New Study Finds Correlation Between Social Media and Financial Success
A new study released by enterprise wiki provider Wetpaint and the Altimeter Group shows that the brands most engaged in social media are also experiencing higher financial success rates than those of their non-engaged peers. To determine this relationship, the study focused on 100 companies from the 2008 BusinessWeek/Interbrand Best Global Brands survey and the various social media platforms they used like Facebook, Twitter, blogs, wikis, and forums. Although it's difficult to prove for certain that the companies' involvement in social media has led to their increased revenues, the implication behind the new data is that it has.
After examining the companies and their social media activity levels, the brands were ranked on an "engagement scale" where scores ranged from a high of 127 to a low of 1. Those brands that were the most engaged saw their revenue grow over the past year by 18% while the least engaged brands saw losses of negative 6%.
Four "Engagement Profiles"
The study grouped the brands into one of four engagement profiles that related to the number of channels they're involved in and how deep that involvement is. At the top of the list are "mavens," the brands heavily engaged in seven or more social media channels - like Starbucks and Dell, for instance. "Butterflies" are like wannabe "mavens," and are also engaged in seven or more channels but are spread too thin, investing in some channels more so than others. "Selectives" focus on six or fewer channels but engage customers deeply in the ones they've chosen. Finally, there are "wallflowers," or brands engaged in six or fewer channels with below-average engagement; these include companies like McDonalds and BP.
Out of the top 10 brands engaged in social media, the mavens dominate the list. All of the top 10 are mavens and have seen financial success even in a down economy:
1. Starbucks (127)
2. Dell (123)
3. eBay (115)
4. Google (105)
5. Microsoft (103)
6. Thomson Reuters (101)
7. Nike (100)
8. Amazon (88)
9. SAP (86)
10. Tie - Yahoo!/Intel (85)
$$$ Does Social Media Pay? $$$
Of course what everyone really wants to know is whether or not social media actually pays off in terms of dollars and cents. This study seems to show that it does. The most-engaged brands are significantly outperforming their peers across numerous industries in both revenue and profit performance. They have even sustained strong revenue and margin growth in spite of the economy, notes the report.
Whether this correlation is actually a causation cannot be proven with the data on hand, it can only make the implication. Given the large number of companies analyzed and the consistent findings, it seems probable that social media has had a major impact on the companies' financial success.
It's also worth noting that the level of engagement appears to be a factor, too. The companies deeply engaged in fewer channels ("selectives") delivered higher gross and net margins than those only lightly engaged in more channels ("butterflies"). It other words, as the report says, "it's not about doing it all, but doing it right."
The ENGAGEMENTdb Web Site
Along with the complete study, available here, an accompanying web site has also been launched at www.engagementdb.com. On the site, companies can compare their social media efforts with the top 100 cited in the report. They can also opt to detail their social media efforts for inclusion in the online database at the site for future research and study.
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Very interesting. I'd love to see the actual attributes used to rank the different brands. This works well with the SIM Score we published last week. That used actual conversational data from six months of 2008 to show which companies in for different industries fared against each other across the social web (so a bottom up consumer perspective versus a heuristic approach). That SIM Score metric took into account the volume of the conversation and factored in sentiment to create a relative benchmark between companies in one industry.
Apparently, the SIM Score has a correlation to financial performance as well. In other words how people talk about a brand (and how much) invariable influences how well the company does and its stock prices too. Now there are a lots of factors affecting company performance but it is fair to say that for many brands the SIM Score is increasingly one of those. More information at http://goingsocialnow.com
Social media has become a basic and vital part of marketing and PR campaigns for business in the market place today. This report is a good read for anyone looking to understand the potential value of social media and online PR.
Even if there is a causal link, there is no way to tell if this could be applied to smaller companies that don't have multi-million dollar budgets to throw at social media.
From a strategic standpoint, brands that choose where they'll have the most impact may be going to greater lengths to understand their objectives and put appropriate measures in place to record their progress. Doing it right means more than just putting up a Facebook page and waiting for the sales to roll in.
Given the place of the brands that do have budget to do it all the temptation might be to try and emulate their success but without the right support (not just budget, but organizationally as well) it makes more sense to understand where they can have the most relevant interaction with customers.
I do believe that social media involvement can lead to higher financial success rates. What better proof than the top 10 companies from the list which are all social media mavens. Just search for any of these companies on surchur.com and the results talk for themselves. Social media does pay and every business should have a Social Media Department.
Monika Lorincz
http://surchur.com
Not to be a skeptic but aren't these top 10 companies all well established and successful brands long before the rise of social media?
It's a bit of a stretch to correlate financial success for all businesses to social media, which is what the article seems to imply.
These are great examples of businesses who understand who their market is, where to find them in large numbers and how to communicate with them. Whenever there is a disconnect between a business/brand and their customers there is an opportunity for a competitor to capitalize on that weakness and gain market share. Social media is another marketing tool that happens to make it easier to connect with customers in certain niches and reach disenfranchised customers of their less savvy competitors.
