Yet, to be blunt, no matter how much I write, lecture, or consult on this concept, most folks still look at me as if I have two heads. “That’s a nice thought, Ron, but what do I tell my boss when asked about ROI?” Unfortunately, I’ve come to understand that as long as social media budgets are controlled by those afflicted with Communications Myopia, the value of investments in social media activities will remain underestimated–that is, right up until some event forces some of those assumptions to be revisited.

This morning, I read about such an event in the New York Times article: A Dispute Over Who Owns a Twitter Account Goes to Court. The article describes how a company (PhoneDog.com) is suing a former employee (Noah Kravitz) for control over the Twitter audience that he built while working for them.

Originally tweeting under the Twitter handle @Phonedog_Noah, Kravitz had successfully built an audience of over 17,000 followers. Since Twitter allows a user to change their handle without jeopardizing that audience, after leaving Phonedog.com, Kravitz changed his handle to @NoahKravitz. Eight months later, Phonedog.com filed a lawsuit against Kravitz, claiming $340,000 in damages [(17,000 followers) x ($2.50/follower/month) x (8 months)].

Phonedog.com released the following statement to the Times:

“The costs and resources invested by PhoneDog Media into growing its followers, fans and general brand awareness through social media are substantial and are considered property of PhoneDog Media L.L.C. We intend to aggressively protect our customer lists and confidential information, intellectual property, trademark and brands.”

In a nutshell, Phonedog.com isn’t suing him for the handle, which has their brand in it, but instead is seeking to “aggressively protect” its assets (property, fans, followers, lists, trademark). Sound familiar?

There’s an old saying that says: “You don’t appreciate what you have ’til it’s gone.” Phonedog.com now has a new appreciation for its social media assets. What about your company? Is it still trying to figure out the ROI of a blog post, tweet, or YouTube video? Or has it come to the conclusion that its investments in social media are compounding into long-term marketable assets?

While writing, I came across an amazing success story that demonstrated some of the book’s most important principles. The story involves a young musician by the name of Julia Nunes, who used social media to raise $78,000 US in thirty days–for her yet-to-be-recorded CD!

The story demonstrated so many of the book’s concepts that I wanted to release a case study immediately. The result is the following e-book: The Rule of Thumbs.

Please feel free to download a copy in your favorite electronic format: PDF, Kindle, iPad, or EPUB. The e-book is free and requires no annoying sign-up shenanigans.

Please let me know what you think of it!

• called automobiles horseless carriages
• called refrigerators iceboxes
• and we still call the act of capturing moving pictures “filming” or “videotaping–” even though we’ve eliminated film and magnetic tape from all of our solid state recording devices.

And if these examples don’t prove how unimaginative we are in naming new things, just look at the lengths that we go through to avoid using them.

Take public relations for example. Today’s PR firms who define their role solely in terms of earning media attention are simply retracing the footsteps of those whom we now look back upon and chuckle. They’re stuck in a rut. Just as the old saying goes: “If all you have is a hammer, every problem will look like a nail,” myopic PR firms can only see social media as yet another way to place their client’s messages in front of yet another audience. They fall in love with social media guy and his 100,000 Twitter followers. They gush over social media gal and her 50,000 blog subscribers. Yet, after lackluster “campaign” results (meaning their media alerts or press releases weren’t tweeted or blogged about sufficiently) the firms come to one of two conclusions: either social media doesn’t work or there’s something more to it than the summation of readership numbers.

Those who conclude the latter soon stumble upon the oft-used buzzword, influencers. ”We need to get your brand message in front of influencers,” they’ll say, before turning to services like Klout to help find them. Klout calculates someone’s influence based on a collection of metrics that includes audience, channels, and the propensity for people to share that influencer’s content. Klout does a great job of creating comparative indices for successful online content creators, yet it doesn’t identify those who are most influential on topics that your customers care about. Specifically, Klout can’t help identify nichefluencers, those whose opinions are respected by specifically the people who care about your products and services. Think about it. Even though Guy Kawasaki has a Klout score of 85, Ashton Kutcher an 84, the New York Times an 86, and the Wall Street Journal an 82, what do these numbers mean to a company that is trying to sell synchronous demodulators to users of rotary variable differential transformers?

A company called Traackr is attempting to solve that problem. Based on a premise that influence is more complicated, the company is also studying who’s responsible for delivering content to the audience that your company cares about. Traackr’s mission is to help companies ”…find the influencers who matter most to you.”

Both companies, Klout and Traackr, illuminate pathways to online influencers. Both can assist PR firms to earn influential media. But herein lies the rub. Considering all of the ways we gather information today, can  these services always identify the most influential people in our respective industries?

What about those who share their valued opinions using private networks such as:

• telephone
• email
• text messaging on their mobile phone
• instant message on a social network

What about those who share their expertise through semi-private networks such as:

• A Facebook account with its privacy parameters set conservatively
• A Twitter user who listens more than tweets
• or in-person events (family gatherings, the golf course, church, the daily train or bus ride).

