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Opportunity and Risk in the Age of Social Networks

It’s tempting to view social networking as a pop culture trend attracting e-literati to the newest new thing. But don’t be fooled.

Social networking sites like MySpace.com, Facebook.com, Twitter.com and Ning.com are just the tip of a vast online connectivity glacier that’s reshaping the global marketplace.

“No industry is absolved from the impact of emerging media and technologies,” says Steven Ennen, managing director of the Wharton Interactive Media Initiative (WIMI), who moderated a panel on new business strategy in the age of interactive media at EMTM’s 20th Anniversary Symposium on May 22nd. “There is a lot in play in the online ecosystem that changes consumer behavior and cash flow. An understanding of the intricacies and possibilities is critical as we evolve into the 21st century.”

Panelists shared examples of how social media provide companies with new tools for predicting consumer behavior and fraud, as well new forums for brand management and customer feedback. Companies are increasingly using new social media applications to engage authentically with customers to refine services and products, according to interactive media business leaders and an academic expert on the panel.

Well-known user-generated social media such as myspace.com are just one part of this equation. The phenomenon also includes interactive media created by and for corporations, not-for-profits and government agencies as well as user-generated business media such as LinkedIn.com (for professional networking), Toolbox.com (for collaborative problem solving and networking among IT, finance and human resources professionals) and Sermo.com (online collaborative problem solving for physicians).

Ubiquity has accelerated the adoption cycle, panelists noted. Metrics of the trend include the fact that since 2001, the average amount of time U.S. adults spend online per week has doubled from seven to 14 hours, according to Forrester Research, Inc. By April of 2009, 140 million people, or nearly three-fourths of the U.S. online population, used social networks, based on data gathered by comScore.

“Companies that don’t use these new tools are missing tremendous opportunities and innumerable ways to interact and grow their customer base, conduct key market research and competitive intelligence,” says Ennen. “It just needs to be managed properly. This is a new framework within which companies can participate in a broad ecosystem with customers, users, suppliers and competitors.” Founded in 2008, WIMI’s mission is to monetize emerging interactive media and evaluate its impact on traditional and global businesses — applying collaborative academic research to data-intensive real world business challenges.

New Metrics for Marketing
Panelist Shawndra Hill, assistant professor in Operations and Information Management at Wharton, discussed ways companies can use social network data to make predictions and business decisions. “We want to figure out how to utilize the structure of connectivity and who is connected to whom to help us make better business decisions,” says Hill, whose area of expertise is data mining and knowledge discovery in databases, network dynamics and network-based marketing. “Dependencies among individuals and the scale of data involved makes doing any type of analysis on these data sets extremely challenging.”

Hill’s analysis of data from a telecommunications firm indicated that people who talk to an existing network customer are five times more likely to buy a product than those who don’t talk to existing customers. “That’s a powerful result for that company,” she says. “Looking at churn, the same result holds true. People who talk to someone who left the firm are also more likely to leave.”

“There are a lot of patents pending on utilizing social networks to predict things,” says Hill, who also has a patent pending in this area. “The patent office is backed-up big time with patents for ideas along these lines.”

Companies and academic researchers are racing to develop ways to attribute customers’ online purchases, says Ennen, noting that, “There’s a tremendous gold rush to come up with a technology to prove the value of online presence and how you attribute that last click to buy.”

“This gets to the issue of how to measure the value of a social network,” says Jim Haughwout, CIO and vice president of technology at Neighborhood America, an enterprise social network provider. “Page views don’t matter. What matters is the result. One page view from someone who buys is worth more than a thousand people who just look.”

Electronic Clues for Fraud Prevention
Clues found in social networking data can also help companies detect fraud. In her analysis of data from a telecommunications company, Hill identified ways the company could identify people involved in repetitive subscription fraud — even though these customers would sign up for phone service, run up a high bill, have their phones turned off and then sign up yet again using a different address and name.

“Obviously, the firm wants to catch them before they do this again,” she says. “It turns out the most predictive attribute is when there’s overlap in calling behavior — i.e., do you call the same people at the same time of day and for similar spans of billable minutes. Simple network data enables firms to make better decisions about traditional problems like this.”

Panel participants also discussed ways companies can safeguard against fraudulent input to an organization’s online presence. One example would be the virtual town hall held by President Obama in March of 2009 that was overrun by advocates of marijuana legalizations.

According to Haughwout, “There are two types of moderation control available to companies, but they’re difficult to scale up. One is self-policing: Allowing the online community to mark content that’s potentially inappropriate and remove it from visibility while it’s reviewed by a community management team. Neighborhood America does this often for public sector organizations. Another option is pre-publication moderation in which everything on a site is reviewed for appropriateness before it’s allowed to go forward. This makes a network less responsive and needs to be staffed like a call-center function. A pattern-matching semantic processing system, which hasn’t been developed yet, would also be a helpful tool for site moderation.”

New Resources for Brand Management
New media can be used to market a company and also to solve customers’ problems. “It’s not just a push mindset anymore,” says George Krautzel, co-founder and president of Toolbox.com. “If you look at online advertising, early on it used to be all about eyeballs and cost per impression. However, after the dot-com bubble burst, online companies had to rethink their business model which has moved beyond costs per click. The next evolution is coming now where companies will be thinking about interactive media as a relationship management area.”

For example, Toolbox.com provides an online platform that enables professionals to share knowledge and problem solve collaboratively with peers. “Our goal is to help a person with a problem at their desk find others who have solved similar problems,” says Krautzel. Features of the firm’s online communities include user profiles, vendor profiles, blogs, discussion groups and wikis. Toolbox.com currently has three million monthly unique visitors who have generated more than 2.4 million pages of practical content, and has moved in the past year beyond its base among information technology professionals by creating similar online communities for human resources and finance professionals.

