Throwing money into the abyss?

I was quite excited when Kiva first opened its (virtual) doors. Kiva harnessed the power of storytelling, as well as ease of online payment, to help online individuals make a difference they felt connected to. I was equally excited when I watched the rise of crowdsourced funding in the startup world. I believe there is value in this. I know some people who argue that it’s just like buying a lottery ticket; you’re putting in money with no real chance at return. I like the idea, however, of supporting projects that I see as having social value but are not in the non-profit sector.

Small money to big money

So I gave money to Diaspora, the damn-the-man Facebook rival that got some attention this spring. A small part of me wanted the t-shirt that came at the $25 donation level so I could sport it like an indie band shirt. A large part of me was simply excited by the fresh-thinking college boys who were going up against a giant. At $25, I wasn’t in for much, so I committed. It turns out that 6,478 other people felt the same way. The project came it at 2006% of its original goal.

Let the crowd decide

Diaspora utilized Kickstarter, a website that allows startups to raise funding through micro-payments. Here’s why I think Kickstarter has it right: The model is set up so that, if a startup hits its goal, donors are charged. If it doesn’t hit its goal, the assumption is that the idea isn’t strong enough to fund, and no donors are charged. Neat. It takes the wisdom of the crowd and applies it to projects.

So now this idea is hitting public radio. Why is this so incredibly cool? Because individuals can pitch stories, multiple individuals can provide funding, and then a professional produces it. Many ideas are pitched, only the good ones get funded, and we all enjoy a better public radio. To me, this is huge incentive to fund. I’d certainly prefer to give money for a story than to give money for an NPR tote bag.

ROI is consistently the hot topic in social media. Everyone wants to know the magic formula, the mathematical equation that will produce (justify?) effective online efforts. Metrics in any program need to be focused on an end goal, and those end goals can normally be found in quarterly or yearly strategic business goals. This should come as no surprise; any marketing effort should be focused on driving a bottom line.

There are ways, however, to put some measurement into your online activity. Our Entertainment Group Practice Director, Wendy Hofstetter, came up with a way to get at this. This method takes the standard ROI analysis for a media buy (think banner ads), and applies it to social media efforts. You will be able to show how much your brand would need to spend in order to buy the equivalent amount of impressions you are generating in social media, and determine your ROI based on this amount.

Get Started

Let’s say you produce something you like to call Beer. Delicious! What a great product. We here at Room 214 support your decisions. You have multiple social media properties, including Facebook, Twitter, and YouTube. For each of these properties, you need to determine the number of impressions you are generating and a standard CPM you would pay online for advertising.

Facebook:

• Facebook gives you an overall impression-per-post and daily impressions.
• Your Beer page has 50,000 fans, with average daily impressions at 5,000.

Twitter:

• As Twitter does not provide insights, it’s best to determine your number based on number of fans. Here, we will estimate that 10% of fans see any given update.
• Your Beer Twitter page has 15,000 followers and makes 1 update a day.

YouTube:

• YouTube is simply addition of all video views.
• You have 24 videos about Beer uploaded this quarter, with a total of 200,000 views.

Doing the Math

Let’s determine a CPM for eyeballs (or as someone suggested to me today, a CPM for engagement). A simple online banner ad buy might come at a CPM $3.00. A behavioral-targeted campaign might come in at $15.00. Here, though, your eyeballs have already opted-in to hear from you. What is the cost of an impression like that? A conservative number could put you at $20.00. Assume you have a marketing manager spending 50% of his time managing your communities, at a yearly salary of $60,000.

Views: (5,000*365) + ((15,000*365)*.1) + 200,000 = 2,572,500 views

CPM: (2,572,500/1,000)*$20=$51,450

ROI: 51,450/30,000=1.715 (or 171.5%)

A Few Additional Thoughts

Based on the above calculations, you would need to spend over $51k to buy the same amount of impressions you’re generated by simply posting on your social media communities. And thus, you have a 171.5% ROI for your efforts. These numbers are representative of the fan-base for a medium-sized business. As managing communities takes time regardless of their size, the ROI is much higher with larger communities. I’d also like to note that there are plenty of factors NOT taken into account, like engagement, but I will dive into that in my next post.

It seems not that long ago (middle of this decade), I was writing quite a bit about how relevant search results had evolved through Google’s PageRank concept – what Peter refers to as Search 2.0.

And now here we are talking about Search 3.0 – relevance based on personal networks and the filtering of data through online social graphs, ultimately strengthened as more people connect with each other via the web.

When you consider the technology (RSS) supporting the distribution of information or updates within online social networks like Facebook and Twitter – I think we actually began seeing the infancy of Search 3.0 nearly two years ago through Google’s Universal Search algorithm update (see basics of how Google’s indexing changed in image below).

Another glimpse of Search 3.0 could be recognized with Stanford’s 2008 Study on (Delicious) social bookmarking. Three highlights from the study included the following:

• 25% of posts through Deicious are pages that have yet to be indexed by search engines.
• 35% of URLs submitted are first-time submissions (roughly 120,00 URLs submitted per day).
• Tags are considered 93% relative to associated content.

What does it all mean? People, not search engines, are assigning relevance to content. Whether they know it or not, it’s their keywords, their descriptions and their opinions that are making the impact.

Now consider how your opinion is shaped to people you are actually connected (networked) to online. Granted, some connections are stronger than others (Peter refers to three kinds of online connections in his Ad Age post) – but all are still highly relevant because they are ultimately chosen by you.

Bottom line: Marketing and PR folks need to get what this is about – and if you are a “social media expert“, then you really need to be on it.

1. Old-school measurement for ROI: What is really a “lead?” People want to apply same measures to social media. Traditional measures are being applied to social media marketing when so many other aspects of business simply don’t. Example: What’s the ROI of the receptionist, or even the accounting department for that matter?
2. We can measure how many people are exposed to our ideas, downloaded our YouTube video, etc. but these are very different measurements compared to traditional ROI measurements.
3. David states that ultimately, the ROI argument is used as an excuse based in fear. Many companies are simply afraid of social media.
4. David’s new book, World Wide Rave: How ideas spread and why people talk about you and your company. The first step in the formula for success is very counter-intuitive to marketers: Nobody cares about your products except you. To create something that has potential to spread, you can’t talk about these things. As soon as your product is brought into the equation, nobody cares.
5. Key take-away: Doing lots of activities in online marketing as opposed to one or just a few, should be the expectation when it comes to increasing your chances of success.

Notes: You can check out David’s blog at WebInkNow.com. I really enjoyed this interview, and am looking forward to reading his new book.