Image by kyz via Flickr

There is a lot of buzz about Social Media ROI, and since the topic is complex, there will continue to be buzz about it for years to come. Brands want to know that Social Media works, what works, and how to invest their money.

Much of the results generated by Social Media can be measured quantitatively and qualitatively: transactions, decreased customer service costs, increased awareness, improved sentiment, etc. But some of the advantages from Social Media cannot be measured, because much like investments in insurance and tires, the benefits come from risk avoidance.

Let me ask you a personal question: In 2009, what was the ROI of your investment in life insurance? The vast majority of you paid your premiums and filed no claims (or you wouldn’t be reading this). You received a negative ROI, so clearly that means you’re suspending your life insurance in 2010, correct?

Perhaps you might argue that the benefit received from your payment of insurance premiums can only be measured over the long term, and you’d be right—to a point. Even over the long term, most of us will still experience a negative ROI from our insurance investment. This is because insurance companies need to generate a surplus from many people to cover the cataclysmic costs of the unfortunate few. Some of us will pay life insurance premiums for 70 years, while others will meet our demise after paying a single premium.

So, if a rational person knows with great confidence that his or her likely lifetime insurance ROI is negative, should they cancel their life policies immediately? The answer is still no, because one of the benefits we receive from insurance—in fact, the most significant benefit—isn’t financial but emotional. We pay for insurance because it gives us peace of mind that our families are protected in the unlikely event tragedy strikes.

Social Media is like corporate reputation insurance. You pay premiums in the form of building relationships, listening, responding, creating widgets, and building communities. And because you’ve done so, you’ve earned protection that can help should a PR disaster strike—you have an existing group of people who have affinity for your brand and an existing channel in which to reach them.

Speaking of disasters, what is the value of avoiding disasters that you can’t know would otherwise occur? Take the tires on your car. How many miles do you have on them? You could ride on them another six months, saving you cash. Alternatively, you could replace them now, but where’s the ROI of that?

Buying tires now versus later is always a negative ROI because you lose the time value of money, and the benefit of the new tires is completely unquantifiable. If you replace the tires, you cannot know if they would have been fine for six months (no cost), or if you would’ve walked out of work to find a flat tire (low cost), or if you might’ve had a high-speed blowout (high cost).

If you change your Social Media tires, how can you know and quantify the costs you’ve saved by preventing problems you don’t have to face? I recently had a problem with an air carrier and tweeted as much. I received a rapid response, was satisfied with the response, and tweeted my satisfaction.

This company was minding its Social Media tires and because of that, they cannot know the positive ROI they generated by avoiding the negative ROI of a Social Media flat tire.  What possible outcomes might they have faced had they failed to listen and act?  Maybe I would not have tweeted again. Or maybe I would’ve created a video a la United Breaks Guitars and sparked 7.4 million negative impressions. A news organization actually contacted me about the incident, and I declined to share my story because the company met my expectations; it’s likely the company’s quick Social Media response helped them to evade a negative online article that would’ve been seen by tens of thousands and lived for years in Google’s database.

What is the ROI of the road not taken? What disasters might your organization’s Social Media programs avoid? How do you calculate the cost of incidents you don’t experience and cannot imagine? I’m not suggesting much of Social Media ROI is not calculable, just that all of it isn’t. If you don’t approach Social Media with an eye toward the risks managed and avoided, then you really aren’t considering all the benefits Social Media ROI delivers.

Of course, while the ROI may not be fully and completely calculable, it can be fully estimated. Forrester has an approach known as Total Economic Impact, which incorporates costs, benefits, risks, likelihoods, and future opportunities into the evaluation. Watch for Forrester reports that use the TEI model to better define Social ROI in the future; in fact, I had the privilege of reviewing an upcoming report that explores TEI for B2B Social Media ROI from Laura Ramos today.

If marketers demand hard and demonstrable ROI from all of their Social Media efforts, then they will fail to invest properly and wisely. This same attitude might also cause them to stop paying insurance premiums or ride on bald tires, but I’m not expecting those are trends we’ll see in 2010.

…(Subtitled) Or at Least Marketing as We Know It!

But first, since this is my first blog post as a Forrester analyst, I thought I’d make a quick introduction.  I’m Augie Ray, a new Sr. Analyst of Social Computing serving interactive marketing professionals.  Prior to joining Forrester’s Bay Area office, I was a Managing Director at Fullhouse, a social and interactive communications agency in Milwaukee, WI.  I’m very excited to be part of the Forrester organization and eager to help clients with research, data, and consulting on the profound and exciting changes underway with Social Media Marketing. 

