Purpose ................................................................................................................. 15 Today ................................................................................................................................... 18 Linux: The Origins of Social Networking .......................................................................... 18 WePC: Finding ideas in the crowd ................................................................................... 20 Sellaband: Sharing risk..................................................................................................... 20 CrowdSPRING: Using the crowd to develop ideas .......................................................... 22 IdeaSpigit: Providing the innovation platform ................................................................ 22 Future .................................................................................................................................. 24 Trends .............................................................................................................................. 24 What to do now ............................................................................................................... 25 Sales & Marketing ................................................................................................................... 27 Overview.............................................................................................................................. 27 Business purpose ................................................................................................................. 29 Today ................................................................................................................................... 31 How are companies using Social Marketing today?........................................................ 31 How does social marketing contribute to the business objectives? ............................... 33 2

Measuring the impact of B2C+C2C: Adidas and Electronic Arts Campaigns. .................. 34 How other leading brands like are currently using Social Networks .............................. 35 Future .................................................................................................................................. 38 Pervasiveness of Social Networking ................................................................................ 38 Mobile Social Networking ............................................................................................... 39 Social Networking as an integral part of the marketing strategy.................................... 39 New metrics for Social Marketing ................................................................................... 40 What to do now ............................................................................................................... 41 Customer care and service ...................................................................................................... 45 Overview.............................................................................................................................. 45 Business purpose ................................................................................................................. 46 Today ................................................................................................................................... 48 Customer cases................................................................................................................ 50 Future .................................................................................................................................. 51 Trends and examples....................................................................................................... 54 What to do now................................................................................................................... 57 Summary & Conclusion ........................................................................................................... 61

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Introduction Social Networks are transforming the way we use Internet. The use of social networks is exploding both in terms of unique users and in terms of time spent on them. As this is a global phenomenon and one that impacts all age groups, it has attracted huge attention from investors, media and corporations. This transformation is seeing a fundamental evolution in the way the Internet itself is used; from a model that evolves from passive content being displayed, to one where content is increasingly generated by users and interactions among these users becoming the primary means of accessing content. What does this mean for the corporate world and the way of doing business? Do the new models of online consumer behavior demand changes in corporate strategy? Do social networks represent a new way of doing things which will define new modes of interaction between firms and consumers, employees and other constituents? Or are social networks new ways of doing old things albeit more efficiently? If social networks is not a fad and are here to stay with the power to transform multiple interaction modes, companies should understand the implications they may have in their way of doing business.

Social networking – a definition It is difficult to provide a narrow, unambiguous definition of social networking. Given the speed at which social networks are growing and evolving, it is probably not helpful either. Nevertheless, given the term’s vogue and the fact that it is appearing all over the Internet at present, we need to provide at least some idea of what we are talking about when we refer to social networking. Rather than define social networking, we attempt to characterise it – to identify the things that, collectively, make a social network feel like a social network, rather than some other type of Internet service. Above all, the essential characteristic of a social networking site is communities. If we merely mean by ‘communities’ a user base whose members can communicate with each other, then it could be argued that the telephone network is the world’s biggest social network (and indeed, there are some who are arguing exactly that). Social networks enable their users to form groups whose members can control access, and in which communication between the members can be either private or public. People can belong to more than one group on the social network, and in some cases groups can be linked together. Hence, rather than a single homogeneous community, social networking sites comprise a network of many heterogeneous communities, with a variety of interactions taking place between some of them. In most cases, though not all, people and communities on social networking sites can choose to make themselves publicly accessible, either in part or in whole.

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Broadly speaking, people use social networking sites in order to do the following things: develop, express and advertise their personality communicate with friends meet and communicate with new people share content with other people. Thus, as shown in the figure below, the closest we can get to defining a social networking site is to say that it is a site that enables its users to do all four of these things, to some degree.

Figure 1 – What do people do on social networking sites?

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Web 2.0 and social networking It is necessary to understand the link between Web 2.0 and social networking in this paper. The notion of Web 2.0 was coined by Tim O’Reilly on the back of a conference brainstorming session in 2004. The basic idea that emerged was that the nature of the Web had fundamentally changed since the dot.com fallout at the start of the decade. What has evolved in its place is something new – Web 2.0. One of the useful aspects of O’Reilly’s definition, and one that we agree with, is the view of Web 2.0 as a platform spanning all connected devices supporting ‘an architecture of participation’ driven by the consumer. This links the Web 2.0 environment firmly to what we call participatory media, which is dominated by user generated content and social networking. Web 2.0 is a loaded term that is currently subject to enormous volumes of hype. Different communities define Web 2.0 in different ways, which can be confusing. However, the very fact that Web 2.0 is touted as being so many things underlines its importance. Web 2.0 1

Ovum, The rise of social networking: trends, challenges and strategies, May, 2007

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encapsulates everything about the next generation of the Internet, which is best approached by breaking it down into four complementary pillars: social models that describe how people will use it, content models linked to the type of content produced and how it is consumed, and then the technologies that will support it and the business models that will profit from it. A number of technologies and technology concepts have become synonymous with Web 2.0 and are seen as key underpinnings of the Web 2.0 mindset. Core among these are: Webbased content publishing tools, mash-ups and rich internet application technologies.2 User-generated content and social networking are key characteristics of the Web 2.0 world. Web 2.0 social models are about communicating and interacting with others in an open environment, often on a collaborative basis and on a scale not seen before. Web 2.0 content models have shifted away from the Web 1.0 model where content is produced by publishers, to ‘me media’ content produced by individuals. User-generated content (UGC) is about participation and interactivity – a ‘lean forward’ experience. It is also about sharing that content and making it a form of self-expression, underscoring the interlocking nature of UGC and social networking. The likes of YouTube (founded in 2005), MySpace (2003) and Bebo (2005) are the poster boys of social networking, and because they are relatively young companies/services this gives the impression that social networking is also something pretty new. The scale and scope of social networking is new, but the process has actually been evolving on the backburner for some time. Social networking arguably started with the customer recommendation and feedback engines championed by the likes of Amazon and eBay. The principal behind recommendation is consumer engagement and interactivity, which are core characteristics of social networking. The most conspicuous early incarnation of social networking on the Web are blogs. Technorati, the online blog search engine and monitor, actively tracks 63 million blogs and estimates that 175,000 new blogs are created every day. Wikis are another evolutionary step in social networking. Wikipedia, founded in 2000, is the most famous and has around 1.4 million articles in the English language. However, there are many other small wikis that are focused on a single topic – more like a community. Social networks have the kind of scale that most blogs lack and the emphasis is on wider public (self) expression and active conversation with a larger, more disparate group. Social networks tend to be a more structured environment, typically provisioned by a third-party platform, while a blog is typically built by an individual. Social networks are more clearly a service proposition.

Broad Market Overview Based on the above, it is difficult to define social networking market size and scope. However, some user numbers can be identified. Strategy analytics recently conducted a 2

Ovum, The rise of social networking: trends, challenges and strategies, May, 2007

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survey in the US and in five largest European countries on social networks. According to the study, the total number of age 15+ online users that use social network services was 71.6 million users in the US, 16.9 million in the UK, 9.9 million in Germany, 6.6 million in France, 6.5 million in Italy and 6.1 million in Spain.3

Figure 2 – Share of age 15+ online users that say they use social networks.

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Facebook and MySpace are today the most popular social networking sites in western countries. ComScore reports that Facebook attracted 132.1 million unique visitors in June 2008, compared to MySpace, which attracted 117.6 million.3

Table 1 – Worldwide growth among selected social networking sites.

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Strategy Analytics (May 2008), Digital Media Survey, May 2008

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A Yankee Group study4 reports that 45% of consumers older than 18-years old participate in social networking. The trend is not just restricted to those barely out of college either. Fortysix percent of the total population of social networkers is older than 34-years old, according to the same study.

Scope Our intention in this work is to analyze the impact of social networks in the corporate world. The use of social networks and Web 2.0 technologies in a corporation can be split into three generic categories: Internal use, interfacing with customers and interfacing with partners / suppliers. 5 McKinsey made a survey on the business use of Web 2.0 technologies (including wikis, blogs, social networks, and mash-ups) where executives were asked which of social and interactive tools their companies have adopted and for which purposes. They were also asked to what extent they are using such new technologies to interact with their employees, customers, and suppliers – and, ultimately, how important these tools are to their companies’ competitive edge.

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Figure 3 – Use of web 2.0 technologies and social networking .

In this paper we have refined our scope to the the relationships that companies build with consumers in three key areas: Innovation with customers, marketing and advertising to customers and support to existing customers. This follows closely typical product and customer life cycle models. The product life cycle model consists of five main steps: Product development; introduction; growth; maturity; and decline.6 Innovation happens in product development phase, in introduction and marketing phases the product needs to be marketed and finally, customer service is important during maturity and decline phases. The

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Yankee Group, Anywhere Consumer: 2007 US Web/Data Surrey, 2007. McKinsey Quarterly, Building the Web 2.0 Enterprise, July, 2008. 6 Kotler, P. and Keller, K.L., Marketing Management, 2006. 5

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customer life cycle model consists similarly of five steps: Reach, acquisition, conversion, retention and loyalty.7 We aim to analyse the impact of social networks on customer interfaces by attempting to answer the following key questions: What are the facts behind the usage of Social Networks in terms of number of users, time spent, age and geographical segments? What value are users getting out of Social Networking? How are companies currently adopting the use of Social Networks in their customer interaction? Are companies co-creating using social networks with customers? Are social networks part of the marketing mix? What part of advertising revenue is now going to Social Networks? Which strategies are companies pursuing to leverage the massive adoption of Social Networks by end users? What are the lessons learned, tools and methods that will be successful in the near future and what is the appropriate roadmap for corporations embracing Social Networks? What do companies need to change in their corporate strategy to leverage the new models of online consumer behavior? The adoption of Social Networking by corporations is currently limited and many are still testing the waters. We will explore the different initiatives launched by a number of these corporations and the results they are reporting. The degree of complexity and involvement varies widely from the use of traditional banner display in Social Networking sites to more sophisticated interactions with end users mediated by the sites. In some cases, companies are even expanding more, entering the area of product innovation by leveraging the Social Network platforms. In each of these areas we will examine the trends that are shaping the industry and what effects these trends are likely to have in the near to medium term. We will then finally look at some concrete steps that any firm can undertake today to begin to leverage the power of social networks.

Motivation The conversation between enterprises and their partners or customers is broken. Enterprises turn constituents into abstractions using focus groups and market segmentations. Their attempts to reach out to the market are reminiscent of a man shouting slogans to a crowd—the message is lost and if someone hears it, they either don’t understand or are not interested. From the other direction, even when customers and partners try to reach out to an enterprise, they are rewarded with form letters and neverending phone menus. Thankfully, change is in the air. Enterprise social software in general and online social networking in particularare changing the way consumers and business partners interact with enterprises. New technologies 7

NetGenesis, Business metrics for the new economy, 2000.