According to Krautzel, “We are working with advertisers in a way that has a lot of transparency. They are willing to pay a premium to be able to be open and engaged with prospects and customers. Companies are at Toolbox to get community feedback that’s cost-effective, timely and yields better solutions. The idea is not ‘How can I extract a lead?’ Instead, it’s about, ‘How can I have an ongoing relationship with a prospect or customer so I can service them and create value?’ IBM understands that very well and they’ve been doing a lot of smart things online, such as sharing an IBM white paper on open source software development with a discussion group about open source.”

“Companies are tapping the power of online communities where they listen to and engage with customers online, and come back to them with a solution to their problems,” says Krautzel. “They are trying to create lifetime customers through interaction and support.”

“The art of listening is tremendously important,” says Ennen. “With social media you’re not listening to a focus group with 20 people somewhere in Secaucus, N.J. You’re listening to what could be tens of thousands of opinions on your brand. There are a number of new ways to put your ear to the ground and understand what’s being said about you and your company. At a more intimate level, you can create a two-way sustainable dialog with customers going forward that makes them more engaged with your company, brand and products.”

According to Ennen, “Traditional mass marketing has been a lot of push. Now there’s a lot of pull in that the voice of the customer has to be reckoned with. Like many business models and practices that have gone through a seismic shift in recent years, mass marketing just looks a little different. It now has a different life cycle and approach.”

Linking New Media to Traditional Business Models
Responding to a question about how to apply interactive media to a traditional business model, Haughwout cites HGTV’s online ‘Rate My Space’ community in which participants compete for online rankings of photos of rooms that they post. Winners, selected by peers, qualify for a home makeover and runners-up obtain coupons to Lowe’s. “It’s a revenue track-back, a meritocracy in which points based on community value can be redeemed at a company,” he says. “This takes traditional brand recognition and marketing models and uses social media.”

Network America’s clients in the corporate, media and government spheres use the firm’s social networking capabilities for large-scale collaborative problem solving, process improvement, change management buy-in, and cross-promotion among traditional and new media. “When you give employees a voice in solving a problem and you indicate that 80 percent of employees like a particular solution, it helps to sell that back,” says Haughwout.

Neighborhood America’s public sector work includes creating a network to enable people to contribute ideas and to vet and review proposals to rebuild the World Trade Center’s Twin Towers. Haughwout notes that the Obama Administration’s mandate to create open and transparent government with opportunities for public engagement has generated demand for social networks that magnify the voice of the public and enable people to interact with government agencies. Neighborhood America serves this niche and also provides interactive media tools to foster interagency collaboration among and within government agencies.

More prosaically, Men’s Health magazine’s “Belly-Off” competition uses Neighborhood America’s capabilities for online interactive dialog to help readers get community support in a protected environment while they lose weight. “This has generated enormous ROI for Men’s Health,” says Haughwout.

Survival in a Cambrian Die-Out
Part of what makes taking advantage of interactive social and business media tricky is a proverbial Cambrian die-out among companies over the past year, says Jim Haughwout of Neighborhood America, citing research by Jeremiah Owyang. “Today in social media is like 1999 all over again. We’re going through the disruption of a major market transition. A lot of companies raced into social networking media; and a lot of companies have died out because they were chasing yesterday’s model of getting eyeballs and providing network-building services that now can be obtained for free through companies such as Ning. This die-out raises questions such as, ‘Who do I buy software from? Who are my partners? And how do I measure this to ensure I’m creating value for my company?’”

Staying ahead of the creative destruction curve is a challenge for companies in the fast-moving arena of interactive media, but it’s not a reason to avoid using interactive media altogether. For companies that are wary of the hype about interactive media, “It’s not that you have to understand and adopt all of the changes in the online marketplace,” says Ennen. “It’s just that you have to focus on the changes that are most relevant to your company’s customers and business partners.”

“Companies need to view the impact of emerging technologies as part of an overall change management process in which they reexamine business models, revenue streams, talent, reputation and knowledge management,” says Ennen. “Reliance on old business models can be the death knell to a company that doesn’t see these changes. This process hasn’t been inching forward; it’s been a fairly swift kick in the traditional model. That’s the danger. The ubiquity of online media is a game-changer for many industries.”


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“No industry is absolved from the impact of emerging media and technologies. There is a lot in play in the online ecosystem that changes consumer behavior and cash flow. An understanding of the intricacies and possibilities is critical as we evolve into the 21st century.”

Steven Ennen
Managing Director
Wharton Interactive Media Initiative (WIMI)

“We want to figure out how to utilize the structure of connectivity and who is connected to whom to help us make better business decisions. Dependencies among individuals and the scale of data involved makes doing any type of analysis on these data sets extremely challenging.”

Shawndra Hill
Assistant Professor, Operations and Information Management
The Wharton School

“There are two types of moderation control available to companies, but they’re difficult to scale up. One is self-policing: Allowing the online community to mark content that’s potentially inappropriate and remove it from visibility while it’s reviewed by a community management team.”

Jim Haughwout
Manager of Products Research and Technology
CIO and Vice President of Technology
Neighborhood America

“After the dot-com bubble burst, online companies had to rethink their business model which has moved beyond costs per click. The next evolution is coming now where companies will be thinking about interactive media as a relationship management area.”

George Krautzel
Co-Founder and President
Toolbox.com

“Today in social media is like 1999 all over again. We’re going through the disruption of a major market transition. A lot of companies raced into social networking media; and a lot of companies have died out because they were chasing yesterday’s model of getting eyeballs and providing network-building services that now can be obtained for free through companies such as Ning.”

Jim Haughwout
Manager of Products Research and Technology
CIO and Vice President of Technology
Neighborhood America

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