Social networks are a tsunami. They’re about to engulf everyone on the planet, in the same way that globalization has impacted consumers and companies alike.
They’re part of a new language of business and life.
Web 2.0. Wikis. Social Networks: What are they? What do they mean? And why are they relevant to you?
Whether or not you’ve heard any of these terms doesn’t matter.
If you haven’t experienced them directly you can’t imagine and you can’t understand why they should be incorporated into your business.
Today’s the day to start finding out though. You are going to need to know about these concepts for your business to survive the rapidly changing marketplace.
“Web 2.0 is the business revolution in the computer industry caused by the move to the internet as a platform” says Tom O’Reilly who coined the term
It’s about conversations.
Direct conversations between you and your customers, your shareholders, the media. They are going to be telling you what they want from your product, what your brand promise really means, and it’s going to evolve into a valuable relationship for them. Web 2.0 enables that conversation
Stephen Fry, the actor, says ”It’s actually an idea that the reciprocity between the user and the provider is what’s emphasized. In other words, genuine interactivity if you like, simply because people can upload as well as download”.
One more aspect is really fundamental and important in the whole concept of the new digital conversation. The conversation is not just happening one to one. It is happening in a crowd, where everyone in the crowd is listening in. For the first time ever, the smallest voice in the crowd has as much weight in the conversation as the loudest.
Globalisation was made possible by the development of networked information technology. It enabled supply chains to function so precisely that capital has been able to be deployed with hyper-efficiency, resulting in less requirement for holding product inventory and greater ability to serve demand in real time.
Everyone in business is aware of this and to some extent uses that knowledge to increase profitability of business. Reality is what you believe, and belief is being shaped by the network itself.
Consumer to consumer, rumour to reality, information flow at the speed of light about products, brands, political policy, corporate valuations… Command and control is no longer a viable strategy.
What is amazing is that armed with that knowledge and having real world experience, so few people I meet in business are paying attention to the impact on society of the next wave, social networks, and what it will mean to them.
Information technology is now providing consumers with the means to flatten intrapersonal communication in the same way that trade was flattened.
Australia’s federal election; the presidential race in the US - both are being reshaped by parties and candidates using YouTube. They’re making it a platform for announcing policy.
Mainstream media examines context as much as content and makes the platform part of the story. This alone should ensure that social networks move out of your peripheral vision and into the mainstream.
When Presidential candidates are having one on one conversation with potential voters the game has changed for all time.
And this is just the warm up before the main event. The tectonic plates of change are about to start grinding. Massive social change is coming and it will impact your ability to do business.
Remember how long – or short – a time it is since Google floated in the US and became a verb. Think about the following new brands: MySpace, Facebook, Linked-In. It’s been hard to avoid coming across at least one of these names in the media over the last year. Yet some people have.
Maybe some people have missed the coverage in either the business or mainstream media about the explosion of these social networks.
Valuations that these businesses are attracting should very definitely put them on your radar. Rupert Murdoch paid $580 million to purchase MySpace no more two years ago. Within weeks of the announcement he’d cut a deal with Google that more than guaranteed that News Corp would recoup the entire purchase price from ad sales guarantees.
In the last two months Microsoft purchased a stake in the new kid on the block, Facebook, at a $15 Billion valuation pre-money. Facebook has only half the subscribers of MySpace but is growing subscribers faster.
Analysts use the subscriber base as a simple metric to extract comparative valuations. Facebook, by this measure, has a $357 per subscriber valuation. This would then value MySpace at $65 Billion! Let’s assume that this is not the core benchmark for valuation since that would mean that MySpace represents over 90% of the value of NewsCorp.
But all hypothesising aside, what is happening here should be of interest to everyone in business. These valuations are not trivial. They are the market telling us what the value is going to be of being able to talk to one another.
More importantly though, social networks themselves are now also an ideas marketplace. They are not an amorphous concept that exists on another plane separate to your reality. Social networks are where your customers and your customers’ customers are gathering to talk to each other about their experiences.
Where they share stories about you, your brand, your service offering. In effect they are the new frontier of brand, reputation, risk and opportunity.
Many participants in this new conversation marketplace place more credence on the conversations that they have in this venue than in the information that they consume in the mainstream media.
Their perception is that spin and counterspin leads to a zero rating of the value of the filtered information to cynical consumers. The new conversationalists would rather do their own bullshit filtering and draw their own conclusions, but get that information at the source.
This has very big corporations very, very worried. It’s just beginning.
Eric Jackson, a Yahoo shareholder-activist, posted several videos on YouTube which he then incorporated into his blog. It attracted the attention of business journalists. The maximum number of views per video was in the low thousands, but the result was that the share price dropped and Terry Semel, the CEO of one of the largest new media companies in the US had to step down.
Here is a current scenario: A global Fortune 500 company realises that literally tens of thousands of its employees are members of Facebook. The company realizes that if a competitor were to use Facebook as a resource locator for future employees the company would be gutted. It is a very real problem that is just starting to emerge.
It’s not just about activism. It is about a very real set of brand and product reputational risks emerging.
Some executives talk about being obsessed with being market facing, but in reality are simply paying lip service to what is happening right in front of them.
There are logical reasons for this: most of them have been taught to keep their risk profile low. They see anything new and unproven as being inherently risky.
Some of them look at what’s happening and when faced with the problems of this new media model, respond in exactly the wrong way.
Look at music.
As digital delivery evolved back in the 1990’s music company executives built the walls of the citadel higher, and sued the bejeezus out of transgressors.
What has that led to?
Simple: declining sales, declining profits, declining share prices. (Warner Music’s share price has declined from USD 27.50 to USD 7.50 during the last year). Music companies missed the opportunity to truly socialize music consumption and have ceded it to Apple.
Worse still, they absolutely destroyed the relationship they had with their customers by suing them, instead turning those same people into Apple fans and customers. It’s the law of unintended consequences on steroids.
Here’s the challenge:
First: you need to start using social networks (or wikis or Web 2.0) if you are going to understand, viscerally, what your customers/shareholders feel.
Unless you understand the way they transmit thought as much as the thought itself you’ll be a couch potato watching instant replay on TV. You need to participate if you are going to understand. You need to understand if you are going to be able to build value.
Second: you need to monitor conversations within social networks if you are going to respond to them. There is no shortage of companies that are standing by ready to do that for you!
Third: If you demonstrate to your customers/shareholders/the media that they are part of a conversation that is as important to you as it is to them, and that you are going to change your brand, your product, your service to meet their needs, your organization will grow stronger both in terms of its relationships with its customers and consumers and financially as well. This also means that you have to be prepared to modify your business model in ways that you may not begin to understand yet.
Think about this as Management 2.0. Don’t make the obvious and natural response. Think about the value of the counter-intuitive response.
You may say that your business won’t be impacted by the change wrought by the socialization of information technology. It will. If anyone in your customer ecosystem has access to network communication, you are at risk.
When you bought into the IT revolution you may not have read the fine print. You purchased your ticket and got on board a roller coaster. Society – along with your business – is just cresting the top of the first slope. Hang on to your hat. It’s going to be a wild ride.
Chris Gilbey is a partner in Gilbey, Rodrigues and Marshall, a partnership that focuses on network dynamics, and is a director of One Minute Media and Vquence.