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enable candid, conversational and—most importantly—trusting relationships to emerge. The explosion in interest in social networks combined with increased connectivity has made intimacy and authenticity central components in product development, enterprise marketing and customer service. The unifying theme behind product development, marketing and support is that fundamentally they are all forms of conversation with consumers. Product innovation and its subsequent marketing are a question asked of the marketplace. The market answers back via sales figures, customer service and direct feedback. Yet, that conversation has become stunted. Consumers have changed the way they gather information, and enterprises must change too. They no longer only vote with their feet. Consumers now vote with their feet, blogs, Amazon reviews, Facebook profiles and Google searches. The vehicle for this transformation has been persistent connectivity combined with online community, and the result is the fruition of the concept of “markets as conversations”. The Cluetrain Manifesto8 vocalized the insight that markets are conversations and reimagined the interactions between companies and their customers in light of the birth of ubiquitous connectivity and the participatory web. The communication dynamic in a market will change dramatically because of the new levels of transparency and communication that the internet makes possible.

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Locke, Levine, Searls & Weinberger, The Cluetrain Manifesto, 2000.

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Innovation “If I have seen further it is only by standing on the shoulders of giants” -Isaac Newton, February 1676

Overview The role of a social network in innovation is not new; Isaac Newton acknowledged in a letter to Robert Hooke that it was through building on the work of others that he was able to achieve what are arguably some of the most important discoveries about the nature of the physical world. The world in which Newton lived relied heavily on the use of close personal networks of like minded individuals with shared common interests and generally in close geographic proximity. Letters then served as the medium to integrate those networks which were more dispersed. The rise of technology has fundamentally changed the way in which people collaborate and hence how innovation is nurtured, discovered, tested and ultimately monetised. Social networking under its broadest definition provides the means through which people are able to collaborate more effectively, changing the way in which corporations and individuals innovate. L.J. Hanifan in 1916 first wrote about the idea of social capital, which is idea concept that captures the value that exists within social networks due to the fact that productivity tends to increase in groups. The community as a whole will benefit by the cooperation of all its parts, while the individual will find in his associations the advantages of the help, the sympathy, and the fellowship of his neighbors9.

More recent studies have created the idea of COINs – collaborative innovation networks, that Peter Gloor10 argues have now reached a tipping point11, where radical change has now become a certainty due to ‘communication capabilities of the Internet’. He argues that these networks have become faster, more valuable and more efficient due to ‘creative collaboration, knowledge sharing and social networking’. Motivated individuals come together and collaborate virtually on a peer basis rather than through hierarchical management structures. Indeed, in many instances there are no organizational affiliations, rather a common goal shared by all participants, such as the creation of a better operating system in the development of Linux by the Open Source community.

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Robert Putnam. Bowling Alone: The Collapse and Revival of American Community, Simon and Schuster, 2000 Peter A. Gloor, Swarm Creativity: Competitive Advantage Through Collaborative Innovation Networks, Oxford University Press, 2006 11 From Malcolm Gladwell’s TheTipping Point, 2002 10

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According to Gloor, these COINs have three key characteristics. ‘They: 1. Innovate through massive collaborative creativity 2. Collaborate under a strict ethical code 3. Communicate in direct contact networks’ One way of understanding this process is to use the idea of ‘memes’. The evolutionary biologist Richard Dawkins12 coined this term to describe the concept of an idea that had a lifecycle and ability to evolve much like a biological lifeform. It is possible to apply some of the concepts of evolution to memes to understand why social networking is so efficient at generating innovation. Firstly, is the concept of evolution itself. Ideas are borne out of other ideas and in order for a new form to exist there must be a rich and diverse collection of other ideas. Social networks provide the foundation for this be creating a collaborative environment in which ideas may be easily exchanged, the so called ‘primordial soup’ out of which life arises. Innovation in the same way is not a mechanistic process but rather tends to emerge if the underlying ‘soup’ is present. Secondly, out of this need come events which give rise to mutations in ideas. This is both the motivation and the guidance that is provided by the structure in which the collaboration takes place. Thirdly, the ideas will be subject to evolutionary forces as other users and the environment interact with them. The ability for users to give feedback on aspects of the innovation is an important aspect that allows the creation of a ‘fit’ concept or idea. A good example of this is Adidas’ use of Second Life to test new designs for shoes prior to launch in the real world. Finally, the organisation is non hierarchical. As in evolution there is no one person who sits at the top of the chain that forces users to obey their edict (religious interpretations aside). Instead the interaction between users is organic and constantly changing. The system is open and allows participants to enter and leave, making the pattern of interaction and the outcome of that interaction very difficult to predict. The outcome rather is guided by the environment, something that in social networks can be manipulated and helps to set a guide within which the more chaotic process of invention can occur. These memes are able to evolve rapidly and in new ways thanks in a large part to the evolution of the supporting tools and technology. Andrew McAfee characterizes some of the key elements of this technology13: 1. “Search: the ease of finding information through keyword search which makes the platform valuable. 2. Links: guides to important pieces of information. The best pages are the most frequently linked to.

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Richard Dawkins, The Selfish Gene, 2nd Edition, 1990 A. McAfee. Enterprise 2.0: The Dawn of Emergent Collaboration. MIT Sloan Management review. Vol. 47, No. 3, p. 21-28, 2006 13

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3. Authoring: the ability to create constantly updating content over a platform that is shifted from being the creation of a few to being the constantly updated, interlinked work. In wikis, the content is iterative in the sense that the people undo and redo each other’s work. While in blogs is cumulative that posts and comments of individuals are accumulated over time. 4. Tags: categorization of content by creating tags that are simple, one-word descriptions to facilitate searching and avoid rigid, pre-made categories.
 5. Extensions: automation some of the work and pattern matching by using algorithms e.g. amazon.com recommendations. 6. Signals: the use of RSS (Really Simple Syndication) technology to notify users with any changes of the content by sending e-mails [or other notifications] to them.” Having looked at what innovation is the value in networks, how ideas evolve and the elements of the technology that help to create value the next step is to understand the process of innovation itself. This can help to provide a better understanding of how and where these tools are contributing. Anand Chhatpar, outlines one view of the process shown in Figure 4 by which innovations can be generated, tested and finally realized14.

Figure 4 - Innovation Process

The first step in the process consists of the identification of opportunities. This captures the set of activities around understanding where areas of opportunity actually exist, something that is familiar in marketing organizations. This is the recognition of a customer insight, or understanding of an unmet customer need, or ‘demand-led’ innovation. ePinions.com, for example, allows consumers to interact around product reviews and could easily be used by researchers to understand themes of dissatisfaction or unmet needs. Chhatpar also advocates an ethnographic approach to research through the use of other sites such as YouTube which show consumers adapting existing products or finding new or unanticipated uses for those products. Once opportunity or unmet need has been identified the next stage is coming up with a solution. A process which allows open contribution of new ideas, or brainstorming is one of several ways to achieve this. Providing an efficient means for this to take place is onw the features of social networks. CrowdSpring is a company that offers people looking for creative input a means to do that by using access to the crowd to generate creative responses in this instance mostly for logos and photography, but it is easy to see how the idea could be extended. Mindmeister.com allows groups of users to collaboratively mind map in order to generate new ideas.

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Chhatpar, Anand; Online Innovation Tools, http://www.openinnovators.net/online-tools-for-innovationentrepreneurs/, October 9, 2007

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Once a number of promising approaches have been developed the next step is to carry out research to flesh out the concepts and understand which ones may be viable. The Internet provides a large number of valuable sources which can be used to do research through setting up surveys or ad hoc groups, something which Facebook allows to targeted users. Wikipedia, the online encyclopedia, maintained by a vast community, provides a vast online database for carrying out other research. A new market is also opening up in this space where vendors such as Imaginatik are providing access to deeper less publicly available information such as patents and research papers. As the concepts are narrowed down, the next step is prototyping. Although, this would seem to be less well enabled by social networking, even in this space is benefiting from the power of networks. eLance.com provides a site where freelance professionals from many different disciplines post their credentials. A client that needs something done quickly and for a low cost can then post their requirements and find the right individual to help. Payment is then made as the work completes. The site currently has over 32,000 registered programmers and 23,000 designers. The other side of innovation, supply-pushed, occurs when a technology or invention is discovered but the actual end consumer use is not clear. Both this type of innovation and the type described earlier, demand-led both ideally require validation. With a prototype or well developed concept possible buyers can be involved in the process, where again the tools which encourage networking can be used. Chhatpar describes the use of eBay as a means to validate a concept by posting the product for sale. Users will then bid on the prototype allowing a validation both of the concept and potentially even of the pricing. These kinds of guerilla techniques could be applied both by a large corporate as well as budding entrepreneurs. Finally, once the concept appears to be viable the product must now go to full development. Sites such as LinkedIn, another kind of network, allow a user to find the professionals that are required to scale up what may be a new enterprise, division or project. This walk through the process demonstrates that social networks and more broadly the kind of collaborations allowed by Web 2.0 type technologies are involved in almost every step of the innovation process. What is also apparent is that there is no one tool which provides everything. Users tend to have different networks for different purposes and many are specialized for one particular type of application. An interesting characteristic of Social Networks is that the participation by users in innovation is rarely for profit. A recent study by McKinsey found that many people are not motivated by money and in SecondLife, a large virtual world, only one third of people participated in innovative activities for financial reward15. The question then is what motivates users to participate?

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Jacques Bughin, Michael Chui and Brad Johnson, The next step in open innovation, The McKinsey Quarterly, June 2008

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The other reasons according to the McKinsey study for participating, include status, fun, building new skills and personal relationships . Status is often encouraged in the basic mechanisms of the collaboration such as most active user in Amazon’s customer feedback. A sense of fun is important too as it reflects the passion and motivation that users have in order to participate in a non paid exercise. In the case of building skills many of the technical collaboration projects provide a way for new users to get involved with support from a lively community that tolerates questions from new users. Some platform vendors have also been studying the effect of psychological factors on the effectiveness of brainstorming. Imaginatik has carried out research on organizational behavior and how this influences the outcome of a process which seeks input from multiple contributors. Their research has thrown up some interesting conclusions including the fact that tools which allow control of who can see certain ideas can be important to facilitate the generation of ideas and that reward systems that focus on small intangible incentives are often most effective16. The study of the wisdom of crowds is not new, and plenty of evidence seems to suggest that groups do facilitate innovation. The creation of conditions under which ideas can thrive should lead to the origination and rapid evolution of ideas, something that seems to be facilitated by the evolution of the underlying technology. The process of innovation benefits at each step from the emerging platforms which encourage users to participate for rewards that are not always financial.

Business Purpose Innovation as a business process continues to be an important part of most executives’ strategies. Forrester has found that 93% of senior executives they surveyed would put innovation in their top 10 and in 2007, 66% would put it in the top 317.

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http://www.imaginatik.com Chris Townsend, The Rise of Innovation Management Tools, Forrester Research, July, 2008

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Figure 5 - Innovation Remains a Top 10 Priority for Senior Execs

It would appear that social networking offers considerable opportunity for discovering and fostering innovation, however, the question that needs clarification is how does this generate value for a business? According to Gloor much evidence exists that COINs generate more successful products, better customer relationships and improved project management processes. At its core the effects on innovation of social networks would ideally do one or more of three things; reduce cost, increase revenues or increase rate of growth of a business. Reducing costs can be achieved in a number of significant ways through the use of social networks. Companies can find low cost methods of carrying out tasks that previously could take considerable time to complete and incur significant cost. As described above many users take part in networks for reasons other than financial. For example, users are not paid for their reviews of consumer products on sites such as ePinions.com or Amazon. It is also possible through the observation of interactions within networks to gain valuable insight into consumer behaviour. A second and sizable impact is avoiding the cost of failure of innovation. Often significant sums of money are involved in developing and launching new products. Reducing the failure rate can have a very significant effect on the economics of the process. Much research has been done into why this kind of failure occurs, the conclusion of which is that there are five main reasons18: 1. 2. 3. 4. 5.

