Good use of social media equals good financial performance

Jul 27, 2009

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Get engaged, make money (and maybe investor ‘friends’)
 
Companies most committed to social media tend to outperform their peers in terms of revenue, gross margin and net profits, according to new research. The report by Wetpaint, a website hosting company, and social media expert Charlene Li’s Altimeter Group ranks the top 100 global brands based on the depth and breadth of social media engagement and finds a ‘correlation’ with financial performance.

Entitled ENGAGEMENTdb and produced as an interactive website with a ‘rank yourself’ feature, the study critiques more than 10 discrete social media channels, including blogs, Facebook, Twitter, wikis and discussion forums. Activity in each channel is ranked for depth of interaction on measures corresponding to that specific channel. Scores for overall brand engagement range from a high of 127 to a low of 1. The top 10 brands with their scores are:

  1. Starbucks (127)
  2. Dell (123)
  3. eBay (115)
  4. Google (105)
  5. Microsoft (103)
  6. Thomson Reuters (101)
  7. Nike (100)
  8. Amazon (88)
  9. SAP (86)
  10. Tie - Yahoo!/Intel (85)

Companies at the low end of the scale include Citi, Goldman Sachs, AIG, Danone and Kellogg’s. It is unlikely that AIG’s troubles stem from a dearth of Twittering and Li is quick to point out ‘no one yet has the data to determine direct cause and effect.’
 
However, in a press release, Ben Elowitz, CEO of Wetpaint, says the study ‘goes a long way towards validating the importance of social media for business. Companies should feel much more comfortable investing in social media – the correlation to results is so clear.”
 
For her part, Li believes social media will take up an ever-growing part of the IR budget. ‘After all, it’s called investor relations and the best thing about social media is it allows you to develop relationships,’ she says. ‘So it’s not simply telling people about your company’s prospects. You can have a dialogue. For example, investors can tell you what kind of information they want in quarterly releases. An ongoing conversation means you don’t have to guess at the questions they’ll ask and there are no surprises.’
 
For now most IROs remain skeptical. While Dell may have an IR blog and eBay Twitters updates during earnings calls, and even Latin American airline GOL Linhas Aereas Inteligentes has a Twitter account associated with the IR department, according to Li the majority of IROs are ‘absolutely terrified’ about the legal compliance aspects of using the new media.

‘One of the most hostile audiences I ever encountered was composed largely of IROs,’ she remarks. ‘They think it’s the worst thing ever and just want it to go away. They are worried about possible rule-breaking if employees are allowed to talk about anything they want. The fact is employees – and executives – can talk about anything already. And they typically don’t.’

While not denying the risks, Li believes they are trumped by the opportunity to develop relationships with investors. Echoing comments by NIRI CEO Jeff Morgan, she advises IROs to ‘experience engagement’ on a personal level. ‘Until you personally use discussion forums or go on to Facebook or Twitter, it’s hard to understand why they are so compelling and how they can be used in a work context,’ she says. ‘The millions of people using [new media] aren’t crazy and they absolutely do include investors, analysts and the press.’
 
Underscoring her point, Li says one of her recent tweets inspired an instant phone response from reporters at the Wall Street Journal and New York Times. ‘It was tweet, ring,’ she says. ‘It couldn’t have happened faster. How’s that for ‘convergence?’

Social media examples


By Jeff Cossette

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