Is Social Media a Waste of Resources?

An interesting article caught my eye on the Wall Street Journal this morning, thanks to a posting from a friend: it seems many businesses are starting to asking themselves what they are getting out of social media, and whether they ought to continue to invest in that aspect of their online presence.

In a fascinating Gallup survey, a whopping 62% of respondents indicated that social media had no influence at all over their purchasing decisions. Only 5% of respondents indicated that social media had a significant influence on their purchasing decisions.  Not surprisingly, 94% of respondents indicated that the primary reason they used social media was to keep in touch with family and friends.

In response to figures like these – which a reasonable person could have predicted – it seems more businesses are considering dialing back their online investment, particularly when it comes to social media.  If a re-tweet on Twitter or an up-vote on Reddit is not, in most cases, going to result in greater sales, then the amount of spending going into a business’ presence on such sites will decrease.  As the Gallup report concludes, these venues “are not the powerful and persuasive marketing force many companies hoped they would be.”

The present situation reminds me somewhat of the first tech bubble in the late ’90’s. Back then, the term “internet millionaire” was coined to reflect the fact that, in the Wild West-atmosphere of those heady days, people were able to strike it rich by persuading investors that their online product was worth millions in potential revenue. Businesses felt the pressure to get in on the online game, because everyone else seemed to be doing it.

At the time it always seemed to be a bit of an Emperor’s New Clothes situation. Companies were spending exorbitant sums on what was often little more than hype.  When the bubble burst, millions of people lost their jobs, their savings, and so on.  If you were looking for employment back around 1999-2000, you will remember what a terrible time that was for many workers, particularly those in industries with ties to the nascent online industries.

Although time and technology have marched on, the underlying question remains the same, only this time with regard to a company’s social media presence: how is digital media going to make my business more profitable?  In order to properly consider that question, however, let me suggest that we need to weed out a few types of online experiences to examine the issue at hand.  There are profits to be made through digital media, but for many businesses it seems to me that the trick is to understand what you can and cannot achieve with your online presence.

First let’s put to one side the use of social media by those having no profit motive:  your Tumblr account about funny pictures of cats, for example.  Let’s also discard sales portals for the purchase of goods and services: companies like Amazon or Ebay, craftsmen who sell their work online, virtual travel agents, etc. These businesses use all kinds of digital media, including social media, to present the consumer with images and information on the types of products they offer for sale. Although far faster and more comprehensive than any printed catalog, when you get down to brass tacks the business model here is really not that much different from something like the old Sears Wish Book.

What we’re left with, in terms of the opportunity to make a profit, seems to be advertising, as indeed it always has been. What many companies didn’t understand 15 years ago, and which they don’t seem to have learned about social media until now, is that sites which do not engage in direct sales should be viewed primarily as public relations vehicles, not profit-generators, unless you happen to control the sale of advertisements on that site.  If you are a producer of a good or service, you want to have a consumer view your product in a positive way.  A component of your marketing strategy online should be to make your presence attractive on social media, but this is simply a variant of creating a beautiful showroom, running clever ads in magazines or on television, and so on.

There is also a question to my mind as to whether many of these companies have been more focused on building altars, rather than storefronts.  Sadly, more people today spend their Sundays worshiping professional athletes rather than God, and the profits to be made from areas such as merchandising and advertising the exploits of these athletic entertainers are enormous.  Yet whether they are cars, phones, or entertainers, the businesses that have to sell these products have done a great job of bringing together fans of their products through social media, but apparently without significant monetizing of those social connections.

Thus, while thousands may click “Like” on the Ritz-Carlton corporation page on Facebook, how many of these people are actually staying at Ritz-Carlton hotels on a regular basis? While the Gucci account on Twitter has over 1 million followers, how many of those followers can even afford to buy a pair of the company’s iconic Italian horsebit loafers?  It’s all very well to be popular in social media, with thousands of hits on your YouTube video.  Yet from a profitability standpoint, if that popularity is not generating sales, then are you wise to continue the same level of investment in it?

If the WSJ piece is to be believed then, more companies are waking up to the fact that having a presence in social media is worth some level of investment, but only up to a point.  Just as 15 years ago, companies needed to create websites in order to be part of the conversation and remain current, so too they needed to hop on the social media bandwagon when that began to roll along several years ago.  Their expectations in doing so don’t seem to have been matched, in many cases, with the anticipated level of return.

Until the next big thing comes along, however (virtual reality, anyone?), one doubts that business is going to be leaving social media altogether any time soon – even if it may choose not to spend as much on it in the future as it does in the present.

Social Media Money

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s