The marketing potential in social networking sites is ginormous. But its future for retailers is anything but clear.
By Bill Siwicki
Though relatively new, the Internet concept of “social networking” already has more baggage than a 747. Teens gone wild! Companies firing employees over MySpace content! Predators on the loose! It’s anarchy on the information superhighway!
And anyway, how can someone have 1,129 friends?
Nonetheless, cutting through the noise is the theory that social networking offers retailers a grand new venue for marketing their products and increasing brand awareness—if they can cut through all that noise. To date, the overwhelming response from e-retailing executives and industry experts, after they’ve scanned all baggage, is two basic questions. First, could social networking be another web fad, which launches with fanfare, gains a bandwagon of millions, then soon loses steam, winding up with a small but dedicated user base? And second, is the concept of blending social networking and the branding and marketing efforts of e-retailers even a good idea to begin with?
For the moment, a handful of retailers are experimenting with social networking in an attempt to answer these very questions and capitalize on the venue by getting in on the ground floor. These merchants, willing to take on what many industry observers call a risky proposition, are either setting up a “space” on one of the social networking giants like MySpace or Facebook, acquiring all or part of an existing network, or building a network of their own.
Whatever the approach, these retailers are taking a shot at an unknown marketing method that has gotten lots of attention and generated lots of theories, but so far has unproven results. “We have to listen and watch and think,” says Boris Wertz, COO of Abebooks Inc. “Nobody has a recipe yet, so we plan to figure it out along the way.”
Bibliophiles’ files
Taking the acquisition route, Abebooks in May bought a 40% interest in 66,000-member social networking site LibraryThing, which launched in September 2005. Abebooks lists more than 80 million new, used, rare and out-of-print books from more than 13,500 booksellers. LibraryThing enables members to, among other things, catalog their personal library of books, the current total being 4.7 million. Members also can create themed groups where users with similar interests can meet; members created 415 such groups during the first week the functionality was offered in late July. The niche network charges members $10 for an annual membership or $25 for a lifetime membership.
Through searching and socializing on LibraryThing, members can find individuals with similar tastes or collections—medieval history, for example. These online relationships can generate interest among like-minded members to purchase online their own copy of a book they read about in another member’s space.
Low-key communications to customers and members drive traffic from one site to the other. And LibraryThing continues its practice of including product links not just to Abebooks but to other e-retailers. These factors help ensure LibraryThing members continue to view it as a true social network, not a kind of concealed marketing tool for a single merchant, network executives say. In the overall social networking arena, industry observers say, many network members have a disdain for commercialization—hence Abebooks’ cautious approach. In the end, LibraryThing gets more traffic and Abebooks gets more shoppers, as well as key information on product and shopping preferences via aggregate user data from LibraryThing.
Abebooks, however, wasn’t really in the market for a social networking site. It was the potential synergy between the two companies, both of which focus more on used and rare as opposed to new books, that made Abe more social. “We did not first sit down and make a strategic decision to invest in social networking. Like many others we simply were watching this whole new space,” Wertz says. “But then LibraryThing came to our attention. We asked the network’s president to make a presentation to our senior management team, and that led to our investment.”
If an e-retailer has a niche and offers great products, a social network can help it gain customers and sales, Wertz contends, and the organic growth rate for social networking sites in general is amazing.
The latest thing
The social networking phenomenon is quickly being embraced by the general Internet public, experiencing wild growth just like most new web-generated activities. Industry leader MySpace grew 230% from 15.6 million unique visitors in May 2005 to 51.4 million in May this year, comScore Networks Inc. reports. MSN Spaces grew 205% from 3.1 million to 9.5 million. And Facebook grew 102% from 6.9 million to 14 million. Other mass audience players include AOL Hometown and Xanga.com. “The popularity of social networking is not expected to wane in the near future,” says Peter Daboll, president and CEO of comScore Media Metrix. “This is a phenomenon we’re seeing not only in the U.S. but around the world.”
As a result, retailers have become interested, seeing the latest web craze as a way to market goods and attract new customers. In addition to keeping a close eye on the general social networks, some retailers have begun thinking about niche networks that appeal to their customer base, as Abebooks is doing. Sensing opportunity in this interest, social network builders are popping up. Communispace.com, for example, builds retailers and brand name manufacturers invitation-only social networks, which the businesses can leverage as large-scale focus groups. Wetpaint Inc., which focuses on its own mass appeal network, is in talks with numerous retailers and marketers to do the same.
