Retailers are wondering how they can profit from the explosive growth of online social networks, as are the social networks themselves. Some early learnings are emerging from this fast-changing arena.
By Mary Wagner
At computer manufacturer Dell Inc., executives like to say that they want their customers to be walking the company’s halls. The expression captures the importance Dell places on maintaining an ongoing conversation with its customers, and over the years the company has figured out plenty of ways to keep the talk flowing.
For one thing, Dell has created blogs and community forums that facilitate interaction with customers. In fact, Dell now has about 25 social media properties on its web sites around the world, says vice president of communities and conversations Bob Pearson.
Dell also is trying to communicate with its customers via the fast-growing social networks that it does not control. For example, Dell has more than 20 pages on Facebook. And, while participating on social networks has been mostly about brand-building for retailers and consumer goods manufacturers, Dell can attribute more than $1 million in sales over the last two years directly to its recent efforts on Twitter, the micro-blogging site that lets people post very short messages for all to see.
In March 2007, Dell began using Twitter to announce occasional sales at its Dell Outlet online store. In February, after amassing more than 11,000 registered followers, Dell announced that Dell Outlet would launch a series of promotions exclusively on Twitter.
Pearson believes Twitter likely has influenced more than $1 million in sales, but says immediate sales are not the point of Dell’s participation in social networks. The point is to be part of the conversations consumers are having with each other “Those conversations are occurring with or without you,” Pearson says. “Our choice is that we would prefer to be in that conversation by offering things that are relevant to it, and evolve with the medium.”
Little is settled
The social network medium is evolving rapidly, and today includes such popular sites as Facebook, MySpace, Twitter, video site YouTube, photo-sharing sites like Flickr and a host of lesser-known social sites.
Facebook alone has more than 175 million active users worldwide. And the far less well-known Ning.com, which provides a home for niche social networks such as Offbeat Bride Tribe “for independently minded women who just happened to be getting married,” nearly tripled its audience in a year to just under 3 million unique visitors in September, according to web measurement firm Nielsen Online. That kind of growth makes social networks impossible to ignore.
At the same time, online retailers considering how to participate in social media have to ask themselves the question: How can we profit from investments in social media? It’s a question the big social networks are asking themselves, as they are still casting about for the right business models.
Social networks are in somewhat the same position the search engines were in a decade ago: lots of users, but not a clear way to make a profit. Eventually, Google became a cash machine by perfecting the presentation of paid ads on its search results pages. But there isn’t likely to be the same single, straight path to billions of ad dollars for social networks.
“Social networks are a different beast,” says Alex Patriquin, strategist for web analytics company Compete.com, which tracks consumer behavior on the web through a panel of 2 million users. “Paid search has been great for retailers because they’ve been able to tap into consumer intent late in the purchase funnel when consumers are ready to open their wallets. But generally people come to social networks to socialize, not learn or purchase, so the value proposition is harder for Facebook to make to retail or other advertisers.”
Privacy concern
Social networks’ greatest potential revenue opportunity is in their ability to serve up hyper-targeted consumer segments to marketers, based on the information users provide about their interests. But the social networks will have to be careful how they use the information they have about their members. The uproar last month that prompted Facebook to back off an attempt to assert permanent ownership of content generated by its members shows that consumers aren’t yet willing to trade the use of their personal information for the benefits of membership in social networks, Patriquin says.
Despite the many open questions about how to profit from participation in social networks, retailers already are are wading in. Of the Internet Retailer Top 500 web merchants, 41%, or 207, have a presence on Facebook, while 27%, or 113, can be found on MySpace. A study by market research firm Rosetta last fall found 59% of 100 large retailers surveyed had a page on Facebook, up from 30% in the spring.
The obvious allure of the social web also has retailers trying to recreate that social experience on their own web sites as Dell has done with its forums and blogs.
Outdoor adventure sport retailer Backcountry.com is looking to the community it’s been building out on its web site as a long-term strategy to build loyalty and, eventually, sales, rather than as a vehicle that will pay off in immediate revenue. “The Internet is a better research vehicle than shopping medium. With that in mind, you look at the web site totally differently,” says Dustin Robertson, vice president of marketing at Backcountry.com, a unit of Liberty Media Corp. “You are not so focused on trying to drive people down the purchase funnel in every piece of the site.”