BS.
Post hoc correlations are one of the worst traps in marketing analysis.
I'm getting increasingly skeptic regarding studies about social media (no matter if they say good or bad about it).
Posted by: asourceofinspiration.com
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July 20, 2009 3:59 PM
This falls into the "Interesting, But So What?" category. What would really be cool to know is how these companies are using social media to drive revenue growth, and whether or not they can actually measure its contribution. Indeed, is social media being used to drive brand awareness, which can be tracked to higher customer win rates? Or is it being used to pitch new products and services to the on-line elite? Or simply provide a cheaper customer service channel? Devoid of context, numbers like this don't really tell us much.
Jill Dyche
Baseline Consulting
Couldn't this just mean that companies doing well financially have the resources to explore social media? If you're a business losing money, you're probably not spending your time on twitter.
This is all very interesting, but I can't help but think that the "types" of brands who invest in social media and suceed from engagement are those whose audience or target market also engages.
Additionally, the "type" of brand to be engaged in social media is probably just the "type" of brand to suceed in the current economical climate.
For example, an upbeat an optimistic brand is likely to utilize social media, but it's also likely to be the type of brand connecting with customers and generating more revenue.
Brands which don't engage their customers or inspire them to "subscribe" to their brand probably don't engage in social media.
If they are static brands not engaging with their customers it's not because of social media and lack of utilisation which is causing them to see losses.
Isn't it the other way round? Companies that are agile, open to new ideas, quick to respond to change use to have greater success, right?
So while these companies are ALREADY being successful because of their agility, they're ALSO going to new medias and channels.
It may not be a cause-effect relationship here. It may just be ANOTHER facet of dynamic companies, that are indeed growing, going to explore new fields.
It doesn't mean, necessarily, that their revenue come from these initiatives. At least not yet...
Very well written post. I was amazed to see how SMM could do so much to improve business. Neat Facts!
Very interesting post, but I´m afraid it may show a cause-effect fallacy... Is the financial success the consequence or the cause of the 'social media success'.
I'd love to see the actual attributes used to rank the different brands.
What???? Starbucks in 2008 was down like a stone, while McDonald was growing solid profits.
Also Google, Dell and Ebay are suffering heavily, while Yahoo was saw it's value going down by 70%.
I don't understand how they compile this data, but like that they mean nothing in terms of financial success.
I am afraid but social media engagement is way to young to have a
meaningful impact on long term profitability.
Seems like another poorly-researched study to prove that Social Media has value. Causality is always difficult to prove. I suspect we could check what brand of toothpaste is most common among the "winning" brands and make it the cause for success.
The answer is yes, indee, social media actually pays off in terms of dollars and cents.
It is not something new, though now is becoming more evident they getting blunt.
Gianny.
I am interested to see the wide array of comments and opinions. Like others, I believe that the companies featured, because they are already successful, are not the best examples on which to base a conclusion that using social media in smart ways leads to financial success.
Having said that, I believe that it's true. I see this in my own experience and in that of others.
The challenge is that, because social media depends heavily on human emotions and interactions in ways that are hard to measure using any scale, it's rarely possible (at least as of 2009) to trace a specific social media campaign or interaction back to a specific dollar bill.
What you can do is track when a social media activity produces desirable engagement with your target customers. When that happens, you have successfully reached and produced a positive reaction in the people you want to buzz about and buy your product or service. When that happens, it's unthinkable that it does not also result in increased sales.
I'd like to see the reverse study. That is, study a company that uses social media wisely and traditional outreach methods (like advertising) for a few years. Then have them shut down all of their social media outlets and keep doing everything else as they always have.
Then, we'll know.
Any volunteers?
dM
Very interesting article. I would like to look closer at exactly WHAT these companies are doing with their social media. The way that a small business interacts with the social media world is likely quite different than what starbucks is doing.
Good read.
I'll share my tweet on the subject...
That report is mostly bunk. Those brands had HUGE awareness before the SM bandwagon got rolling.
A new study has found you shouldn’t believe every new study
I don't use the report as a bible but it is good info and creates marketing ideas. I have had great success with companies using Social Media. Sometimes I use it for Engagement, Branding, SEO, Sales, Crisis or Reputation Management but it always works
What I love more than anything else is when people from not the standard 10 Social Media sites but the others like Utterli, Feecle, Frazer, Posterous, Identi etc... engage in conversation. That's when you really understand Social Media Possibilities.
Heck even my photography hobby has become a little biz because of Social Media.
Still tough to measure!
I think your article fairly points out that there is no causation that can be gleaned from this research but the headline (the only thing most people will read) implies a connection between SM and financial success. I don;t think anybody is ready to say that SM is having a measurable impact on the likes of a marketing behemoth like Coca-Cola who spends billions on advertising and has nurtured more than 100 years of brand equity. This "research" show nothing other than big important brands engage deeply in social media. Is that a surprise?