What social networking boils down to in the realm of e-commerce is viral marketing—the oldest and one of the best forms there is, says Leslie Ament, director of customer intelligence research at the Aberdeen Group. “Word of mouth is extremely effective because shoppers want to hear information they perceive to be trusted, credible and reliable straight from their peers. Enabling customers to speak with one another is key to driving business growth because they don’t want to hear only corporate marketing messages,” Ament says. “Customers who communicate with one another are more likely to purchase more and to purchase more often.”
Some industry observers have been surprised at just how big a role consumer input plays in web shopping. Retail consulting firm J.C. Williams Group Ltd. recently conducted research to determine which web tools and features online shoppers found most helpful in making buying decisions. Of the 1,972 American online shoppers the firm surveyed in April for its “Transforming the Multi-channel Shopper” report, 92% said customer reviews were very or extremely helpful when making a decision. The next closest of the other 14 tools measured was keyword search with 71%.
The firm expected customer reviews to be high on the list, but it turned out they left the others in the dust; this shows that customer reviews and related consumer-generated material are at the heart of the content retailers need to present, says Jim Okamura, J.C. Williams Group senior partner. “Consumers want to make shopping decisions based on the advice and experience of their peers,” Okamura says. “So there’s a good future for social networking in e-commerce. However, since creating social networking sites is not among retailers’ traditional skills, it’s going to be a challenge for them to understand what it takes to build an excellent site that’s not easily copied by competitors. This is not something that should be done half-heartedly.”
“We’ve done focus groups and usability studies on this subject,” says Chris Kermoian, vice president of product management at Become.com, which is giving social networking some thought, “and it’s clear to us that the more we can help people with this, the greater the opportunity for us in the future.”
A good match?
While social network members clearly can influence other members in all kinds of ways, many experts aren’t yet certain if mixing business with pleasure is a good idea and are unsure of the return on investment.
“I don’t yet know ways to monetize social networks, and their ability to convert shoppers remains to be seen,” says Sucharita Mulpuru, senior retail analyst at Forrester Research Inc. “For now retailers with niches like consumer electronics that typically include individuals passionate about the products might have a greater chance at success.”
But managing what happens in the unique world of social networks is not in the genetic makeup of retailers, who want shoppers to come to them at all costs, contends John B. Horrigan, associate director for research at the Pew Internet and American Life Project, who specializes in online communities and web shopping. “Retailers more prone to risk, who get in on the ground floor and establish an early presence potentially have more opportunity in social networking in the long term.”
Still, the potential benefits are obvious: easily reaching a wide audience, helping retain customers through entertaining sites far less utilitarian than e-commerce sites, and weaving unobtrusively a business and brand into shoppers’ lifestyles and daily activities, says Rodney Nelsestuen, senior analyst for financial strategies and I.T. investments at research firm TowerGroup.
Generally speaking there are three methods retailers can use to establish a presence in the social networking arena: creating a free space or sponsoring a space (costs, usually minimal and sometimes part of a larger advertising contract, depend on each networks’ policies) on an existing mass appeal network, affiliating with or buying an existing niche network, or building a niche network of their own.
Last month Alibris Inc., a retailer of books, DVDs and CDs, debuted a space on the monolithic MySpace. It plans to use the space off and on. For example, because it offers a large selection of used textbooks, one of the company’s biggest selling seasons is August and September. High school students, college students and 20-somethings are the largest group of social networking users. So Alibris, which already has run advertisements on MySpace, decided to use this year’s high season to test the social networking waters.
“We want to generate buzz about our low textbook prices. One of the ways we’re doing so is by giving away coupons and discounts exclusive to students on MySpace who search for the subject or who are told about us by their MySpace friends,” says Brian Elliott, COO at Alibris.
The company’s space looks just like the spaces of individual members. It includes book information, coupons, special offers and other content. Alibris will measure its social networking success or failure by studying traffic to its space and gauging the use of the coupons and offers, as well as, on a different note, tracking site traffic that stems from the ads it has purchased on the giant social network. “The network offers a great demographic for us and the ability to generate buzz in a very short period of time,” Elliot says.
He warns, however, that retailers that choose this route must ensure their space is rich with intriguing content that gives network members a reason to visit and return to the space. To ensure this, company executives hired two college students to create the space and its content, search out and link to high-use network members and “opinion leaders,” and monitor the space to help make sure it’s hip. The company is paying the students a modest stipend for their work. “This clearly is an experiment,” Elliot says. “No retailers really know what will happen in social networking.”
In your face(book)
Like Alibris, Abebooks decided to start a space on a mass appeal network, in addition to its LibraryThing purchase. In July the company created a space on Facebook. Also like Alibris, Abebooks launched the niche space, sponsored as part of a marketing contract with the youth-skewed Facebook, to get the word out on its inventory of new and used textbooks. One Abebooks staff member has been designated to tend to the Facebook space in addition to other, unrelated duties. The company also is running ads on the network.
