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Three customer experience lessons from social media performance in 2015

14 Jan 2016

Since 2011, year after year, social business and social marketing companies that are publicly held (and thus report their business results) have consistently struggled for stable, profitable performance. For marketing leaders striving to leverage social to improve their firms’ customer experience, the performance of social companies contains lessons about the future of social media and the present of marketing.

In 2014, just three of the 11 social companies I tracked had a P/E ratio (Price/Earnings ratio), because only three had positive net earnings in the trailing twelve months–Facebook, HomeAway and Yelp. A year later, it is much the same story. In 2015, just four of the twelve publicly-traded companies in the social media and social marketing category had positive net income from continuing operations over the past four quarters–Facebook, Angie’s List, Yelp, and HomeAway. This says something important about the value these firms are delivering for both consumers and marketers.

Marketing leaders can learn three things from the financial performance and business models of these companies:

Facebook is diversifying and so should marketers

You don’t need me to tell you this, but Facebook has sucked up almost all of the energy in the social media space. MySpace and Friendster are distant memories, questions are growing about Twitter, Google+ is an SEO afterthought for brands, and other social companies, like Yelp, Zynga and Groupon, have not been able to deliver consistent quarterly profits.

More importantly, while most of us may think of Facebook as a social media company, it is rapidly expanding into a much more diverse organization. Much as Google did over the past fifteen years, Facebook has parlayed its early success with one offering into a broad platform for the future. Today, Facebook owns three of the top ten mobile apps in the U.S., offers the two most popular messaging apps in the word, is a powerful player in the ad targeting and measurement space with its acquisition and relaunch of Atlas, is working on artificial intelligence to serve customers, and will soon make an entry into the consumer hardware category with Oculus Rift.

Just as Facebook is widening its reach outside of social business and into messaging, virtual reality, intelligent agents and other innovative technology, so too must marketers think broadly for future success. Social media is not the easy answer for brands’ reputation and advocacy needs, and just as Facebook is diversifying its focus, so too must marketers expand theirs to deliver the experiences customers expect and want.

The sharing economy will change the customer experience landscape, but a long road lies ahead

As the private valuations of Uber and Airbnb skyrocket, it can be easy to ignore the many challenges ahead for the maturing collaborative economy. While this trend is already altering some established categories (with Airbnb challenging the pricing power of hotels during big events that earn premium pricing and Uber contributing to a significant drop in the value of a New York City taxi medallion), there remain plenty of challenges for collective consumption, crowdsourcing, and gig economy business models. These include employment law, local and national regulation, liability and risk, taxation, consumer adoption, and competition (from both new and traditional players).

The 2015 experience of both public and private firms in this new category tells the story. Publicly-held Etsy and Lending Club have tumbled since their IPOs. Some privately held firms also struggled; gig economy cleaning service Homejoy shuttered in July over employee classification questions, Sidecar (an Uber and Lyft competitor) recently closed its doors and Oyster (a collective consumption “Netflix for books” startup) is sunsetting this month.

The combined rise of sharing behaviors, decreases in technology costs and increased power of consumer-side mobile platforms means individual ownership and consumption will continue to erode while collaborative models rise, but the change will not happen overnight. Business leaders must plan now for the long-term customer experience changes the sharing economy will bring, but they must be cognizant of the lesson learned from e-commerce: While it took almost twenty years for e-commerce to rise from zero to 7% of total U.S. retail sales, the online retailers that are today winning were the ones that took e-commerce seriously sooner rather than later.

Social media marketing will continue to be a struggle in 2016

With the decline in organic reach on Facebook and brands’ struggles to quantify social media outcomes, there has been little to crow about in social media marketing other than the success of paid ad offerings. While marketing leaders keep hoping for stronger social media return, just 15% of CMOs have quantitatively proven the impact of social media.

Paid social media marketing strategies will keep growing in 2016, but the poor scale of organic brand reach will remain a challenge. For example, Coca-Cola is among the top 10 most valuable brands in the world with customers enjoying its beverages at a rate of 1.9 billion servings per day, but Coca-Cola’s “people talking about this” figure (the sum of a week’s worth of page likes, post likes, comments, shares, and check-ins in the U.S.) is just 22,000 today.  It is difficult for brands in many categories (but not all) to deliver on their marketing objectives with the sort of scale that unpaid social media delivers.

If social media marketing was living up to its promise (outside of select verticals such as B2B, entertainment, and style), companies that provide social ad products and services for marketers would be increasing pricing, margins, and performance. Instead, Yelp and Twitter are still working to convert their strong consumer adoption into a profitable advertising model, and companies that furnish community, marketing, and promotion platforms are no better off – Jive’s community offerings, Zynga’s social game advertising and Groupon’s social deals have not lived up to their early promise.

Until these social media marketing providers can deliver the results brands expect – the kind that permits increasing prices and margins – these companies will continue to find it difficult to post consistent quarterly profits. The business results of 2015 suggest to me that 2016 will be a challenging year for marketers looking to leverage organic social media strategies and to validate social returns in many business categories.

Article by Augie Ray, Gartner Research Director

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