Poor goal definition Poor alignment of actions to goals Poor participation in teams Poor monitoring of results Poor communication and access to information

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David O'Sullivan, "Framework for Managing Development in the Networked Organisations". Journal of Computers in Industry (Elsevier Science Publishers B. V.) 47 (1): 77–88, 2002

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Social networks as they are used in innovation tend to actually address many of these issues, if not directly then by providing a means through which these issues could be avoided. The first two factors describe goal definition and alignment to purpose. Some of the most successful innovation networks have a strong sense of purpose if not explicit goals, such as the Linux community. The goals may be open-ended but the purpose tends to be well guided. The other three goals are actually fundamental to most social networks as described above since they foster the creation of teams, make results visible to the crowd and facilitate direct and timely communications. The testing approach for innovation is well illustrated by the usage of a number of firms of Second Life, a virtual world for testing product concepts and designs. Starwood hotels recently pre-launched a new kind of hotel, A-Loft in Second Life. This gave the company an opportunity to get some feedback prior to launch as well as generating some positive marketing buzz around the concept.

Figure 6 - Starwood's virtual hotel

A second useful aspect is the spreading of risk through changing the way in which the risk of involvement is apportioned. Crowdfunding is a means by which users can contribute money for the purpose of funding an innovative idea, product or even piece of content, such as Sellaband.com, which is described below in more detail. Zopa.com, a self described social finance company, allows participants to contribute to a finance pool which is then loaned out to other users, such as someone looking for seed funding for an idea. Users can choose the level of risk that they are comfortable with and that then determines the level of their return. The avoidance of a middle man also reduces the cost of financing for the borrower while improving the return for the lender. From a revenue perspective the fruits of innovation, such as new products or services provide the potential to generate new revenues. The value created can be immense such as in the case of Linux, where a recent report released by the foundation valued the Linux distribution at $10.8bn19. Apple’s App Store provides a means by which developers can 19

McPherson, Amanda; Proffitt, Brian; Hale-Evans, Ron (2008) Estimating the Total Development Cost of a Linux Distribution, The Linux Foundation

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innovate new kinds of applications and then make them available to a large audience – the more an application is downloaded the more popular it becomes, taking advantage of the network effect. For each of the participants there is the opportunity to create new and fast growing revenue streams. However, the big winner in this is the creator of the platform, Apple. In the first month after the site launched Apple turned over $30 milion2021.

Today There are a large number of ventures and to a lesser extent large to medium size corporates that are now participating in finding and testing innovation on the Internet. Some of those have been mentioned in the preceding pages, and each provides some interesting insights. This section expands on these descriptions and picks out a number of interesting examples that are proving out the ability for social networks to foster innovation. Access to deeper innovation and information seems to be coming at a price and a number of vendors appear to be stepping in to fill the void. This provides access to technical journals, patent information, the ‘deep web’ and other information that helps company’s source ideas. Linux: The Origins of Social Networking

One of the original examples of an innovative social network was the creation of the Linux operating system. This was originally written in 1991 by Linus Torvalds who then made it available under the Gnu Public License which allows any user access to the source so long as modifications are contributed back to the project. Prior to the rise of the sites that users today would recognise as social networks, like Bebo, MySpace and Facebook the rudiments of these kinds of capabilities existed, in the form of bulletin boards. Although less organised around individuals and more around ‘threads’ which were ongoing discussions many of the features of these early tools are now found in the next generation of platforms. The bulletin boards were widely used by what was largely a technical community and proved to be a very effective way of swapping ideas. Linux arose out of the interaction of users on those bulletin boards and was originally developed by Linus Torvalds in response to another amateur developed operating system, Minix. Frustration with progress on Minix led Torvalds to begin to develop his own operating system. The entry of this new operating system into the wider community has been traced to a post by Torvalds22: From: [email protected] (Linus Benedict Torvalds) Newsgroups: comp.os.minix Subject: What would you like to see most in minix? Summary: small poll for my new operating system Message-ID: <[email protected]> Date: 25 Aug 91 20:57:08 GMT Organization: University of Helsinki

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Nick Wingfield, iPhone Software Sales Take Off, The Wall Street Journal, August 11, 2008 Nick Wingfield, iPhone Software Sales Take Off, The Wall Street Journal, August 11, 2008 22 https://netfiles.uiuc.edu/rhasan/linux/ 21

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Hello everybody out there using minix - I'm doing a (free) operating system (just a hobby, won't be big and professional like gnu) for 386(486) AT clones. This has been brewing since april, and is starting to get ready.I'd like any feedback on things people like/dislike in minix, as my OS resembles it somewhat (same physical layout of the file-system(due to practical reasons) among other things). I've currently ported bash(1.08) and gcc(1.40),and things seem to work.This implies that I'll get something practical within a few months, andI'd like to know what features most people would want. Any suggestions are welcome, but I won't promise I'll implement them :-) Linus ([email protected]) PS. Yes - it's free of any minix code, and it has a multi-threaded fs. It is NOT protable (uses 386 task switching etc), and it probably never will support anything other than AT-harddisks, as that's all I have :-(.

This post led to a number of users downloading the new kernel, carrying out their own testing on it and then uploading the changes, quickly correcting and changing aspects of the new code. Version 0.01 was released by mid September and by October 5th version 0.02 was posted, alongside the following post from Torvalds: From: [email protected] (Linus Benedict Torvalds) Newsgroups: comp.os.minix Subject: Free minix-like kernel sources for 386-AT Message-ID: <[email protected]> Date: 5 Oct 91 05:41:06 GMT Organization: University of Helsinki

Do you pine for the nice days of minix-1.1, when men were men and wrote their own device drivers? Are you without a nice project and just dying to cut your teeth on a OS you can try to modify for your needs? Are you finding it frustrating when everything works on minix? No more all-nighters to get a nifty program working? Then this post might be just for you :-)

After this the community began to mushroom, with version 0.10 released by mid December and the distribution going worldwide. Globally, there were now hundreds of thousands of users interacting and developing this operating system, growing it in new and different directions, adding features and refining the core. Not one of the original community was paid for their contribution. Since then Linux has branched into a number of distributions each with its own community, some of which are funded on a volunteer basis and others that are now commercially funded such as Red Hat. In many cities user groups have been set up which provide free marketing and support for Linux. The commercial distributions of Linux improved the means of distribution and more importantly added professional service and support. Thus while the code itself was usually given out for free the services around it were paid for by companies using the software. Although many of the core contributors to Linux remain those who donate their time without payment there are a large number of companies now deriving significant revenue from the platform including IBM, Google, Dell and Nokia. The Linux example has now been 19

replicated in a number of other applications and demonstrates the power of a social network to generate innovation, motivate users without the need for financial rewards and generate real value. This value has been quantified, as mentioned earlier, at $10.8bn. WePC: Finding ideas in the crowd

WePC is a joint venture that has recently been launched by Asus and Intel. On this site the two companies give users a forum where they can express ideas that they have on new and innovative designs that they would like to see in computers. The two companies are then able to mine these suggestions for innovative ideas that have the kind of support that suggests a successful product. Doubtless this will not replace traditional product research but does provide a more direct link with consumers. An additional benefit that this offers is improving the positioning of both companies in consumer’s minds as being both customer centric and innovative. This model is being tested out elsewhere, for example BestBuy’s Blue Line of computers that are being launched in partnership with big brand manufacturers based on customer’s input.

Figure 7 - WePC where users can specify the kind of PC they would like to buy

Sellaband: Sharing risk

Sellaband is a web based venture that provides individual investors with a way to decide which of a group of potential artists should get a recording deal. The site was set up by Joss Vosmeijer, Dagmar Heijmans (both ex SonyBMG) and Pim Beteist and is headquartered in Amsterdam, Netherlands. An artist or band can register on the site and create a profile through which they will seek to attract investment of $50,000 which is made of 5,000 ‘parts’ 20

each of which sells for $10. Once the artist sells all of the parts a producer is assigned and an album recorded professionally in a studio. Revenue is made for the site, the artist and the Believer (as the investor is known) through three main methods. Firstly there is an even revenue share of net profit for all digital sales. Secondly where advertising is used, based on the popularity of the track the net profit is divided again between the three parties and finally, physical CDs are sold. The Believer can order CDs at cost and for every CD sold $2 is allocated to other Believers. Sellaband also markets through other physical retailers and signed a deal with Amazon in the UK in December 2007

Figure 8 - Breakdown of the use of investor's money

The site to date has launched approximately one artist per months since its inception and has seen over $2m invested by Believers in artists attracted to the site. The venture itself closed its series A funding with Prime Technology Ventures in April 200823.

Figure 9 - SellaBand's home page outlining its simple model for crowdfunding

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http://www.sellaband.com/

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CrowdSPRING: Using the crowd to develop ideas

CrowdSPRING which was founded by Ross Kimbarovsky and Mike Samson is a site that was started to provide a way in which an end user with a design need would be able to access a global pool of creative talent. The idea quite simply was that a user would be able to post a design brief on the site with an amount to be awarded to the best design. Other users would then be able to vote for the best design and the original creator of the brief would be able to select the best design. The pair even used the site to source their own logo by launching it in BETA and inviting artists to submit designs for the crowdSPRING logo. In 3 weeks they received 337 entries from all over the world and was launched in April 2008. In their first three months of operation crowdSPRING registered over 6,000 users from 130 different countries and had created over 700 new projects each of which averages about 66 responses. The site then makes money by taking 15% of the award. IdeaSpigit: Providing the innovation platform

Spigit24, a company that was set up in response to its creators view that some of the existing platforms were not enterprise centric. Spigit provides a platform that supports a mechanism for capturing and prioritizing suggestions and ideas. The platform provides a number of modules that work both internally and externally to drive innovation. IdeaSpigit is the module which can be used to liaise directly with consumers and business partners such as suppliers to solicit feedback and input on products and services. The software then contains algorithims for ‘idea graduation’, a means by which the most valuable ideas can be surfaced in an efficient way. The platform also supports a rewards mechanism by which both financial and non financial rewards can be given to users. For the external contributors, a user can create competitions or promotions from a set of themes with customizable scoring, all of which will supposedly drive user motivation, interaction and contribution. This ability to track each user’s contribution and apply a flexible reward structure is one of the unique selling points of the platform17.One of the problems the platform tries to solve also includes the issue that popularity doesn’t necessarily indicate a good idea. The ranking engine uses other measures to filter ideas such as user’s reputation, previous contributions and position in a network to ‘graduate’ good ideas. All of the interactions within the platform are carefully tracked and can be reported to management in a number of different dashboards. In this way the platform provides both a front end tool for capturing and rewarding user contributions but also a back end that allows for management and insight into the innovation process.