It’s likely that the most influential people in your industry are hidden behind their private and semiprivate personal networks. But before jumping to the conclusion that invisible nichefluencers are irrelevant, let’s consider how well they’re respected. Have you ever asked a friend for an opinion on an upcoming purchase? Did they send you a link to more information? Was this this conversation available to search engines, Klout, or Traackr? If not, you’ve identified your own invisible nichefluencer.

The past has taught us to not define today’s games by yesterday’s rules. So, in addition to the traditional methods of earning access to other people’s audiences, companies must also build their own.  Audience-building starts with publishing great content that appeals to niche of audiences, where it’ll be found and subsequently shared by nichefluencers–both visible and not. If done correctly, your company will increase it’s own Klout score and Traackr ratings.

Which brings up a very interesting twist on the technologies:

How would your communications activities change if your company earned a higher influence score than its most influential influencer?

“I need 500 people to answer a poll question. Have the results tabulated and on my desk in one-half hour.”

Impossible, right? Maybe not.

On February 3, 2011 at 11:05 a.m., Leo Laporte gave companies a glimpse at such a future when he sent the following tweet to his 263,836 followers:

His poll referred to Rupert Murdoch’s new iPad application that can be rented for either $39.99 (annual subscription) or or $0.99 (weekly).

I watched in amazement as answers flooded my Twitter stream. And although I loved the instant data, I also wondered how Leo was going to tabulate it all. That’s when he sent a followup tweet:

Exactly one-half hour later, 520 votes had not only arrived, but they’d already been tallied.

Results

Think about this for a minute. 520 answers posted to an impromptu survey and the data neatly packaged in 30 minutes. Traditionally, how much time, effort and money would it take for a company to gather such data?

While most companies only see their newly found “social media” channels as yet another way to deliver their boring marketing messages, Leo Laporte has given them a glimpse at their potential future. Loyal audiences have value that can be measured on multiple levels.

In the past, our opposable thumbs separated us from the animals. In the age of digitized content, they also separate something else–active audiences from passive ones. Yesterday, third-parties chose what content we consumed. Today, hand-held devices return that control to us, through the simple act of depressing rubberized buttons with our opposable thumbs.

But the analogy doesn’t stop there. Social Networks such as Facebook and YouTube offer virtual thumbs-up buttons to indicate if we “like” something, and thumbs-down buttons to voice our displeasure. Today, a worldwide movement has given us more opportunities to express our individual views than at any other time in human history, so much so that thumbs-up sign has become the universal symbol for personal endorsement.

Like it or not (pun squarely intended), your company’s messages are at the whim of our thumbs. So what will it do with this new reality?

• How will your company earn our thumbs-ups?
• How will it respond if we indicate a thumbs-down?
• How will it encourage the use of rewind and volume-up buttons as opposed to fast-forward or mute?

The answer lies within The Rule of Thumbs.

I’ve found that the analogy works because not only do execs understand what a mutual fund is, most also own them. And since mutual funds have both investments and returns, we can always calculate a return on investment (ROI) from them, right?

Not so fast.

In order to calculate the ROI of a mutual fund, we need a minimum of four pieces of data: the purchase price, purchase date, sale price, and sale date. Without all four of these values, we can’t calculate ROI. Period.

Let’s take a look at three scenarios for calculating the ROI of a mutual fund investment: buy-and-sell, buy-and-hold, and dollar-cost-averaging.

Example #1: Buy-and-Sell

If we buy a mutual fund at $25 per share on January 1st and sell it for $50 per share on December 31st, our return on investment is a simple $25 gain, or a 100% annual return on our investment. Whenever someone asks the social media ROI question, this is the information that they are looking for.

Example #2: Buy-and-Hold

But, what if December rolls around and we decide to hold the investment rather than selling it? What’s the ROI then? By definition, we can’t calculate an ROI, because we only have half of the required information–the purchase price and date. Sure, we can estimate the value of the investment, but estimates aren’t the same as cash. We can’t buy groceries with estimates.  And so, since we can’t calculate the ROI of a mutual fund without selling the stock, does that mean mutual funds aren’t worth investing in?

Of course not.

Investors understand that their stock portfolios consist of financial assets as opposed to cash.  They understand that assets fluctuate in value due to other variables such as the economy, competition and technological advances. Investors constantly balance these facts with their personal tolerance for risk when deciding whether to increase, decrease or liquidate their positions in these assets.

Example #3: Dollar-Cost-Averaging

Dollar-cost-averaging is a common investment technique for retirement savings. By directing a fixed-percentage of each paycheck into purchasing shares of mutual funds, we exploit the power of time to smooth short-term market fluctuations. Since share purchases are executed every pay-cycle, we add to our positions at different price points–making for interesting ROI scenarios. For example, if our mutual fund’s share price has increased from $25 to $50 in one year and we’ve been purchasing additional shares twice per month through dollar-cost-averaging, what’s the ROI if we decide to take some profits by selling half of our position on December 31st? Although there’s an acceptable accounting calculation for it, in the end, the “true” answer is a still a little fuzzy.

