Comments on: Social is a Business Model

By: Links of the week - 8/1/11 | Collaboration for Good

Links of the week - 8/1/11 | Collaboration for Good — Tue, 06 Sep 2011 14:36:40 +0000

[...] Social business as a model – Doug Hadden from FreeBalance argues that a) the traditional model of business is changing with the rise of social business (see the Dachis group post he references) and b) this new model of business shouldn’t be measured by ROI. I don’t think he’s right: my perspective is that we’re still figuring out how to measure ROI with social, not whether. Maybe it’s not going to be a typical NPV or IRR analysis, but “doing it just because” is also an undisciplined approach. [...]

By: Links of the week – 8/1/11 | Social Sector Knowledge

Links of the week – 8/1/11 | Social Sector Knowledge — Fri, 05 Aug 2011 22:10:26 +0000

By: dhadden

dhadden — Mon, 01 Aug 2011 14:50:31 +0000

Josh,

ROI, as it is used, assumes causality. In other words, you spend $X on something and the result is $Y. The problem is that social business is a network business. In this case, you spend small amounts on numerous things that has a result of $Y. What was the contribution of all of these items? In the network model of communication, these initiatives can have a compound factor. The ROI argument would result in the conclusion that initiative Z did not result in sufficient return, when Z happened to augment other initiatives and contribute to the positive result.

Also, ROI assumes one-way communication. Perhaps that’s a gross generalization. I’ve only seen compelling ROI analysis on social media about broadcast measurements. Or, early warning that there is a customer problem trending (i.e. Dell hell). ROI seems like a blunt instrument to measure all of the possible effects of social media: improved customer satisfaction, improving products based on suggestions, determining a new trend that affects strategy, influencing an influencer who influences a prospect etc.

I’ve had numerous discussions with ROI experts. I’ve been part of ROI analysis in the past. I’ve read up on the latest state of the art. And, I’ve witnessed too much vendor nonsense about ROI to be less than skeptical.

Here’s the thing about a business model. Does Home Depot track the cost of accepting returns of products that were not bought at Home Depot? Can they measure the goodwill associated with doing so? The business model comes first. So, a non-social business can stick to ROI metrics on social media.

By: Josh Dormont

Josh Dormont — Sat, 30 Jul 2011 20:58:49 +0000

Hi Doug –
Interesting article and good to point out Schmaltz’s post (it is a must read). I disagree, however, with your notion that we shouldn’t measure ROI. We’re likely to see the way we measure ROI change (from NPV, IRR, etc.), but not the concept itself. Here’s why:
- ROI is a decision framework that says “I’m choosing this project or to spend money on X instead of Y.”
- I wholeheartedly agree that it is difficult to calculate the knowledge you’ve gained, but that’s nothing new. ROI has been hard to measure since folks started trying with early Knowledge Management efforts. But we’re seeing a growing generation of tools and strategies that are tracking value in pretty incredible ways.
- a social business model is still a business model. While it may be murky, it was also murky (hence the hurdle rate). Putting together a disciplined approach to this work, however, will be so important for its future.