24

http://www.spigit.com

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Figure 10 - Spigit's configuration interface

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Future Trends

Given the rapid evolution of this space there are a number of trends that are easily observed when looking at the use of social networks in innovation: Companies are beginning to experiment and largely the trials are run by small groups Platform vendors are beginning to emerge who provide a means of leveraging both the technology and the data that is being generated Companies are trying to shorten cycle times for innovations and find ways of improving their return on investment which in turn will help grow this space. Companies are beginning to experiment and largely the trials are run by small groups. On the whole the forays by companies into innovation are relatively small in scale and impact and appear to be a means of learning. The Asus initiative described earlier is an example of this. The company does not appear to be running a large change to its operations but rather experimenting to see whether the kind of input that can be gathered in this way is helpful. As Forrester17 points out, ‘most of the truly innovative ideas…are sitting behind a company’s moat – or a university’s ivory tower’. The access to and management of ideas and new intellectual property will continue to present a challenge to businesses looking to expand their use of social networking tools. As successful results are demonstrated one can expect a more robust approach to collaborative innovation and a more formal approach by enterprises Platform vendors are emerging. A number of specialized vendors are entering the space and it is likely this will continue as this space receives more attention. As with other enterprise software, this market is likely to then undergo consolidation with companies such as Sun, Oracle and Microsoft looking to round out their enterprise offerings. Some companies are pitching the software as a complement to the Enterprise Resource Planning software that many large companies run today, such as SAP and Siebel. While many of these vendors focus on internal knowledge and idea capture, an increasing number appear to be expanding scope to capture and manage innovation generated outside of the business. This is a significant opportunity for startup companies that will most likely at some point attract the attention of the larger enterprise vendors. Companies are looking to shorten cycle times for innovations. Competitive pressure to innovate in industry continues to mount and as a result companies seek to shorten time from insight to product launch. New products in a market rarely tend to stay differentiated for any length of time. All of this requires companies to become ever more efficient in discovering, nurturing and realizing innovations. Research by Boston Consulting Group suggests that the most innovative companies outperformed their peers by 4.4% over 10 years but that over a third of companies see long cycle times as a significant issue and 42% saw moving quickly as an issue. As with other changes in the way companies operate the emergence of social networking platforms 24

provide a means to make the various stages of the innovation process more efficient and will as Spigit does, provide ways to link stages together. What to do now

Coming out of the work that has been done to date there are a number of best practices that a company looking to participate in this space should be considering. Start small. The web offers many means to experiment with innovation at little cost and with little risk. If you are selling a product it is likely your consumers are writing about it somewhere – on a blog, in a wiki or leaving feedback on Amazon. A passive first step can allow the gathering of some interesting insights from which a more structured and deliberate step can be taken to engage with consumers. The emerging vendors in this space offer a way to work innovation internally within the enterprise and then starting to expand outwards. Given the speed of change and the pressure to innovate not participating runs the serious risk of placing a company at a serious disadvantage. Think about the reward mechanisms. Companies should bear in mind that many consumers are not motivated by financial gain, but rather by status, fun and even a desire to learn new skills. As such the site should cater to these users and provide reinforcing mechanisms that take this into account. YouTube for example has spawned a huge population of users who create content in the chance of becoming famous and providing entertainment along the way. The site now gets over one billion views a day, up from nothing in less than three years25. If you need focus make the problem plain. This new means of innovation, almost by definition, is unguided so if a company is looking for something specific it has to be framed carefully to get the desired outcome. CrowdSPRING does a good job of this with its guided questions for creating a brief. Commissioning users can then leave feedback for the community on the submitted designs thus improving successive generations. Research by Imaginatik26 suggests that directed ideation can deliver ten- to thirty-times more ‘high impact, high value concepts’ than an unguided process. This focus can be around events or campaigns that help set up the ‘environment’ in which relevant ideas can flourish. Provide a means for governance and help foster the right culture. Governance can be a challenge, particularly at the scale that many successful Internet sites are operating. An oft quoted study in Nature in 200527 compared a number of entries in the Encyclopedia Britannica with those from Wikipedia and found them to be level in their accuracy. Given that Wikipedia is open for anyone to edit and has over 2.6m entries, this level of accuracy is remarkable and is maintained by a loose affiliation of motivated users who ‘own’ topic areas. Governance however needs to be able to assess the level of risk that innovation brings but at the same time tolerating it to a degree that transformational ideas don’t get shut down. 25

Quentin Hardy and Evan Hessel, GooTube, Forbes.com, June 16, 2008 Mark Turrell, Idea Management ROI, White Paper on www.imaginatik.com, June 2003 27 th Jim Giles, Internet Encyclopaedias go head to head, Nature 438, 15 December 2005 26

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Only 20% of companies in a BCG recent survey suggested that finding ideas was their biggest problem, 36% of the senior managers surveyed found company culture was an impediment and 33% cited lack of co-ordination. These are challenges that are addressed by governance and top leadership which must create a culture that facilitates innovation. In addition the company needs to tolerate a degree of ambiguity and find a way to allow change to occur. Get close to your customers and partners. One of the best ways for companies to connect with consumers is to bring them into the product design process. This can be done in an artificial market research setting or potentially in a more natural way for new generations where the contact is direct but virtual. Here the audience is larger and the response less guided but potentially more genuine and also more insightful. The challenges faced will vary by industry. Technology and communications companies rate selecting ideas as one of their biggest hurdles, whereas manufacturing companies rate insight into customers as one of their major issues. Consumer products companies have their biggest issue with actually finding ideas28.

28

James P. Andrew et al., Innovation 2008, BCG Survey, August 2008

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Sales & Marketing Overview “Because its purpose is to create a customer, a business has two, and only two, functions, marketing and innovation. Marketing and innovation produce results. All the rest are costs”. - Peter Drucker As stated in the above quote from Peter Drucker, the purpose of marketing in a business is to create a customer. The way marketing has been doing this has followed a linear model that is now changing due to the impact of technology in general and social networks in particular. The traditional linear communication model that was applied by marketers followed a pattern of awareness, research, consideration, testing, negotiation and transaction. Marketing’s corporate function was to drive customers through this funnel resulting in a transaction that generated revenue. Each stage of the cycle would have its associated media channel to achieve its goal: television or print media to create awareness and then turn to local radio or direct email to drive responses. The adoption of the Internet and the change of media itself have provoked fundamental changes to this model. Consequently, the marketing function has moved from “a monologue to a dialogue29”. In this context, messages are more pulled by the end user than pushed by the marketer. The current media environment has evolved from Broadcast, to Interactive to Social Media. This has moved media from a model of “we tell you” to “tell us what you think of what we tell you” and now to a “tell each other” 30era. This has introduced a new way of interaction by end users that is motivating the evolution from monologue to dialogue of the marketing function described above. In this new era, the interactions occur between users and hence, marketers have lost the power and control over their own content. Once the content is out, users pass it along and make it their own. The image below explains this evolution of media and how it affects users, marketers and media sources.

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The future of Marketing: from monologue to dialogue. An Economist Intelligence Unit white paper sponsored by Google. 2006. 30 Social Media introduces new models of value creation. The Management Innovation Group.

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Figure 11 - A model of the evolution of communication

This phenomenon is described by Charlene Li, VP at Forrester Research, “The groundswell is a social trend in which people use technologies to get things they need from each other, rather than from traditional institutions like corporations”. This is the key reason why, in this new context the crucial factor considered by marketers as success or failure of their marketing action, is not the exposure to the message, but the degree that a given media type lends itself to direct interaction with the consumer. As consumers take more active roles, marketers need to understand more about the individuals who make the groundswell around their brands and their companies. In a context where the end users decide to pull the message, the key role of marketing is to establish and enrich the relationship with end users in order to make meaningful brand connections. This has given birth to the new buzz-word in marketing: engagement. Generating this engagement requires a different type of interaction with the end users and marketers are finding in the use of Social Network a means towards this end. The more they know about users and their interactions the more they can use the phenomenon of Social Networking to their advantage. This not withstanding, online marketing still only represents 7% of total marketing investments and from this figure, investment in Social or Engagement Marketing is just a fraction of the total. However, the Internet is now the 3rd media channel utilized by users, taking 17% of their time and with a larger proportion being spent on Social Networking sites. Although still in its infancy, this is probably one of the most important areas of development for marketing in the coming years and one that is having a profound transformational effect. As with any nascent discipline with high impact, the current situation is not yet perfectly defined; methods to measure effectiveness are not yet fully developed; and only some innovative organizations are experimenting and discovering new modes of interaction.

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Business purpose The need to define a means to engage with customers directly is what has given birth to a new type of marketing called variously social marketing, network marketing or engagement marketing. The fundamental characteristic is that it focuses on techniques that take advantage of the links between consumers to increase sales such as word of mouth, viral marketing and diffusion of innovations. The main assumptions are that “network neighbors” are more likely to adopt a service or product than baseline groups selected by marketing best practices (i.e. segmentation, targeting techniques). Secondly, by focusing on relations, the firm can identify customers that otherwise would have fallen through the cracks because they would not have been identified based on traditional attributes31. In this new environment, the influence that other users have in the purchasing decision of a potential consumer is very high32. In a recent Forrester Research publication, the “opinion of a friend or acquaintance who has used the product or service” was trusted by 83% of users, while “information on the manufacturer’s web site” was trusted only by 69% of users. This is the reason why Social Media is so important for marketing: end users trust other users they know, more than they trust the marketer itself.

Figure 12 - Online consumers placement of trust

Hence, the objective is to start understanding these relationships and then deciding who the influential individuals are that you are going to market your product to. “One of the main concerns for any firm is when, how and to whom they should market their products. 31

“Network based marketing: identifying likely adopters via consumer networks”. Hill, Provost & Volinsky; Journal of Statistical Science, May 2006. 32 Forrester Research. Leveraging User generated content. January 2007

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Whether and how well a consumer is linked to existing customers is a powerful characteristic on which to base direct marketing decisions33”. Marketers can pull the power of these relationships in three basic ways. Explicit Advocacy, when firms give explicit incentives to end users to spread the message about a product or service. Implicit Advocacy when users may advocate implicitly with their actions, i.e. adoption of the product. And Network Targeting, when the firm targets prior purchaser’s social network neighbors assuming it has means to identify these. Consequently, marketers are looking at ways to build environments in which they engage users to the extent that they become passionate advocates of the brand and in this way attract and influence other users to buy the product or service. If marketers can start exploiting the underlying network of relationships between users, they are in a better position to market their products to the appropriate users effectively. Marketers’ main business purpose is building brand equity and influencing consumers to buy their products or services. The social dimension of marketing however needs to be integrated into the complete marketing strategy of businesses. Giving voice to the consumer and creating the environment to facilitate the conversation are the main objectives. This new model of continuous dialogue with the customer is blurring the distinction between exposing the user to a brand and encouraging them to take action. The guiding principle now is that the consumer performs much of the buying process online, including much of the exploration, comparison and testing. This is moving away from the linear marketing model described before and is creating a network of interactions that may occur in any possible order and where other users start to play a relevant part. For this reason, marketers realize that they lose control of the content and hence find it difficult to measure the success of their call to action to the end user. As can be seen in the graph below by The Economist Intelligence Unit34, although >50% of marketers consider that they are effective in building brand equity, only 25%-30% consider they are effective with the call to action to end users. One plausible explanation is that as the influence and call to action lies more in the relationships with other users, marketers find it hard to measure their effectiveness in the transactional part of the marketing process.