Instead, Backcountry’s building an on-site community focused on three elements, with more to come over the next 18 months. In May the retailer launched a question-and-answer feature, building on existing reviews functionality, that lets consumers communicate with each other. That feature was followed up in November with a tool that lets customers upload their photos of gear in use. Backcountry’s newest community feature is a “Gear Guru” leader board ranking the top 50 most frequent contributors of answers, reviews, photos or other content to the site.
“We want to be the place you go online to talk about the gear to take on your ski trip or to climb Denali,” Robertson says. Owning that No. 1 spot in consumers’ minds, Backcountry believes, will pay off later in customer loyalty and sales.
Backcountry built its on-site social community internally, but vendors have emerged to fill the demand for social features and on-site networks. For example, e-commerce technology vendor Awareness Inc. recently launched “Best Practice Communities”—templates for communities organized around such purposes as a shared passion for a topic or brand, which can be quickly deployed on a retailer’s site.
Flickr versus Twitter
While a retailer can corral some of the consumer discussion about its brand and products by building social features on its own site, a lot more talking is going on in the labyrinth of social networks beyond e-commerce sites, one reason Backcountry also participates in Facebook, Flickr, Twitter and YouTube. Retailers must learn the lay of the land to get the most out of their efforts in this new arena.
For example, photo-sharing community Flickr’s members tend to be frequent posters, but they don’t tend to click off of Flickr, so it’s not going to be a powerful source of traffic to a retail site, says Dayna Bateman, senior strategic analyst at e-commerce consultancy Fry Inc. Twitter’s users tend to click all around the web, making it a better venue to engage with users and drive them to a web site, she says.
The demographics and habits of different social networks can be researched easily enough. But online merchants are just starting to learn how they can be used to drive traffic and sales within the culture and rules of each network.
Susan McKenna, vice president of e-commerce at health and vitamin supplement company Nature Trade Network, also advises other retailers. She identifies three types of marketing applications in the online social realm. They include those that allow consumers to share existing web content with each other, such as peer recommendation engine StumbleUpon; those that allow them to publish content, such as blog publishing systems WordPress or Google’s Blogger; and those that allow consumers to network with friends, such as Facebook and MySpace.
McKenna notes that for businesses, social marketing can have many purposes ranging from brand awareness to expanding market share to sales, and that campaign particulars should differ accordingly. In pursuing a social marketing strategy directed at creating traffic and sales, marketers should start by creating a personality for the brand in the form of a profile, and then look for a way to share it by using publishing tools such as Twitter or blogs, she says.
One of McKenna’s sites, vitamin supplement seller Vitaminrx.com, offers an example of how content that isn’t sales-oriented but has been spread across social networks can lead traffic back to a site, and potentially result in sales.
McKenna created a Facebook profile for one of the physicians on Vitaminrx.com’s advisory panel, under his own name. The profile includes a group page called Ask the Vitamin Doctor, organized around a community of people interested in vitamin supplements and health. Subscribers to the group can ask the physician a question as well as communicate with each other on the page; questions are answered by trained reps who engage with group members on behalf of the brand. McKenna says reps discuss and answer questions about supplements but do not diagnose.
“As the discussion grows and as trust and credibility grows, just like with a brand, we start peppering in promotions,” she says. “The content posted is contextual to what we are selling and mention promotions that are specific to the group we are speaking with.” Repeating this same procedure—publishing credible profiles in key social venues, then pushing them out directly to other social venues as well as enabling them to be captured and forwarded by other consumers—will, over time, build traffic to sites, according to McKenna.
But this is a process that may take as long as six to 12 months to produce a significant return, a timeframe comparable to realizing returns on search engine optimization. So she advises retailers looking for quick sales to look to traditional online channels like affiliate marketing and pay-per-click advertising, with an eye toward the future.
“Build revenue stream there,” she says, “and use some of the profits from those efforts to build out what I consider a longer-term strategy, and that’s social.”
mary@verticalwebmedia.com
