Will Social Media Survive the Recession?

What constitutes a bubble? What constitutes a true business tool?

This was the type of question that those of us running Web 1.0 businesses in 2001-2003 were asking ourselves as we evaluated our prospects for the not to distant future. In our case, it was all about online communities and their ability to help both B2B and B2C companies increase sales, build brand loyalty, and market their products and services more efficiently. We had case studies that showed that online community members on average purchased more frequently, bought more items, and generated more profits than non-community members. We proved that online community could produce a return on investment of more than 100% (in some cases higher than 200%).

Yet for all the research and our expertise, many companies pulled the plug on their communities. The list is long: Transora (Multiple CPG companies), OurHouse (Ace Hardware), MuniGroup (Goldman Sachs), Quote.com, SoapCity (Sony), and many others.

Each company had its own reasons, but in the autopsies we performed several issues came out over and over. They were:

1. Budget taken away from community projects due to over staffing on the client side
2. Executive sponsorship changed due to layoffs
3. Software company providing hosting and platform went out of business
4. Movement of marketing dollars to “proven” traditional marketing methods like direct mail

Remember this was back in the day when for chat clients used eShare or iChat, for message boards they used Web Crossing or eShare, blogs were not widely accepted, wikis were non-existent, video was not used online except for B2B, and most community members were using dial-up connections. The overall conclusion that came back time and time again was that while communities were cool, they were a ’soft’ application in the eyes of senior executives. These executives did not see value in kids chatting about irrelevant issues or fans cheering on their favorite television show or prospects engaging with customers independently.

Now shift to today.

Look at our social media space. We have seen blogs go mainstream, social networks competing with online communities (yes they are very different), broadband adoption bringing video and photos to the masses. Yet we also have the feeling of a bubble again as the world enters another recession. The movement towards cool applications like Twitter, FriendFeed, MySpace & Facebook widgets, and others are viewed as fun to use. However, in practical terms they are all in danger of the same fate that hit many online communities in 2002-2003.

As budgets tighten, will money dry up for experimenting with social media? It’s possible. Remember that many of the same decision makers who turned off communities are still in the position to do so again. If you are running a community or social network, you need to start building a case for why your project must remain funded.

In a member survey completed in June of 2008, the online community research network published that 57% of all respondents stated that their communities contributed no revenues, less than 2% of revenues, or did not know how much the community contributed. 33% of respondents had budgets for community projects in excess of $100,000 per year (18% over $500,000). The average number of staff working on the community was 6.6 FTEs! But here is the astonishing fact from the report: 67% reported that they had no strategy for their online communities.

Will these communities survive a budget cut? Probably not. The respondents did not know how to prove the value as Alan Warms used to preach. The issue of ROI becomes much more important as the economy gets tighter. While we all know that intuitively communities help the hosting organization, intuition doesn’t get funded.

Community and social network management teams must get comfortable with metrics and with building an ROI Case for their project. Hard data is difficult to deny… soft data of conversations is easy to dismiss…

Want to learn more about how to prove the value of your community or social network? Learn more about our consulting services, experience, and then contact us with your questions. Or leave us a comment.

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