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“Network based marketing: identifying likely adopters via consumer networks”. Hill, Provost & Volinsky; Journal of Statistical Science, May 2006. 34 The Economist Intelligence Unit. “The Future of Marketing”.

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Figure 13 - Understanding the effectiveness of advertising and promotion is social networks

The groundswell, the network of interactions, end-user engagement, dialogue rather than monologue; all these are ways of explaining that marketers need to establish an ongoing relationship with end users by letting their voices be heard. In doing so, the nature of the relationship changes because marketers do not fully control what happens with their message. On the contrary, it is end users that pass the message along and use it as they feel is appropriate. It is critical for companies to understand these relationships in order to build brand equity and to have an influence on users’ decisions to purchase. How can they do this? In the next section we will explore some of the current initiatives by leading companies and seek to extract some meaningful conclusions.

Today How are companies using Social Marketing today?

According to a recent executive survey by Jupiter Research, although social marketing and engagement marketing are relatively new disciplines online, 61% of European online advertisers used social marketing tactics in the last 12 months, and 54% used engagement tactics. The most frequently used engagement tactics are: viral marketing used by 32%, social networking profiles used by 19%, and ads that encourage user contribution by 17% of respondents. In addition, companies use broadcast tactics within social media, specifically ads on blogs (15%), ads in RSS feeds (13%) and ads in podcasts (9%). Of course, this is data about online advertisers only; the percentage of total advertisers that use social media is much lower. According to McKinsey research on “Building the web 2.0 enterprise35”, data comparing responses in 2007 and 2008 showed that: In 2008, 34% of companies where using blogs, compared to 21% in 2007. RSS (Really Simple Syndication) was used by 33% of respondents in 2008, growing from 24% in 2007.

35

Building the web2.0 enterprise. McKinsey Global Survey, June 2008.

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Wikis were used by 32% in 2008, and 24% in 2007 Podcast usage increased to 29% in 2008, from 23% in 2007 Social Networking was used by 28% in 2008 and 27% in 2007. However, the McKinsey report includes all possible uses of the technologies, both internal and external. They find that these technologies are used more for internal, knowledge sharing purposes (94%) than they are for external customer facing objectives (87%). Finally, the latest “Social Media Marketing Adoption36” report from MotiveLab, claims that for 30% of respondents, Social Media is a key component of their marketing strategy. The main changes from the previous release of the report, 6 months earlier is that the “don’t know enough” respondents have dropped by 20% and the number of firms that consider it “a key component” has grown by 10%.

Figure 14 - Attitudes towards Social Media Marketing

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Social Media Marketing Adoption, Motive Lab, Summer 2008.

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How does social marketing contribute to the business objectives?

As described before, the old model of advertising consisted of broadcasting to a certain population with the objective of influencing a proportion of the exposed consumers to execute a particular transaction, such as buying a particular car. In this case, the value creation model is a fairly linear one as illustrated below.

Figure 15 - B2C Value Creation

The emerging role of the end user as a contributor of his own opinion or content in the Internet is making each individual a potential channel to influence other users on the web. Marketers are giving the end users the tools to propagate their brand values into their personal spaces and through all their personal interactions. This can take the form of adding comments into a forum, posting a comment in a blog, taking a wallpaper and adding it to their personal space or telling their friends about it. In this case, the message takes its own life as consumers use it, forward it and share it. This new model, depicted below, pursues the activation of users in order to amplify the impact as more users become advocates of the brand.

Figure 16 - C2C Value Creation & the Momentum Effect

Leading companies today are combining the classic business to consumer (B2C) approach and leveraging it with the momentum effect that consumer to consumer (C2C) can add to it. The idea is that marketers launch an initial communication in business to consumer form and then the message takes on a life of its own as consumers use it, forward it and share it consumer to consumer. This way, Social Networking becomes part of the product experience and the value of the Social Network extends to increase advocacy and loyalty.

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Measuring the impact of B2C+C2C: Adidas and Electronic Arts Campaigns.

Using this model, the research paper commissioned by MySpace, Isobar and Carat, explains the measured value creation by Adidas and Electronic Arts in specific campaigns launched in 2007. The Adidas soccer community in MySpace launched a campaign focused on two models of Adidas elite soccer boots that encouraged friendly discussion and debate. In the case of Electronic Arts’ Burnout Bandslam community, a competition was created for unsigned bands where they could submit their best song for MySpace users to listen and rate. The research focused on a combination of behavioral data and self-stated data to classify each consumer into exposure groups based on B2C and C2C paths. Data gathered from February 7, 2007 to March 29, 2007 with a total sample of 11,266. On measuring the “definitely will buy” dimension, the B2C advertising influenced 1.8 million consumers on the EA side, and 1.2 million for Adidas. When adding the C2C dimension, it impacted an additional 4.5 million consumers on purchase intent for Adidas and 1.5 million for EA. This C2C value was created by visiting the brand’s custom community in MySpace and by hearing about the campaign through social network contacts without actually visiting the page. Table 2 - Impact of B2C and C2C influence in online marketing

“Factoring in the cost of maintaining a custom community with periodic refreshes, we calculated the ROI from C2C marketing for EA and Adidas and arrived at a number that is so strong we had to triple check the figures. When C2C is added to the value equation, the average cost to influence each person on purchase intent drops to $0.34 for EA and $0.40 for adidas. This is 3x better ROI than the average for Online advertising impact (not including the momentum effect)”. What we can learn from this analysis, is that the number of people impacted by both Adidas and Electronic Arts campaigns, using $100,000 and combining the traditional B2C and the word of mouth effect of C2C in My Space, grew dramatically. (See Figure 17 below). Interestingly, these results bring higher value than an average an TV campaign would deliver.

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Figure 17 - Value created by SN Marketing

In summary, by combining the B2C and C2C approach, more value was created in both campaigns. Moreover, the C2C momentum effect actually represented 77% of total value created for EA and 70% of value for Adidas. As this research concludes, the impact of Social Networking in marketing campaigns can be paramount. More research is needed in order to validate metrics of value creation though the use of Social Marketing. Published lessons learned and measured results can help companies understand the potential value for their business and the Return on Marketing Investment (ROMI) by using Social Marketing. How other leading brands like are currently using Social Networks

The big Social Network players in the market today, Facebook and MySpace offer multiple tools for marketers to engage users in conversation and to try and trigger a momentum effect by leveraging the connections amongst users. Brands like Jeep use Facebook to create ties amongst users that share the values of the Jeep brand. By setting up a sponsored group in Facebook users contribute their own experiences and use materials provided by Jeep as wallpaper. The community gets reinforced this way and the brand equity for Jeep is in turn strengthened.

Figure 18 - Jeep and Crest's marketing campaigns on Facebook

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Crest, launched a combined online and offline campaign that also proved the value of combining Social Networking with the rest of the marketing mix. In this case they targeted 20 colleges and offered free concert and movie screenings. They provided live chat and other facilities for interaction and in so doing used the community of college students with shared affinities for music and entertainment to promote their Crest White Strips product. Apple also has a community in Facebook, targeted at students. By leveraging the engagement of participants, this community had 12,000 topics and more than half a million users. Apple uses the community to channel free product samples and other e-commerce initiatives. There have also been negative experiences using Social Networks, as Wal-Mart discovered. In August 2007, Wal-Mart started its own Facebook profile, aimed on students. The goal was to stimulate interaction between students on their rooms. Visitors to Wal-Mart’s room decoration page were able to leave comments; a function intended to elicit self-reinforcing positive feedback on the decoration tool, or a few suggestions for improvement at worst. Wal-Mart probably did not expect to have their Facebook Wall filled with criticism on its low wages, aversion to trade unions and unhealthy competition practices. This experience and others like it suggest that firms are still on a learning curve that describes how to best use social network in their marketing mix. A recent paper published by Forrester Research37 analyzed the social marketing efforts of 16 firms across industries by analyzing their presence in Facebook, MySpace, LinkedIn, Imeem and Windows Live Spaces. They studied the value provided to community members and the appropriate use of social networking opportunities by testing the ability of end users to socialise with others. According to this research, the following are the most commonly found errors:

Figure 19 - Percent of firms that FAILED criteria

The learning extracted from this analysis is that successful social marketing campaigns provide tools for users to express themselves in order to create a self-fueling campaign. Two of the companies that ranked highly were BMW and Chevy. BMW, for example, cleverly allowed its own members to create, share, and vote on ads thus benefiting from an engaged and active community

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Jeremiah Owayang, Best and Worst of Social Network marketing, 2008, Forrester Research, 2008

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Figure 20 - BMW's facebook campaign

Another research paper published by Aberdeen Group38 finds quantifiable impacts derived from the use of Social Marketing. According to their research, the best in class customers (the top 10% of aggregate performance scorers) obtain significant improvements in some key metrics, specifically: -

100% of them obtained improved ROMI with an average 11% increase

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82% improved customer retention, with an average 9% increase

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81% experienced year on year improvement in new product development with an average improvement of 7%.

The most important point of pressure motivating the adoption of some form of social marketing was the need to increase awareness in the market. The actions that best in class companies launched to achieve this objective were supplementing marketing campaign effectiveness with consumer-generated insight and improve the ability to respond to customer wants and needs. In summarizing the current situation, it appears that companies are starting to experiment with Social Marketing. We are experiencing a hype that will probably experience a slowdown which only after the ‘valley of despair’ will materialize into tangible and consistent results. Today Social Marketing is still an experimental tool for marketing with limited proof points and success stories. For this reason, adoption is still limited and budgets allocated are small. 38

Customer 2.0: The business implication of social media. Aberdeen Group, June 2008.

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Finally, there is still little evidence of the impact that social marketing can have on corporate objectives. More research is needed on this front. Also, it is difficult to find consistent measures of success and so, the performance indicators defined vary largely from one company to another. In some cases, classic metrics like number of exposures or hits for a page are still utilized, rather than metrics like number of interactions from users and direct recommendations. There are however important developments underway that will very likely make an impact on the future of Social Marketing.