While the title of my blog post is (obviously) intended as a deliberate bit of provocation, I believe we cannot underestimate the level of change that is occurring in marketing.  Forrester has been writing on this topic for some time, including some great reports on the role of the CMO across the company, the new Adaptive Marketing, Measuring Social Media, and the impact of the Media Meltdown on Marketers (note, these link to report excerpts for Forrester clients).

I hope you’ll find my first Forrester blog post thought provoking:

It is that time of year when every blogger, reporter and analyst is publishing their 2010 Social Media and marketing predictions.  (It’s a rather odd phenomenon–aren’t we interested in what’s happening in the next twelve months other than in December?)  Forrester’s own Social Media prediction report will soon be released, but I’d like to make my own big prediction:  2010 will be the year marketing–as we know it–dies.  Let’s explore the trends and what they mean to marketers. 

Marketing’s been under attack for some time, but in 2009 we witnessed the most profound evolution the marketing world has seen in fifty years or more.  The pace of change is not going to lessen in 2010.  Core elements that have driven marketing practices for decades–such as messaging strategy, mass media, PR, advertising, and others–will continue to change rapidly. 

The latest news from the print world is unsurprising:  Average weekday circulation at 379 U.S. newspapers fell 10.6% during the six months ending in September–the steepest decline ever recorded by the Audit Bureau of Circulations.  And although a recent study found that consumer spending on subscription media increased 7% in the past year, that didn’t mean subscriptions in the traditional sense–the number of households subscribing to magazines dropped two percentage points while subscriptions for home video and smartphone services were both up. 

On the television front, households with DVRs tripled in just three years, more consumers are avoiding ads, and a majority feels there is "too much advertising."  One cannot help but feel sorry for networks and media companies worried about matching ad revenue to expenses, but their response is a bit hard to swallow. TiVo is showing ads to viewers as they are trying to skip other ads, and TNS Media Intelligence tells us that "marketing content represents 43 percent of a prime-time hour"–11:46 minutes per hour of in-show Brand Appearances (a 31% increase from a year ago) and 14:07 of network commercial messages. 

Certainly, someone has to pay for Fringe, Glee, and The Office to be produced, but chasing down consumers and bludgeoning them with more advertising messages hardly feels like an effective strategy. (By the way, I selected those three shows for a reason: according to the latest Entertainment Weekly, almost one in five people viewing those programs is time shifting, and you can guess what that means for advertisers.)

The story on the Internet isn’t much better.  Hulu is striving mightilyto avoid being forced to go the way of TV and load their content with more ads.  Social Media sites like Facebook are so loaded with ads that a consumer spending ten minutes on the site might be exposed to as many as 90 easy-to-ignore ads.  To improve low attention and meager clickthrough rates, advertisers hope to enhance their targeting of consumers based on their online behavior, but the long-threatened intervention of the government may be at hand.  This year could finally be the year that the Feds change the way online advertising works; said  FTC Chairman Jon Leibowitz recently, "We’re at another watershed moment in privacy, and the time is right for the commission … to take a broader look at privacy." 

Marketers have, of course, taken note of the power of Social Media, but they continue to struggle with what to do and how to measure it.  In a recent study, 64% of CMOs said they plan to increase their social media budgets next year, but "at least half of respondents expressed uncertainty about ROI."  It strikes me as quite concerning that the top metrics being utilized–mentioned by more than 80% of the CMOs–aren’t deep measures of influence or attitude but shallow measures of presence, such as number of fans and page views.

Meanwhile, it’s possible (although not likely) that the Social Media landscape could change yet again if Facebook stumbles in 2010. (Don’t think it could happen?  Remember that 13 months ago MySpace was drawing more visitors than Facebook;  today Facebook draws 150% more than MySpace.)  Facebook is facing potentially serious challenges.  Some are predicting that young people could soon stream off the site to avoid status updates from mom and dad; by one report, just 50% of the 15-24 crowd is checking Facebook regularly, compared to 55% last year.  More people are complaining (and suing) about being caught in scams from third-party developers on Facebook.  And faced with the growing privacy concerns of its users, how did Facebook react?  By implementing changes that many feel make it not just more difficult to protect their privacy, but actually remove privacy protections from some sorts of data. 

Facebook seems unlikely to go the way of Friendster (if for no other reason than a serious competitor has yet to emerge), but even if Facebook finds itself being MySpaced in 2010, Social Media is here to stay.  The influence of the masses will only continue to grow as Social Media tools improve and more and older consumers climb the Social Technographics Ladder, moving from Inactives, Spectators, and Joiners to Collectors, Critics, and Creators.  

