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

3
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.

4
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.

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

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
5
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: Web-
based 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
6
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

3
Figure 2 – Share of age 15+ online users that say they use social networks.

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.

3
Strategy Analytics (May 2008), Digital Media Survey, May 2008
7
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. Forty-
six 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.

5
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

4
Yankee Group, Anywhere Consumer: 2007 US Web/Data Surrey, 2007.
5
McKinsey Quarterly, Building the Web 2.0 Enterprise, July, 2008.
6
Kotler, P. and Keller, K.L., Marketing Management, 2006.
8
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 never-
ending 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.
9
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 re-
imagined 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.

8
Locke, Levine, Searls & Weinberger, The Cluetrain Manifesto, 2000.
10
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.

9
Robert Putnam. Bowling Alone: The Collapse and Revival of American Community, Simon and Schuster, 2000
10
Peter A. Gloor, Swarm Creativity: Competitive Advantage Through Collaborative Innovation Networks, Oxford
University Press, 2006
11
From Malcolm Gladwell’s TheTipping Point, 2002
11
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.

12
Richard Dawkins, The Selfish Gene, 2nd Edition, 1990
13
A. McAfee. Enterprise 2.0: The Dawn of Emergent Collaboration. MIT Sloan Management review. Vol. 47, No.
3, p. 21-28, 2006
12
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.

14
Chhatpar, Anand; Online Innovation Tools, http://www.openinnovators.net/online-tools-for-innovation-
entrepreneurs/, October 9, 2007
13
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?

15
Jacques Bughin, Michael Chui and Brad Johnson, The next step in open innovation, The McKinsey Quarterly,
June 2008
14
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.

16
http://www.imaginatik.com
17
Chris Townsend, The Rise of Innovation Management Tools, Forrester Research, July, 2008
15
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. Poor goal definition

2. Poor alignment of actions to goals
3. Poor participation in teams
4. Poor monitoring of results
5. Poor communication and access to information

18
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
16
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
17
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: torvalds@klaava.Helsinki.FI (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: <1991Aug25.205708.9541@klaava.Helsinki.FI>
Date: 25 Aug 91 20:57:08 GMT
Organization: University of Helsinki

20
Nick Wingfield, iPhone Software Sales Take Off, The Wall Street Journal, August 11, 2008
21
Nick Wingfield, iPhone Software Sales Take Off, The Wall Street Journal, August 11, 2008
22
https://netfiles.uiuc.edu/rhasan/linux/
18
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 (torvalds@kruuna.helsinki.fi)

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: torvalds@klaava.Helsinki.FI (Linus Benedict Torvalds)

Newsgroups: comp.os.minix
Subject: Free minix-like kernel sources for 386-AT
Message-ID: <1991Oct5.054106.4647@klaava.Helsinki.FI>
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
Figure 8 - Breakdown of the use of investor's money
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

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

23
http://www.sellaband.com/
21
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
22
Figure 10 - Spigit's configuration interface

23
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
26
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
25
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
26
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.

29
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.
27
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.

28
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
29
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.

33
“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”.
30
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.
31
 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

36
Social Media Marketing Adoption, Motive Lab, Summer 2008.
32
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.

33
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.

34
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

35
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

37
Jeremiah Owayang, Best and Worst of Social Network marketing, 2008, Forrester Research, 2008
36
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

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

- 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.
37
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 e-
commerce 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. .

Table 3 - Extensions of social networking into mobile

M 7 (G a m e c o m m u n ity)
M o b iL u c k
Im p o rta n c e /R o le o f C e ll P h o n e

W a ve M a rk e t N g a g e T o u rn a m e n ts
D o d g e b a ll.c o m F re e ve r N a m c o T o u rn a m e n ts
C ru c ia l

N e a rb y
S m a ll P la n e t Upoc
P e o p le S h a re d A ffin ity
S M S .a c
R a ve W ire le s s
H o o k U p (D C ) N o k ia L ife b lo g
Zogo 3 G U p lo a d
A O L (B lo g )
iC e n tric /iC o n ta c t F u n M a il B lo g S ta r
R a b b le
E x te n s io n o f

M o b ile M o b ile L ife

M e e tro
In te rn e t

In te rn e t
W in k
Facebook
F lik r
M a tc h .c o m M yS p a c e

M eet S h a re
P e o p le 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
Mobile Social Networking. Jupiter Research, November 2007.
40
Social Marketing: how companies are generating value from customer input. Knowledge @ Wharton
39
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

42
Viral Video marketing survey: the agencies perspective. Feed company, 2008.
40
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

42
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 consumer-
generated 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.

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

- 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.

- 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.

- 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.

44
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/
45
 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.

45
Figure 23 - Cost advantage of self service

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
Self-service report, Yankee Group, 2008
46
US Customer Service Forecast 2007 to 2012, Jupiter Research, 2007.
46
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.

48
Figure 24 - Online Consumers’ Customer Service Contacts and Spending, 2006 and 2012

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

54
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.

55
Figure 27 - Majority of feedback does not currently inform service operations

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
US Customer Service Consumer Survey, Jupiter Research, October 2008.
55
US Customer Service Consumer Survey, Jupiter Research, October 2008.
49
of them actually deploy technology solutions (e.g., custom-built solutions, packaged
solutions).

56
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 service-
oriented 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:

56
US Customer Service Consumer Survey, Jupiter Research, October 2008.
50
 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
58
http://forums.irobot.com,
59
http://blogs.s60.com/
60
http://www.linksys.com
51
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

61
US Customer Service Consumer Survey, Jupiter Research, October 2008.
52
 62
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, e-
mail, 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 consumer-
to-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

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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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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,

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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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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.

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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
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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:

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Table 4 - Support best practices.

What Who How

Get corporate buy-in Executive or business Buy-in and ongoing support should come
owner 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 Define guidelines for forum use. Define

and moderators action to take when problems arise.

Measure and Manager and exec Align measurement with business

improve business owner 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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