While this free or sponsored route seems easy enough, retailers must walk a very fine line between marketing on any kind of social network and fitting in with members, many of whom already have voiced concerns about commercialization of social networks, warns Wertz at Abebooks. “An online community has its own life. People are there to connect with others who share similar interests, not necessarily to learn about a product. Consequently, retailers have to be very careful not to be too aggressive. They should carefully connect with a community through things like contests, content and forums.”
The company believes committing resources to social networking will prove to be a good investment, even though it’s not yet sure how to prove it. “We have to figure out how to gauge the results,” Wertz says. “One way or another, we ultimately feel what social networking has to offer is worth the investment.”
The second of the three ways for retailers to get into social networking is by buying all or part of an existing social network, like Abebooks did with LibraryThing. While this entrée into social networking is more expensive than creating a space on a mass appeal network, it typically requires little work and no retailer staff on the part of the merchant and comes complete with a pre-existing community.
The deal makes a lot of sense because LibraryThing is about one’s whole library, not simply favorite and new books, and Abebooks is about all the great old books people treasure, says Tim Spalding, founder and president of LibraryThing. Spalding owns 60% of the network he founded a year ago.
From Abebooks’ point of view, the primary reason for the partnership is the data LibraryThing soon will start generating for the retailer, Wertz says. “The most searched keywords, types of forums, the opinions posted by members, and the links to our site and other sites make for rich, useful information,” he explains. “That information will help us better merchandise our products.”
Do it yourself
The third way retailers can socialize is by building a network of their own that typically is wholly separate from but linked to its e-commerce site.
In July Slingo Inc., which hosts online and sells games, launched a social network. The niche network offers its very regular and loyal customer base the things mass appeal social networks offer: creating profiles with pictures and other content, communicating messages to fellow online gamers, searching for new friends with common interests, inviting other members to join their circle of friends, creating forums, and sending e-cards. It also lets members participate in daily and weekly contests that award winners with online Slingo “cash” and prizes. In-house technology staff built the network based entirely on free open-source software, so the total cost is limited to the hours put in by staff to create and monitor the network.
“The social network lets us know more about our customers and adds a personal touch to our gaming environment,” says Eric Lamendola, director of operations and business development at Slingo, which now has an additional source of revenue: selling advertisements on the network.
Another benefit: The e-retailer can use the network to ask members questions about existing products and ones they would like to see, which produces myriad data that can help guide company efforts, says Pete Czech, director of online operations. “For example, we can discover what women, men and kids prefer, and shape special promotions and offer games that appeal to the various demographics.”
Another e-retailer that has a social network in house is Buy.com. Its Yub.com network—a predecessor that launched in February 2003 became Yub.com in February 2005—enables shoppers to see what others are buying and recommending. The company’s goal is to bring more shoppers into the online shopping mall and get them to browse for longer periods of time based on the input of fellow shoppers.
It’s an ideal venue to personalize a company’s brand; well-executed plans leverage a social network as a loyalty program, reaffirming the value of an e-retailer to customers by engaging them with other shoppers and brand advocates, contends Eoin Matthews, vice president of business development and co-founder of Yub.com.
“But because social networks are inherently viral, for better or for worse any significant mistake by an e-retailer is amplified, discussed more and passed on. The bad spreads with the good and e-retailers must be willing to cede some control to network members,” Matthews advises.
Potentially having one’s brand associated with unfiltered content that may not correlate with a retailer’s demographic is indeed a risk, adds Neel Grover, CEO and president of Buy.com. “It takes a certain leap of faith. But the opportunity is there for an e-retailer to really build depth in its relationships with customers. If an e-retailer is comfortable with associating its brand with a particular network, then there shouldn’t be any downside. Yub.com revolves itself around e-commerce, and it has been embraced.”
Flash in the pan?
Downside or not, will social networking in general be embraced for the long-term by shoppers as well as overall Internet users? Crystal balls are running from that question.
“Initially it might not grow much beyond 20% of Internet users getting into a social network for a certain amount of time,” says Horrigan of the Pew Internet and American Life Project. “As is typically the case with new Internet tools, that 20% may boil down to only 3% or 4% who remain heavy users. Today in list-servs and chat rooms, 2% to 3% of all users are responsible for 90% of traffic. It’s difficult to say if social networking will follow the same trend.”
And it’s very difficult not just for researchers but also for e-retailers—including those who already have jumped into social networking. Elliott at Alibris was confronted by the questions concerning the latest web phenomenon’s benefits, risks and staying power before Alibris started its MySpace experiment. His response to these questions pretty much sums up the industry’s present take: “Ask me again later,” he says.
bill@verticalwebmedia.com