Future As this new discipline evolves, we believe that three important trends are going to evolve in turn. First, Social Networking will become pervasive, that is, rather than carrying out Social Networking activities in specific platforms like Facebook or MySpace, the service will become generic so that users will port identities and data with them. Secondly, Social Marketing will become integrated with the rest of a firm’s marketing strategy and leveraged as another component of the marketing budget. Third, Social Marketing will develop its own set of metrics utilized to measure the success and prove the ROI of the marketing investment. Pervasiveness of Social Networking

The Internet has brought an important change to the social life of individuals when compared with the offline world. Previously one had social connections with others who shared a common interest; but these were naturally limited to the number of people one actually knew or had a relationship with in the real life. The number of relationships was limited by proximity. Depth of relationships also deteriorated quickly as geographical distance increased between the interactions. The world was limited to physical, face-to-face presence and dialogue. The online presence of Social Network now allows one to find a multitude of similar individuals online. The ways of interacting are also growing: one can write on another’s wall, twitter, poke, blog or browse for new friends. The natural limit imposed by the physical world on the number of social connections has disappeared and created an environment with virtually no limits on the number of connections one can establish with like-minded people. This is the powerful mechanism behind the proliferation of the Social Network. For this reason, Social Networks are not going away. On the contrary it is almost certain that Social Networking is going to become pervasive. Today most people have a profile in one or more of the Social Networking sites that exist. Tomorrow, individuals will have a social profile that can be ported onto any digital interaction experienced. What this means is that the digital persona of any user will possibly carry with him the social component that exists in these proprietary platforms. In practical terms what this will mean is that a user could visit any ecommerce website and find out what people in their network have bought and use that as a recommendation or filter. The first steps in this direction are already happening. Today logging in to some media properties can be done by using a Facebook log-in, allowing usage of the social information 38

available in that site to Facebook users and their connections. We expect a standardization of the way social networking profiles are defined and maintained, so they will be reusable across platforms. Mobile Social Networking

Social networking is now expanding its presence to mobile devices. Today we are starting to see this with services like Twitter. Tomorrow it is expected that a myriad of services that leverage the social dimension that will be delivered through mobile platforms. The table below from Jupiter Research39, explain how mobile community concepts extend beyond current social networking platforms. .

C ru c ia l E x te n s io n o f In te rn e t

Im p o rta n c e /R o le o f C e ll P h o n e

Table 3 - Extensions of social networking into mobile

W a ve M a rk e t D o d g e b a ll.c o m S m a ll P la n e t

F re e ve r

N e a rb y P e o p le

Upoc S M S .a c

R a ve W ire le s s H o o k U p (D C ) Zogo iC e n tric /iC o n ta c t

M e e tro

M 7 (G a m e c o m m u n ity) N g a g e T o u rn a m e n ts N a m c o T o u rn a m e n ts

M o b iL u c k

S h a re d A ffin ity

N o k ia L ife b lo g 3 G U p lo a d A O L (B lo g ) F u n M a il B lo g S ta r R a b b le

M o b ile L ife

M o b ile In te rn e t

W in k Facebook F lik r M yS p a c e

M a tc h .c o m

M eet P e o p le

S h a re S o m e th in g

Figure 21 - Mobile Social Network usage

Users with advanced mobile phones are today capable of uploading rich content from their phones to community sites. For example, new functionality like geo-tagging allows users to upload pictures and tag where they were taken. Social networking users are already heavy users of mobile messaging and uploading. We expect new business models and value propositions to emerge from the extension of social marketing capabilities into the mobile environment.

Social Networking as an integral part of the marketing strategy

As usually happens with hype we are going through a pendulum swing now. Wharton’s Van den Bulte comments on this, “Yes, there is much more information flow among consumers, and not all of them beat the same drum as the companies, so firms have lost power. Living in denial is not going to be healthy. On the other hand, totally surrendering and letting go of all control may be too much…I think firms need to find a balance.40"

39 40

Mobile Social Networking. Jupiter Research, November 2007. Social Marketing: how companies are generating value from customer input. Knowledge @ Wharton

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In the end, any marketing campaign a company wants to launch is going to use all the channels and mechanisms available. They will continue to make extensive use of traditional broadcasting tools and complement them with other social networking mechanisms that provide additional benefits. Considering that Social networking is becoming pervasive, traditional broadcasting and new social marketing will benefit from each other. As individuals can bring their profiles beyond the social networking platforms, they can start leveraging this fact when they visit traditional media. This is possible today with Facebook as some media sites provide a log in that syncs up with the Facebook and hence identifies your profile. New metrics for Social Marketing

Multiple analyses point out that marketers today are not satisfied with the way they measure the effectiveness of their social campaigns. The measurement and accountability of social marketing goes along two dimensions: being able to measure what happens in a meaningful way and, being able to provide measurement to anticipate or predict the effectiveness of a given campaign. Traditional measures like hits and pages viewed do not really focus on the specific value of social marketing. According to Paula Amunátegui Perelló41, project manager for new media at Switzerland-based General Motors Europe, the traditional metrics won’t do. Simply looking at the number of people who visit a website is not sufficient. Her team looks at metrics like how many blogs link to the web site, how many people subscribe to the site’s content or watch videos and the number and quality of comments posted directly on the site. The graph below shows marketers’ opinion about what things need to be improved when running viral video campaigns42:

41

Social Marketing: how companies are generating value from customer input. Knowledge @ Wharton

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Viral Video marketing survey: the agencies perspective. Feed company, 2008.

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Figure 22 - Areas for improvement in video viral marketing

More than 52% of companies responded that tracking and reporting needs improvement. If companies find tracking and reporting difficult to measure this will make it difficult to determine the success of a campaign and hence to attract additional investment. As social marketing becomes more mainstream we expect a significant development of the type of data captured and measured. This will evolve into new behavioral marketing techniques that will help launch effective campaigns by understanding the diffusion paths within social networks. For example, key influencers for a given product or service could be identified, and specific campaign messaging channeled through them to hit their followers. We expect measures such as the speed of propagation, the density of networks and the variety of networks to enter the lingo of social marketing in the near future. Together with the pervasiveness of the social networking profile, will come a pervasiveness of social analysis; a comprehensive use and understanding of the social graph. This means sophisticated analytics of patterns of diffusion of ideas or products will become mainstream. Predictive engines will therefore emerge that focus on these patterns using techniques like psychographics and semantic analysis. What to do now

Any organization that is using online marketing or is planning to do so should understand how to leverage the power of Social or Engagement marketing. The way relationships between consumers and marketers are evolving predicts that users will want their voice to be heard. As Social Networking sites become mainstream and attract larger volumes of users, the demographics will also vary and expand beyond the initial niches of adolescent users. However, Social marketing does not mean giving all control to end-users: Social marketing is another component of the whole marketing strategy and should be used as another channel to achieve marketing objectives. 41

In order to do so, presented below are some ideas that anyone considering starting to use Social Networking in their marketing mix should take into account. A big difference between Social Marketing and traditional marketing is users’ participation. In the past it was passive; now it is active. If you want end users to participate, there are two basic things to provide: content and tools which facilitate socialization. Content is the new currency

The point of social marketing is to have users talk about a product or service in a way that attracts other users to buy it. The ideal world is having a product as unique as Google, the iPhone or the Wii console. In this case, customers immediately become your best advocate and attract other users. However, not every product can be this distinctive. How then can companies use the power of social networks to boost the adoption of their products or services? The first answer is to give users content they like43, content that is perceived as valuable and that users can interact with and comment about. This means asking yourself, are we providing the value that users expect? Users need to get attractive and appealing content such as videos and games that encourage their active participation, the passing on of the content to others, adding comments and providing feedback. Instead of static banners that advertise your product, users need to see value in the content, something that makes them talk about it, for example product tests and tickets. Provide means for users to socialize

The second part of the answer is to provide a means for users to socialize. If users cannot engage with each other, comment on each other’s ideas, rate, vote, add to their personal pages or profiles firms will not achieve the word of mouth effect (the momentum effect that can be achieved with C2C) that they are expecting. You want your marketing effort to grow with the participation of members in a self-fueling mode and that way expand through the network. In order to do so, participants should have means to: 1. Engage in member to member participation 2. Participate in generating content for the website and 3. Propagate the participation beyond your company site into other environments. Member to member participation should encourage members to vote on one another, share content via sms, email, forums, wikis and profiles. If this works well, user advocacy and loyalty will work in your favor and each member can become an ambassador that will expose your message to others.

43 What’s next in marketing and advertising. http://paulisakson.typepad.com/planning

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Member to website participation means users must be able to interact with the content you provide, customize it, and contribute by uploading their own user-generated content. In all case, the companies that provide this environment are expected to participate in the conversation. In doing so however they are exposed to criticism, so any company entering the social marketing space should be prepared for this. In addition to content and socializing tools, companies wanting to get started in social marketing should also look at the appropriate metrics, the tactics that can be used and the organizational processes that support them. Focus on the right metrics

It is important to focus on the right metrics. Social Marketing is not about page views or click-thrus, it is about engaging users. The metrics to take into consideration therefore should be measures such as the number of users that are being referred, the number of external links to your site or the number of widgets that refer to your site. Companies should define their own set of appropriate metrics that capture the relevance and the value of the interactions. Organizational process

Finally, companies should be aware that any technology adoption should be combined with specific processes designed to maximize their potential. Successful companies have a process in place to stay engaged in the conversation and to provide rapid answers to customer’s comments and requests. These groups are also in charge of feeding consumergenerated insights across multiple business units. It is not enough to establish an external facing channel, it is important to participate and disseminate the findings internally. Aberdeen Research finds direct correlation between active engagement and improvement in key metrics. For example: -

76% of companies that frequently post in their blogs and web sites, find a year on year increase in their customer satisfaction metric, compared to 50% of those that rarely post.

-

Similarly, 75% of companies that frequently post, compared to 30% of those who rarely post, find actionable insights derived from social media monitoring and analysis.

Social marketing tactics and techniques

In order to get started with social marketing, there are some tactics and techniques that can be used now: -

Corporate blogging. Many companies are now setting up a blog and filling it with relevant content. This is a good way of opening the conversation with consumers.

-

RSS Feeds. Push relevant content to users. Similarly, in order to get the valuable content being delivered to the user, RSS feeds help stay in contact without driving traffic to specific sites. 43

-

Microsites. Set up a microsite for running specific campaigns or targeting niche segments. This can be done in the corporate website or in a separate environment specifically dedicated to one campaign.

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Online Games. In order to attract users and have them participate, there are endless forms of games that can improve the user experience.

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Influential blogging. Social marketing is about the opinions of end users. Some bloggers have a big influence into other users. Companies are learning to pass their messages to these, so their message can then get to the followers of these influential bloggers.

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General networking sites. Facebook, My Space and others, offer multiple ways of engaging in conversations with their users: direct advertising, corporate profiles, sponsored comments, flyers and widgets.All of these are ways of blending companies messages into the ongoing conversation.

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Video and Photo sharing sites. These attract a lot of attention from users, so many companies are endorsing them and proactively asking users to contribute their photos or videos connected with specific marketing topics.

Three step maturity model

Firstly, for companies that are just starting and have no previous experience with Social Marketing, the initial recommendation would be to start by developing an understanding of how it works. The best way to do this is by starting to use any social network platform, monitoring how communities evolve and deploying some advertising. A simple first step is also to start a corporate blog and RSS fed in order to understand what type of content is valuable for end users and how to keep it flowing. Secondly, for companies that have already got some exposure and have tested some initial social initiatives, the next step would be to use social network platforms to create a company or product profile. Attract members to the community, let them talk and listen. Observe the insight generated and learn how it can be used for marketing campaigns. Thirdly, for companies that are advanced users, the focus should be more on developing engagement with users, creating applications and widgets that can take the social network power beyond the ring fence of a social network platform or a specific site. Use the power of extended social network to reach to other users.