Social Media has just begun to change the way marketing and business operates.  The coming year will see advertising put under the microscope by a connected, savvy, and critical consumer (just ask Motrin and Unilever).  Consumers will use Social Media to exert more influence over marketing and business decisions (see Tropicana and EA).  The best practices for brands in Social Media will continue to evolve (and woe be to brands caught violating consumer trust, as demonstrated by recent missteps by individuals at Honda and Belkin).  And some multi-million-dollar marketing budgets will be challenged and undermined by simple consumer-generated videos (see the Domino’s employee video–or better yet, don’t!) 

 As we enter 2010, consumers have new partners that will help to expand the reach of Social Media dialog even further–the big three search sites.  Bing, Yahoo and Google recently made changes to the way their search engines index the real-time web, and status updates and tweets are rapidly finding their way into top search results.  This means that consumers searching for brands and campaigns are increasingly likely to see results that include blogged and tweeted criticisms as they are links to official brand sites. 

The search engine changes mean that 2010 will be the year when brands can run but they cannot hide.  Gone are the days when marketers could carefully craft messaging and then broadcast that message in a few channels to huge portions of their audiences.  Oh, you can still spend money that way if you want to but in our transparent world, no marketing budget can possibly overcome the actual experience consumers have (and share with friends, followers and Google) with the product, service, or organization.  It no longer matters what you say;  in 2010, your brand will be more defined by what you do and who you are! 

Of course, if marketing burns to the ground in 2010, a new and more powerful marketing will rise from the ashes.  The role of the new marketer:

• Won’t be simply to focus on outbound messaging but to consult with sales, customer service, and human resources on how the brand must be communicated in every consumer interaction, every tweet, and every touchpoint,
• Won’t be merely to imagine creative messages but to fashion programs that are seamless with the actual product and service experience,
• Won’t be to plan bursts of communication on a yearlong calendar but to respond to and be part of the ever-changing dialog with consumers, 
• Won’t be to count friends, page visits, eyeballs, readers, or viewers but to measure changes in consumer attitude and intent,
• Won’t be merely to talk at consumers but to listen and engage one to one,
• Won’t be to build campaigns but relationships,
• Won’t be to create impressions but experiences, and
• Won’t be buy media but to earn it.

To some of you, these changes sound easy, but they represent painful transitions for marketing organizations.  In 2010 and the years that follow, everything will change:  job expectations, skills, metrics, structure, budgets, agency demands and compensation, and the role of the marketing function within the organization.  While the changes will be difficult, they will also be extraordinarily exciting.  In the end, the marketing organization will be integral partners in everything the enterprise does, living up to Peter Drucker’s famous quote:

"Business has only two basic functions — marketing and innovation."

Marketing is dead.  Long live marketing!

I’ve spent the last year living and working in Vancouver, Canada — speaking with many Canadian interactive marketers and agencies, and collecting survey data on Canadian consumers — so I’m pleased to say that yesterday we released a new report, Canadian Social Technographics Revealed, and added our latest Canadian data to our free Social Technographics Profile Tool.

In researching this report, I learned that:

• Canadians are the most active social networkers in any market we survey. In our Social Technographics Ladder, we refer to those who regularly use social networks as ‘joiners.’ And Canada boasts a higher percentage of joiners than any of the other 12 countries we regularly survey: 57% of Canadians told us they use social networks at least once each month. (The next strongest social networking market is the US, where 51% are joiners.) Canada also has more ‘creators,’ critics,’ and ‘spectators’ than many other countries. [An edit to avoid confusion: while Canadians are the strongest adopters of social networks we've found in our surveys, they are not the strongest users of social media overall (which would include not just social networks but also blogs and other social platforms) -- that would be the South Koreans.]
• Many Canadian marketers have been using social media for years. With all those socially engaged consumers, it’s no surprise Canadian marketers have been pretty aggressive in adopting social media too. The report includes several great examples of marketers successfully using social media, and I found that some of the most innovative marketers (like Vancity and Molson) have been leveraging social media for 3 or 4 years now.

One of my favorite examples of social media marketing in Canada comes from the political realm. NDP leader Jack Layton recognized that his followers were among the most socially engaged in Canada, as you’ll see below. So he used Facebook, Twitter, and YouTube to energize NDP voters before the 2008 federal election — and that helped the party gain 31% more seats in Ottawa than they’d had in the previous government.

Go and have a play with our Social Technographics Profile Tool and you can find free cuts of this data by age and gender. (Clients can also ask us to cut the data by other factors, like where people bank, which mobile carrier they use, or what province they live in.)

And if you’ve got any other great examples of social media marketing in Canada, let us know in the comments below.