February 26, 2009, 12:00 AM

Turning buzz into honey

No one’s quite sure how to make money from social networks. But they’re growing too fast for e-retailers to ignore.

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.

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