Social media ROI smackdown: What your business can't afford to ignore

Harvard Business School professor, Frank V. Cespedes, debates the value of social media and offers important and practical advice to companies and marketers.

Billions of people experience social media sites such as Facebook, Twitter, and LinkedIn as an integral part of their daily life. Social media is where we socialize with friends and cultivate professional relationships.

Social media ROI smackdown What your business can't afford to ignore
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For brands and corporations, social media is a core part of efforts to engage customers, whether through digital marketing, service and support or other initiatives that touch buyers. The high value of social media is evident to virtually every marketing executive and practitioner.

Despite obvious value, there are some who claim that social media offers little ROI. Among these are Frank V. Cespedes, a faculty member at the Harvard Business School. Frank published a post on the Harvard Business Review site arguing that most businesses do not gain sufficient ROI for their social media investments.

Disagreeing with this perspective, I followed with a blog post explaining why I believe Frank is wrong. Several top marketing practitioners commented in support.

Also read:
Is social media really a waste of time? Harvard professor gets it wrong

Well, social media being what it is, Frank has written a rebuttal, which is published below. Although pained at Frank's comment that my post "betrays a lack of economic logic," I take some comfort in the irony of this playing out on social media rather than in private. I'm sure even Frank would agree that social media does bring its own rewards.

In the digital world, ROI is a function of both hard dollars and the currency of attention that can translate into sales. In this case, sales of Frank's book can only benefit from our public discussion. Irony or reality? You decide.

Thank you to Frank V.Cespedesfor writing this guest post. Engaging and interesting debate is truly one of the best parts of our connected, digital, and social world.

The following guest post was written by Frank V. Cespedes. It is unedited except for the addition of links:

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First, my sincere thank you to Michael Krigsman for responding to my HBR.org article , "Is Social Media Actually Helping Your Company's Bottom Line?" and for inviting others to do so. We presumably share the same goal: a more rigorous look at how companies spend time, money, and talent on this activity. Michael says that my article presents a "shortsighted perspective." I disagree, and here is why.

Neither Michael nor the commentators take issue with the facts in the article, which Michael thoughtfully referenced with the supporting sources: that most companies don't have ROI measures for their social media investments; that few companies, according to the McKinsey research, even have accountable managers in place for that spending; that much online discourse about products and companies is fake, bought, or otherwise engineered, not "engagement" with potential customers; and that the comScore data about the (un)viewability of many display ads is bad news. Well, Mrs. Lincoln, otherwise it was a great play!

In response, Michael and others say that companies must clarify where social media do and don't produce results. Mike Fauscette [Group Vice President at IDC] puts it best: "You must define the use case, metric, and expected outcome in each instance." I agree, and my article calls for companies to do precisely that: "It's time to expect more from social media and prove it." Right now, this is not happening. So, don't shoot the messenger who points out what the emperor is not wearing. And if you are a P&L manager or Board member, it suggests some practical priorities at this point in the evolution of social media: addition-by-subtraction may be the first route to explore in examining how your firm spends on social media.

Michael and Tara Sporrer [Chief Marketing Officer at Moxie Software] that I ignore the value of social media in "long-term relationship building and brand recognition." Nope. Quite the opposite: I'm urging managers to demand that kind of cause-and-effect data in their now-sizeable (and often misguided) social media investments. But repeated assertions about relationships are not a business argument. We're talking about how a finite marketing budget, and especially ad dollars, gets allocated. At some point, it must be tied to customer acquisition and/or retention, and you should show how it does that and the numbers. If you believe that ROI is irrelevant, then we have no argument because there's nothing to argue about.

In his comment, rdbean says it well: "Social media is not a panacea, it's just another tool to be used." Exactly. Opportunity costs are a core business reality. The issue is not whether a given medium may promote positive awareness (although my article cited the accumulating evidence indicating an essentially random-walk correlation between positive/negative social media conversations and market outcomes). Rather, the business issue is the relative expense and effectiveness of spending money on medium X rather than Y, not whether online software companies prefer social media in the budget.

Finally, Michael says that it is "ironic" that sales of my recent book, Aligning Strategy and Sales (Harvard Business Review Press) "may benefit from" the article. What's "ironic" here? If more people buy my book because they read an online article, that's great (and thank you, Michael, for including a link to the Amazon page). But Michael's comment betrays a lack of economic logic and, unwittingly, supports my argument. I paid zero to write a piece for HBR.org or, for that matter, to respond to Michael's thoughtful piece. Any subsequent book sales, therefore, have an infinite ROI. But companies DO pay to advertise on social media, hire people to do that, and create content. And that's money, time, and talent not available to spend elsewhere. That's why ROI is necessary and cannot simply be assumed.

The fact is, much current business talk about social media is isolated factoids that ignore opportunity costs and lack a verifiable, programmatic use of the medium beyond "having a presence" on Facebook or Twitter or whatever. That must change, and here is my prediction:

I believe better use of social media will come from the evolving mechanism of programmatic buying and selling of ads. In these electronic exchanges, buyers meet sellers for all varieties of digital media. It's like a financial trading desk where data are required for the real-time bidding that takes place. As in any market, the resulting price says a lot about the real value of that ad, and ad medium, to that advertiser. Programmatic buying and selling today account for about 20% of digital ad investments, up from practically nothing just 3 years ago. As it increases, answers to the questions in my article will be necessary for brands, their agencies, and the social media firms seeking to persuade those brands to buy their wares. That will be a good thing because, as I argued in my article, better use of resources spurs productivity, and productivity--not just tweets and selfies--spurs growth.

Again, my thanks to Michael Krigsman for taking the time to respond; it's an overdue debate.

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Thank you to Frank V. Cespedes for writing this guest post.

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