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Customer care and service Overview Successful customer care achieves a number of goals. Basic customer service includes assisting customers when they have problems or questions about an organization’s products. However, online networks enable exceptional customer support that goes beyond the basics, allowing customers to connect with experts in an organization who have deep knowledge in a particular area. Similarly, a strong online network enables experts within an organization to be alerted when a problem that requires their knowledge comes into the customer support queue, and facilitates the creation of strong communities in the form of valuable user groups and member networks. The new generation of consumers believes in content created by peers. Examples such as YouTube, MySpace, TripAdvisor, Facebook, Wikipedia, Second Life, Swivel and Ning demonstrate this trend in action. The consumer preference for community answers will lead businesses and other organizations to adopt some of these same techniques to elicit opinions on customer service processes, such as quality of service, opportunities for improvement, places to innovate service delivery and specific ways in which innovation could occur. Organizations will have to change their emphasis on tools for agents to a strategy that also supports the role of community experts. Community experts will share responsibilities between marketing and customer service, and perhaps other departments, such as sales and logistics. There are three areas where social networking is a disruptive force to traditional customer support models: Publicity of service and customer support: Customers use blogs, wikis, social networks etc. for sharing their customer support and service experiences with other people. This creates a high risk for a company that their brand and image suffers and potential customers select alternative products. A well published example is Michael Arrington’s internet outage problem with a company called Comcast.44 The impact to customer service is that problems get much higher publicity much faster and the whole process of serving customers is much more transparent. Participatory customer support: Active users of a company’s products start providing customer support either within or outside company controlled social network environment. Use of social networking tools to provide customer service: A company can also actively provide customer service outside of its’ traditional customer service

44

http://www.techcrunch.com/2008/04/06/comcast-twitter-and-the-chicken-trust-me-i-have-a-point/

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framework i.e. in public discussion groups or in public social networking sites, such as Twitter.

Business purpose In many ways social networks can offer a form of self service for people who need customer support and service. In terms of cost of service to a corporation, self service via social networks is a very lucrative scenario, as can be seen from Yankee Group study regarding cost advantage of self service.

Figure 23 - Cost advantage of self service

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However, still a strong majority of customer service contacts are off-line. Jupiter Research estimates that in the strongest market for social networks, the U.S., the share of service contacts initiated online will more than double from 2006 to 2012 to 7.5 billion. However, off-line contacts will dominate, growing to 45.8 billion in 2012. Also, online customer relationship management technology spending will grow more than will off-line service technology spending, but the lion’s share of service investment will continue to go to supporting off-line service (e.g., agent desktop, phone).46 Continual year-over-year growth in number of online users is increasing the total number of online users who conduct transactions online. As more consumers establish relationships with online companies and conduct more transactions online, the potential need for customer service also increases. Despite a lack of direct correlation between spending and contacts in JupiterResearch’s customer service contact and spending model, companies 45 46

Self-service report, Yankee Group, 2008 US Customer Service Forecast 2007 to 2012, Jupiter Research, 2007.

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must not make customer service spending and operations decisions during coming years without considering the impact of 51 percent growth in contacts through 2012 on operations. Additionally, the average amount spent online per user will increase from $742 in 2006 to $1,039 in 2011, as consumers’ basket of online goods grows in scope.47 This growth will significantly increase the risk of losing revenue due to poor service, and service organizations must accordingly prepare. Every interaction will become increasingly important to revenue as well as retention, loyalty, and satisfaction of customers.

Figure 24 - Online Consumers’ Customer Service Contacts and Spending, 2006 and 2012

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Ultimately, consumers value efficient and effective service foremost, regardless of the touch point. This breadth of touch point use challenges consistent performance and satisfaction measurement, particularly for the majority of organizations still incapable of managing interactions across touch points. Sixty-four percent of customer service decision makers said they are unable or simply do not measure performance across channels or touch points49. Another interesting view to SNs from a business perspective is the link between customer care and the brand. A recent study revealed that social media is very often used by potential customers of services or products to learn customer care offered.

47

US Customer Service Forecast 2007 to 2012, JupiterResearch, August 2007. Customer Service Contact and Spending Model, JupiterResearch, August 2007 49 US Customer Service Forecast 2007 to 2012, JupiterResearch, August 2007 48

47

Figure 25 - Purchase of products/services and use of social media for learning about the customer care 50 offered .

Respondents were asked how often they use social media to learn about the customer care offered when considering a purchase. More than 70% reported that they engage in this prepurchase behavior at least sometimes. Nineteen percent of respondents rarely use social media to learn about customer care and 9% never do.51 Furthermore, to assess the potential influence of social media sites on user opinions as they relate to care experience, respondents were asked how often they take into consideration the quality of customer care offered when making buying decisions. Eighty-four percent said they consider the quality of customer care at least sometimes, while 16% said they rarely or never do.

Today A recent study done by Jupiter Research among U.S. consumers conducted that consumers are increasingly providing feedback about customer service experiences that companies cannot manage. Consumers largely want to provide feedback through directly solicited touch points, with 21% of consumers also providing feedback through third-party resources (e.g., forums, blogs). These highly engaged consumers spend 48% more and contact customer service 46% more frequently than does the average service seeker. Currently, just 11% of top retailers have deployed a community for support and branding purposes.52 A majority (59%) of online users said they provided feedback regarding a customer service experience during the past year, with most doing so more than once. In 2007, users provided feedback 4.2 times on average, with 28 percent of these users providing feedback five or more times.53 For service organizations, this propensity to engage in feedback about service experience must be acknowledged, but many organizations struggle to see the value

50

Exploring the Link Between Customer Care and Brand Reputation in the Age of Social Media, Nora Barnes, SNCR, 2008 51 Exploring the Link Between Customer Care and Brand Reputation in the Age of Social Media, Nora Barnes, SNCR, 2008 52 US Customer Service Consumer Survey, Jupiter Research, October 2008. 53 US Customer Service Consumer Survey, Jupiter Research, October 2008.

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in these data. In general, feedback is leveraged for macro-level initiatives and not for driving relatively more granular business change based on feedback. Such inaction by companies leaves them exposed to the threats that publicly available negative feedback can pose.

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Figure 26 - Service seeker propensity to provide feedback regarding customer service experience .

More than one-half (58%) of all feedback provided comes from consumers who did not contact customer service during the past six months, somewhat limiting potential insight for improving customer service operations. In many cases, this feedback could include valuable product, marketing, branding, or site experience intelligence, which service organizations generally do not position themselves to measure or act on.

Figure 27 - Majority of feedback does not currently inform service operations

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Online surveys remain the most popular feedback vehicle, due largely to ease and affordability of deployment. Ancillary feedback channels include relatively more reactive and unstructured e-mail, phone, and snail mail. In general, companies appear to realize the value of customers’ unsolicited feedback: 76% of customer service decision makers said they currently have processes in place for managing this collection or plan to have them in place within 12 months. However, among companies with processes in place, less than two-thirds

54 55

US Customer Service Consumer Survey, Jupiter Research, October 2008. US Customer Service Consumer Survey, Jupiter Research, October 2008.

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of them actually deploy technology solutions (e.g., custom-built solutions, packaged solutions).

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Figure 28 - Current methods of providing feedback about customer service experiences .

Still, there is substantial feedback occurring outside the realm of established feedback mechanisms. Such feedback, occurring among friends or on third-party sites, is difficult to monitor or, more importantly, measure. Companies are currently unprepared to capture, measure, and leverage this valuable business insight, and are missing a tremendous opportunity to address consumers’ issues before they get out of hand. Anecdotally, one of the biggest inhibitors to adoption of support communities is perceived risk of published negative feedback. However, consumers’ attitudes and behavior suggest the business value of deploying support communities outweighs the risk. Not adopting a form of community may simply not be a choice for many brand-, product-, and serviceoriented companies. Currently, industries with the strongest adoption of communities include high-tech, software, and entertainment. Generally speaking, these are industries where problems can be technical and varied and where brand affinity is a key focus.

Customer cases

Support communities have evolved beyond basic threaded discussion to be far more integrated and accessible than ever before. Service organizations are leveraging support communities in multiple ways ways, as follows:

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US Customer Service Consumer Survey, Jupiter Research, October 2008.

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Integrating community with existing support processes (e.g., Logitech57 integrating knowledge base content into community search) Integrating community with customer relationship management systems for autoescalation (e.g., iRobot escalating all unanswered posts to a customer service representative for e-mail follow-up when a threshold is met58) Adding blogs for product experts to relatively more efficiently share the company’s best and most current knowledge with customers (e.g., Nokia with S60 software59) Leveraging intelligence to inform support, product development, marketing, communications, and legal departments. Embedding community content throughout Web sites to increase interactivity (e.g., Linksys60 seeding relevant forum posts to its product support pages) Integrating commerce with community to enable community users to directly move from dialogue to purchase decision (e.g., AT&T Wireless embedding links into relevant product pages within posts)

Future In terms of future outlook, the emerging wealth of feedback via social networking solutions will present organizations with strategic insight into operations. There are some trends that can be identified: Companies will begin to explore new feedback avenues as value of online surveys diminishes; Adoption of community-oriented support will increase as data extracted from interactions become more granular; Myriad emerging solutions will create many choices for uneducated market; Measurement and analytics will become critical features for growing service footprints. Companies will begin to explore new feedback avenues as value of online surveys diminishes. Companies are increasingly turning to customers’ feedback to gauge and improve customer service performance. In turn, consumers are overwhelmingly responding by providing feedback across a variety of channels. Although service seekers are relatively more willing to provide feedback about negative customer service experiences, they are

57

http://logitech-en-emea.custhelp.com http://forums.irobot.com, 59 http://blogs.s60.com/ 60 http://www.linksys.com 58

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more likely to take surveys after good experiences, compared with the percentage taking surveys after bad experiences. This behavior will ultimately contribute to inaccurate and positively skewed information collected through surveys, leading companies to believe they are providing a more satisfying service experience than they actually are. Service executives will be challenged to look beyond feedback surveys for informing their service optimization initiatives going forward. Early adopters of support communities have found tremendous success in numerous areas, largely measured by the level of engagement these resources have encouraged. Although many executives worry about call deflection and the potential of negative feedback being illuminated in these communities, early adopters have found remarkable value in leveraging forums to identify customers’ issues and react before the issues become widespread. Still, granular and actionable measurement and reporting are nascent among vendors. Although vendors in this growing space have built out excellent community functionality, analytics and reporting are still road map features for most. Adoption of community-oriented support will increase as data extracted from interactions become more granular. Despite a recent groundswell of interest in communities (largely brought about by the success of online social networking communities and a desire to cut servicing costs), interest will continue to grow during the next couple of years. With threaded discussion now being a commodity, companies will seek to differentiate themselves by adding new engagement tools (e.g., chat, online service/marketing/feedback management integration, social networking functionality) as well as new methods for disseminating community content (e.g., embedded content on Web sites, really simple syndication feeds/subscriptions) and measurement or reporting (e.g., real-time focus, analytics focused on proving business case for community, reports putting community interactions into context of customers’ overall experience, user profiling/targeting). Most importantly, the analytics and reporting piece will be the key factor moving forward for service executives seeking to demonstrate measurable return on investment.61

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US Customer Service Consumer Survey, Jupiter Research, October 2008.

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Figure 29 - Drivers and inhibitors of community oriented support adaptation .

