Over the years, return on investment has been the economic litmus test for most business spending — and IT in particular: For CIOs, a purchase either can show hard-dollar payback or it can’t. ROI was also the bottom line that brought IT under scrutiny of finance departments and auditors.
Certainly, the “go, no-go” rules loosened up a bit when productivity, competitive advantage and other “soft-dollar” results were considered. These intangibles were always difficult to measure with standard calculations such as net present value (NPV) or total cost of ownership (TCO), but they remained the exceptions — one-off purchases or solutions for individual departments or users.
Today, many old metrics and processes seem to be fading, and exceptions are now the rule. Many believe that with the proliferation of social media, consumer devices and cloud computing, for example, new ways to determine ROI — if such approaches even exist — are needed. And some are even claiming that ROI is not only the wrong metric to use, but that it doesn’t exist in reference to social media. Can this be true? If so, how can sound purchasing decisions be made?
We have discussed the economics of cloud and virtualization on Smart Enterprise Exchange in the past. As I wrote previously, “Most conclude that there is no one-size-fits-all ROI calculator that tells you when to go to a cloud model and how much you will save or pay. The most definitive answer about lower costs seems to be that you probably will see savings; but as with warning labels on medicine bottles, results will vary with the situation.”
My advice at the time was: “Conduct your typical due diligence by analyzing contracts, negotiating with providers and starting small.” But I am starting to realize that this type of traditional approach just may not work in the more amorphous world of social media.
Marcio Salles, who blogs about social media with a Brazilian perspective, recently included a great infographic in his blog on Smart Enterprise Exchange. Provided by MDG Advertising, the graphic addressed the ROI of social media for marketing purposes. In sum, it acknowledges that this is a “contentious” topic and offers several ways to measure effectiveness. Among these: going beyond click counts to include revenue generated, reduced returns, conversion rates, and positive brand mentions or feedback, among others.
Still, the company says that many factors such as closing business deals, encouraging new partnerships, quicker information retrieval (which translates to lower costs) and particularly, recruiting new talent, are “intangibles.” Among specific platforms mentioned, Facebook and Twitter were rated highly, and YouTube holds out the most promise. But how can their use be monetized?
Dozens of other recent blogs and consultants have raised the issue of social media ROI, too, and lots of discussion has ensued. Sean Jackson, Chief Financial Officer of Copyblogger Media, and Sonia Simone, Chief Marketing Officer, treat the subject in a lighthearted blog here but also raise some good points. Specifically, they conclude that revenue should not be a success factor for social marketing efforts. “The real measurement of return lies in the profits created from your culture of marketing.” Another social media executive offered some alternative metrics here, while a marketing strategist says not to worry about ROI — just move ahead with your plans.
But I suspect that marketing has different requirements than IT does. Would CIOs get buy-in for large-scale projects based on this advice? Typically, large global enterprises — especially those in regulated industries or with strict guidelines from their boards — need strong business cases for new investments. Has that mindset changed with social media? Must it change?
I believe that the landscape is evolving, but slowly. Uncertain financial returns are still inhibiting social media rollouts, according to many sources, including a recent InSites Consulting research report from the U.K. And even those who last year created social media ROI calculators are going back to the drawing board to make revisions.
CIOs can’t afford to stall and haggle over every purchase and every departmental request, and I agree that “calculating the ROI of social networks is not rocket science,” as this blog states. Nevertheless, sound decisions are key to good leadership and investment decisions should be based on more than popular trends or gut feelings. That’s the point of view Peter DeLisi takes in an upcoming new blog on Smart Enterprise Exchange next month.
Let’s keep this conversation going. What are your experiences in this rapidly changing market sector? Are your corporate purchasing requirements keeping pace with new media? Are RFPs and ROI finally a thing of the past?
Editor and Community Manager
Smart Enterprise Exchange
Additional resources/ related blogs:
- A Framework for Social Analytics, Altimeter Group http://www.altimetergroup.com/2011/08/research-report-a-framework-for-social-analytics.html
- Social Media ROI http://mashable.com/2011/11/15/social-media-roi-measure/
- Social Media and B-to-B Marketing http://directmarketing.thomsonlocal.com/Win/News-Archive/Marketing-News/?storyId=84622
- Social Media Marketing Use Growing http://www.brafton.com/news/even-with-social-media-marketing-use-growing-implementations-just-beginning