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McKinsey: Web 2.0 and social media 'payday' arrives

Coolness factor aside, how much value do Web 2.0 and social media approaches deliver to the business? A new study suggests they do make a difference to the bottom line.

We all are aware of the "coolness" factor with Web 2.0 and social media approaches, but how much business value are these technologies really delivering? Do they really make a difference to the bottom line?

A couple of years back, I heard MIT's Andrew McAfee, citing the work of Harvard's John Gourville, apply the "9x perception problem" to Web 2.0 technologies coming into the business. Gourville posited that there is often "a mismatch of 9 to 1 between what innovators think consumers want and what consumers actually want."  That's because the average user will underestimate prospective benefits of a replacement technology by a factor of three, and overrate existing approach by factor of three.... So a perceived 9x value improvement needs to be evident.

In the case of Web 2.0, these new approaches need to show a 9x improvement in perceived value over established email and groupware systems, McAfee says.

Do Web 2.0 and social network approaches demonstrate a perceived business value that exceeds older technologies by a factor of nine? The jury is still out on that, but new research out of McKinsey & Company does show that companies embracing Web 2.0 and social networking approaches are likely to be reaping more gains and market leadership than their less Web 2.0-savvy counterparts.

The survey of 3,249 companies, published by McKinsey's Jacques Bughin and Michael Chui, finds that “networked enterprises” -- those that engage and embed Web 2.0 into their business operations -- are more likely to be market leaders and gaining market share that those who lag with Web 2.0 adoption.

Bughin and Chui conclude that 27% of companies overall reported having both market share gains against their competitors and higher profit margins. However, “highly networked enterprises” — those using Web 2.0 inside and outside their organizations in innovative ways — “were 50 percent more likely to fall in this high-performance group than other organizations were.”

Collaboration is the competitive differentiator, the authors report:

"Market share gains reported by respondents were significantly correlated with fully networked and externally networked organizations. This, we believe, is statistically significant evidence that technology-enabled collaboration with external stakeholders helps organizations gain market share from the competition. They do this, in our experience, by forging closer marketing relationships with customers and by involving them in customer support and product-development efforts. Respondents at companies that used Web 2.0 to collaborate across organizational silos and to share information more broadly also reported improved market shares."

The authors predict that in many industries, “new competitive battle lines may form between companies that use the Web in sophisticated ways and companies that feel uncomfortable with new Web-inspired management styles or simply can’t execute at a sufficiently high level.”

Below are some of the most prominent benefits cited for the three environments businesses operate within -- internal teams, customers, and partner networks. The question is: are these represent a perceived 9x advantage over established approaches such as email, and perhaps simply picking up the phone?

Benefits of internal adoption of Web 2.0 (such as employee collaboration, internal wikis, etc.):

  • Increasing speed of access to knowledge           77%
  • Reducing communication costs                           60%
  • Reducing speed of access to internal experts     52%

Benefits of reaching out to customers and markets with Web 2.0 approaches:

  • Increasing marketing effectiveness                      63%
  • Increasing customer satisfaction                          50%
  • Reducing marketing costs                                    45%

Benefits of reaching out to partners and suppliers with Web 2.0 approaches:

  • Increasing speed of access to knowledge            57%
  • Reducing communication costs                            53%
  • Increasing supplier/partner satisfaction                45%
  • Reducing speed of access to external experts     40%

This post was originally published on Smartplanet.com