Myriad emerging solutions will create many choices for uneducated market. As communities make their place in integrated service offerings, executives will be looking past forum-based threaded discussion to new interaction methods. Emerging functionality includes social networking, content tagging, intracommunity communication (e.g., chat, email, private messaging), and content discovery based on topics and interests. As communities get wrapped into relatively larger multichannel service initiatives, integration with existing service applications and data will be critical. (Further from the social networking fold, vendors such as wetpaint.com provide wikis for customers’ collaboration. Although they are community-driven solutions, they do not foster consumerto-consumer communication and are thus not a focus of this research.) Measurement and analytics will become critical features for growing service footprints. Customers’ satisfaction and experience are top of executives’ minds for next years, and many are experimenting in new areas, which really only further their existing measurement challenges. Customers’ interactions are occurring over an increasing number of touch points (e.g., mobile devices, widgets, really simple syndication) through an increasing variety of media (e.g., video, user-generated content). Measuring the value of these interactions will become increasingly critical to service organizations, particularly as communities become yet another part of a multichannel support offering. Strategic look at engagement will be catalyst for embracing social behavior. Social behavior among consumers will persist, and companies that harness the propensity of consumers to engage in feedback can relatively better make informed business decisions and respond to issues in a quick and agile manner. Engagement (defined here as increasing propensity to contact customer service, make a purchase, and provide feedback) is the catalyst for myriad positive behavior. Consumers who are highly engaged not only have 62

US Customer Service Consumer Survey, Jupiter Research, October 2008.

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value, but also present a threat. For example, engaged consumers have comparatively higher expectations of service quality and are relatively more likely to be susceptible to word of mouth, both positive and negative. Creating an engagement platform through community will be a top consideration for executives as they look to grow loyalty, revenue, satisfaction, and support efficiency. Trends and examples

In this section we aim to highlight some upcoming trends regarding use of social networks for customer service. These trends are (as mentioned earlier): Publicity of service and customer support; participatory customer support; and use of social networking tools to provide customer service. The first example touches both the new trends of publicity of service and customer support and use of social networking tools to provide service. Corporations monitor, integrate and contribute actively to different types of social networking sites in order to be proactive and avoid negative news. Comcast and other companies in a social mobile networking site Twitter are a perfect example of an existing social network and its’ use for corporate purposes.

Figure 30 - Comcast care in Twitter

Given the nature of Comcast business as an internet provider (as well as some of their questionable practices - like bittorrent throttling), the company was sure to attract the attention of the internet-connected folks who blog, socialize, and use Twitter. One of the more notable examples of Comcast in the Twittersphere was their response to Michael Arrington's internet outage63, something that he railed about on Twitter after Comcast support failed to resolve his issue - a method that worked rather well.

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http://www.techcrunch.com/2008/04/06/comcast-twitter-and-the-chicken-trust-me-i-have-a-point/

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Another big name on Twitter today is Dell Computers. The company actually has several customer service people on Twitter who find complaints and address them. Unlike Comcast, though, their Twitter activity hasn't received a large amount of attention, outside of marketers and social media pundits. Perhaps this is because there are fewer complaints? Southwest Airlines is also heavily involved in the Twitter community, using the service to inform their customers know about deals among other things. Southwest is also known to tweet press happenings and pointers to blog posts, while also staying tuned into conversations about their brand. There are also may tools available for companies to track social networking sites. Some of these tools are offered free of charge as community tools. For example, Tweet Scan64 provides a real-time online monitoring of Twitter.

Figure 31 – Tweet Scan monitoring service.

SecondA trend is that the companies need to reach beyond their current own customer service tools and framework in order to capture customers that prefer to communicate their needs and issues via generic social networking tools. Get Satisfaction is a community that helps people to get the most from the products they use, and where companies are encouraged to get real with their customers. Get Satisfaction was created as a place where customers and companies can come together to answer each others’ questions: questions about shipping, pricing, fulfillment, the product itself, and myriad other details. By putting all of these conversations in one place — and holding nothing back — Get Satisfaction has created a new way to not just handle customer service,

64

www.tweetscan.com

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but to explore all the things we collectively love and hate about our favorite products and services, and the companies that offer them.

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Figure 32 - An example of GetSatisfaction's offering .

Again, the visibility in this type of tool to customer service performance is instant (because it measures how fast the questions get answered) and it connects also active community members by providing them an opportunity to answer questions. The last example of the same phenomenon is FixYa. Social networking meets technical support with FixYa, a social networking site dedicated to helping people with their computer and gadget problems. Recent solutions and problems, as well as a plug for the top experts, can be found on the homepage. A user of the site can search for both products and solutions or browse by manufacturer to find the help that is needed. The site also lets the user to register and store all of product warranty and support information in one place. Registering also enables alerts when warranties are about to expire and direct manufacturer contact information, among other things. Today, with over 9 million visitors and 1 million products in its database, FixYa continues to empower individuals to repair and improve upon their already-purchased possessions. Meanwhile, the company has since begun offering business services to manufacturers and retail businesses through its custom partnership opportunities. The company provides, for

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www.getsatisfaction.com/products

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instance, an API for large businesses in order to enable companies to add the knowledgebase into their own website.

Figure 33 - FixYa's website.

What to do now Customer services organizations in large corporations need to create vehicles for capturing feedback and implementing structural and procedural improvements based on feedback. More specifically, we believe that the following statements are closely linked to creating vehicles for capturing feedback: Core community functionality facilitates access and collaboration; Understand value of support communities for internal buy-in; Employ support community best practices for success. To understand how core community functionality facilitates access and collaboration, we need to understand core community features. 57

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Figure 34 - Core community features.

Traditionally, community-oriented resources have primarily consisted of threaded discussion forums accessible only through a Web browser. To date, threaded discussion has become table stakes, with best-of-breed vendors such as Lithium Technologies and Jive Software building intelligence, reporting, and analytics (as well as additional interaction paradigms) into their offerings, as follows: Search. Consumers not only post problems in communities, but also seek information. Robust search for revealing relevant content is critical for online consumers who generally turn to search when navigation by other means fails. Reputation management. Status is a driver of engagement with and contribution to communities. Reputation optimally gauges quantity of contribution and quality of content (as rated by peers and through inferred analytics), among other elements. Content ratings can also be used to improve search because they facilitate forming question-and-answer pairs. Social networking. Connecting consumers with similar interests presents an opportunity to foster collaboration within a community. This element does not include popular social networking sites such as Facebook and MySpace.com. Content syndication and access. Consumers interact with Web-based content from an increasing number of devices, and no longer rely on a Web-based experience to engage in communities. Content syndication allows consumers to subscribe to updates on chosen topics and content contributed by particular users. Interaction management and escalation. An integrated community and online service offering provides intelligent and seamless escalation to other touch points if the need arises. For example, some software solutions (like Lithium Technologies 66

US Customer Service Consumer Survey, Jupiter Research, October 2008.

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and RightNow Service) enable autoescalation of all unanswered forum posts into the service application for an agent’s response.

Figure 35 - A model of unified customer service vision.

There are a number of ways to quantify the value of communities: Satisfaction. In general, feedback providers are relatively more satisfied with their customer service interactions, despite their relatively higher expectations of service. Whereas structured feedback surveys are often mono-directional, communities offer consumers an opportunity to be heard and to learn about how their feedback will be used to resolve the issues in the future. Sales. Feedback providers purchase 56% more online than do providers of no feedback. Also, 92% of feedback providers made a purchase online during the past six months, versus just 67% of those who did not provide feedback. Communities present a vehicle for meeting the needs of these very valuable customers and even facilitating sales. Loyalty. 90% of feedback providers said good customer service influences their decision to do business with a company. An effective and reliable resource to which consumers can turn will undoubtedly have good results. Support efficiency. Efficiently and effectively resolving issues is a top concern for consumers. Community can provide a cost-effective way to resolve consumers’ issues, particularly when new issues arise and there may not be existing knowledge content to address them. 62% of feedback providers said they would turn to the phone for service if their issue was not resolved by other means. Finally, companies should employ support community best practises for success. The table below aims to summarize proposed actions: 59

Table 4 - Support best practices.

What

Who

How

Get corporate buy-in

Executive or business owner

Buy-in and ongoing support should come from the top down, possibly requiring collaboration of service and marketing.

Internally organize

Employees

Define rules for moderation and configuration. Moderators maintain use guidelines and keep conversations flowing.

Externally organize

Customers

Integrate forum link into site resources and make content searchable alongside KB search

Execute

Community manager and moderators

Define guidelines for forum use. Define action to take when problems arise.

Measure and improve

Manager and exec business owner

Align measurement with business objectives.

Get corporate buy-in. Successful integrated communities require top-down executive buy-in as well as a business owner dedicated to the overall strategy and execution of the community. Generally, this approach will ease the inevitable collaboration of service, marketing, and other lines of business in the future. Organize and execute. There must be guidelines put in place for management of the community, both for employees involved in moderation and for participating consumers. Define action plans for handling issues when they arise to enable quick and thorough resolution. Embedding community content into the Web site will encourage awareness of the community and keep it from being a siloed interaction space. Measure and improve. Align measurement with key business initiatives such as customers’ satisfaction, call deflection, and problem resolution. This approach goes beyond basic, but essential, reporting around post views, page views, and registration.

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Summary & Conclusion Social Networking is changing the way both users and enterprises interact with each other. This change is profound and does not look likely to disappear. Users adoption is remarkably rapid as is the time spent involved in related activities such as such as staying in contact, communicating and getting to know other people. This is creating a vast social graph in the Internet that is not only enabling users to communicate with one another, but also changing the way they communicate and interact with corporations. Firms should be conscious of this phenomenon and rather than ignoring it, embrace it and position themselves to benefit from it. Companies need to understand the dynamics that move Social Networks and the types of connections that users establish amongst themselves and that make them group around shared interests. If they do so, companies can be part of the conversation and achieve higher customer engagement and advocacy. There are three fundamental ways in which companies can leverage the power of Social Networking in their interactions with customers. 1- Innovation. Create the mechanism to listen to what users do and want. Social Networks can bring very valuable insight that can be used to detect new trends as well as test new concepts before they are fully launched. Companies can save time and money by using these tools to get a better understanding of customers’ needs. 2- Sales and Marketing. Social Networks can also be used in order to move marketing from the era of monologue to the era of dialogue. Social Networks provide a means to move users to become loyal advocates of companies and their products and in so doing, pass on the message to other users. Properly used, Social Networking can provide a means to more effectively reach the potential buyers of companies’ products and services. 3- Support. Companies can also harness the power of communities with shared interest in order to provide answers and satisfy the needs of their own customers. A passionate community of users can be very effective in helping other users solve their product issues and answer their complex questions. In doing so, companies can not only generate a sense of belonging for very passionate users; but also provide cheaper and more effective customer support. Although still a nascent but fast growing phenomenon, there is substantial initial proof of the economic value provided by social networks for business. Companies that use the crowd in their innovation process can diminish their failed launches and better target their products to their customers. Marketing campaigns that use a social networking component reach higher numbers of people than those that don’t. This is achieved by leveraging the loyalty and advocacy of users, which in turn is a much more influential element in decision making by end users. Finally, communities of users can also become a very powerful and effective customer support group.

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