It was irresponsible of the report's authors to draw wildy unsubstantiated claims, presumably to promote their own buzz.
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Thanks for posting, I really enjoyed your most recent post. I think you should post more often, you obviously have natural ability for blogging!
Based on what I have read in the news, I have my doubts in the conclusion of this study. I did a quick check on the net income numbers of Starbucks vs McDonald's and Burger King from Q1 2008 through Q1 2009. It does not look like Starbucks was the outperformer.
You can see more detail and provide comment on my blog at http://tinyurl.com/kjjunm.
I will echo the BS comment of Dave Culbertson and others.
Correlation does NOT imply causation. Using the same broken logic, all of these companies are big. Therefore companies that use social media are also big.
Steve Martin in the movie "The Jerk" was being shot at, but the gunman was missing. Steve yelled "Stay away from the cans! They hate the cans!"
Chalk this up to "new media" same as "old media" when it comes to uncritical thinking.
My comments echo many of the observations and comments made above. We have to be very skeptical of any analyses of correlations without adequate controls and tests to rule out plausible rival explanations for the results. For example--company performance is explained by multiple factors and there are complex spurious factors! Moreover, there could be reverse causation--that the high performers had the slack to explore the new initiatives. Till we develop a comprehensive analysis of the causal chain between social media use and engagement with intermediate variables such as customer retention or repeat purchase or share changes, we should legitimately question the results in the spirit of improving the rigor that is required before we can develop prescriptions.
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Thanks for posting, I really enjoyed your most recent post. I think you should post more often, you obviously have natural ability for blogging!
Given Amazon's acquisition of Zappos, it's interesting to see how high they already rank on this list, particularly given the fact that so many experts considered this a deal about gaining "social media expertise."
Overall, I think this report points to the growing importance of integrating social media into a business/marketing plan for the simple fact that it is an extremely effective means of reaching an audience and when done correctly connecting to customers in a meaningful way. If this is backing up an already strong product or service, it's hard not to imagine this translating into success.
And while I agree that this isn't the only determiner we need to take into account when, I think the lesson is worth noting. The online landscape is still evolving and their are plenty of untapped markets that it allows access to, which social media seems particularly adept at reaching. For little cost and low risk, it seem worth the effort.
- MC
Social media silos can enable community (i.e., affinity connectedness) that directly or indirectly increases revenue generation. However, social media technologies must be woven into a platform to have lasting value. Well-designed platforms must address such issues as:
- How is the consumer-generated content reused?
- What types of content can be captured (e.g., various forms of text, audio or video)?
- How does the social-media content link to BI content?
- What metrics are used to determine value that accures?
- How is value determined?
- How are data privacy and security issues addressed?
- and so on...
Today's "mavens" are merely early adopters of hyped technology--some of which will remain silo'd and vanish and others that will mature into platforms. Those companies smart enough to "get it," will be tomorrow's winners--no matter how well-established the business is today.
This is definitely info I've tried sharing with small businesses, but without really being able to measure it, many won't bite. I always feel like social media isn't always about boosting sales or revenue, but building a community and giving your customers a resource and a way to interact with your brand. But the financial success part definitely doesn't hurt :)
Lots of chatting does not make a sale or close a sale.
This requires a true sense of the customer needs and how your product or service can help your potential customer.
We have become a world of fluff
"All hat and no cattle"
Len
Sure, correlation doesn't mean causation, but I've definitely witnessed social media having some sort of important impact firsthand. Who didn't hear about Starbucks having the free pastry promotion a couple weeks ago? And that's just with Twitter and Facebook. What if they'd made a short video promoting this a couple weeks in advance -- a short, fun video on Vimeo, AdWido, and YouTube that everybody would want to share? The impact would have been even greater.
Many comments have highlighted the apparent lack of uptake and use of social media by small and medium size companies. Case studies and examples of successful use of social media by slightly less rarefied brands are few and far between. Rohantime.com the community social media platform for the Rohan community is a good example in this category. Of a company making good use of social media. Engaging visitors on many levels and supporting the community. A long way to go with development but because the company see social media as a major support to their community and thereby increasing their ability to delight their customers they are very keen to develop Rohantime further.
We've got to be more critical of such research before putting a couple of charts up there and somehow try to imply that *maybe* Social Media Participation equates to financial success...It's been echoed many times over correlation does not = causation.
Perhaps it is the deep pockets of these brands that allow them to spend more/invest their resources on social media? Show me the amount of business growth they achieved before they participated in social media marketing, and then after, and then sift out the noise from the temporal differences in revenue drivers, and then dig deeper into just how much of those revenues were directly a result of social media participation...perhaps then it will be research worthy of covering. At this point, it is nothing but a whole load of fluff by a bunch of buzz mongers. Come on RWW, I know you guys are more judicious than this.