Social Media is a Mutual Fund

The value of Social Media investments are like those into a mutual fund:

• ROI requires a start and end time– like a buy and a sell investment strategy.
• Social Media is an ongoing effort, similar to a  buy and hold or a dollar-cost-averaging investment strategy which makes measuring ROI fuzzy.
• The audiences that companies build through publishing relevant, online content is an asset to manage.
• Mutual fund assets can be converted into cash returns by selling shares. Audiences can be converted into cash returns by asking them to do things for you–like buying your products and services!
• But even when distributions are taken from assets, the ROI of the transaction can still be a little fuzzy.

So the next time that your company starts a blog, creates an online video channel, or builds an audience on Twitter or Facebook, ask yourself the following questions:

• What is the value of my investment into these audience assets?
• How can I take distributions from my audience asset?
• Does it make sense to keep making these investments?

Photo Credit: Matt Jiggins

“Because it’s my business strategy,” I answer — a strategy that I’d like to share with you today.

Competing in a Crowded Marketplace

When I started writing Read This First in the fall of 2008, the concept of “social media” was finding its way into the cultural lexicon. Instead of raising their eyebrows whenever I explained what I do for a living, normal people (those not in the social media fishbowl) began asking thoughtful questions. Throughout 2009, their curiosity grew as more and more businesses added social mediums into their communications plans.

When my book was released in November 2009, not only were bookstore shelves packed with new books on the subject, but an endless stream of social media consultants began hanging shingles on their virtual front doors. It didn’t take me too long to see Read This First as an opportunity to distinguish myself from something that my good friend Rob Shore calls, “a sea of sameness.”

What Business Are You In?

Many years ago I read What they Don’t Teach you in Harvard Business School by Mark McCormick. In it, he told a story about someone who asked Andre Heiniger, the Chairman of Rolex, for an assessment of the watch business.”

Heiniger replied that he had no idea about the watch business because Rolex was in the luxury business.

The story has helped guide many of my business decisions. So, while assessing my strengths and weaknesses in this rapidly crowding competitive landscape, I found myself asking, “What business am I in?”

I looked at the problem from a customer risk perspective. If someone wanted to mitigate the financial risk of buying my book, what did I have to offer them? Chris Anderson’s book Free convinced me to record and release a costless audio version of the book– a decision based on my faith in the marketplace. I figured that:

• if the book was good, people would listen.
• if someone didn’t want to invest the 5 hours required to listen to the entire book, they had an option to purchase a hard copy of it.
• if someone liked the audio book, they could either refer it to a friend or purchase a hard copy for them.
• and if they liked my business perspective on new/social media, they could hire me as a consultant or a speaker.

So, how is it working? Since I’ve I released the book:

• a professor at a college in Tennessee has made Read This First required reading for one of his PR classes.
• A consultant in Australia gives copies of the book to his social media seminar attendees.
• Weekly, I receive emails, tweets, and DMs, thanking me for letting them sample the book. Many tell me how they’ve since purchased multiple copies of the book for co-workers or senior management.
• And most importantly, both audio downloads and book sales have generated solid leads that I’ve converted into both consulting and paid speaking engagements.

So, What Business am I in?

I’m in the business of sharing my perspective with as many people as possible. Some people will prefer just to sample my perspective. Others will choose to pay for a customized version of that perspective. Either way, I’ve learned that the more people I have in each category, the healthier my business.

So, what business are you in?

As an executive, think about this for a minute. Here is a brand new venture that flipped a switch and opened a revenue stream of $1.128 million–instantly. Add the fact that it did so without spending a dime on traditional marketing or advertising and we have an interesting case study for our theory that Audience is an Asset.

Over the past five years, Chris has built an audience that consists of 47,000 blog subscribers, 125,00 Twitter followers, TBD Web visitors, and TBD email newsletter subscribers.  By asking it to participate in Third Tribe Marketing, this aggregated audience responded by producing 2000 subscribers paying $47 per month.

Put another way, Chris has built a financial asset that can distribute a $1.128 million annual dividend. Therefore, if we use a multiple of 10 times earnings, can we assume his audience is worth $11.28 million? Not even close. It’s worth much more because this audience pays more than one dividend.

Consider Trust Agents, the book that he co-authored with Julien Smith, that rumbled its way to the New York Times Best Seller List simply because he asked his audience to buy it? Or what about the business and speaking revenue his asset generates for his company New Marketing Labs? By adding up all of these revenue sources and multiplying the result by whatever multiple you’re comfortable with, we can calculate a real and tangible financial value for an online audience.

The value of your social media investments is calculated through the dividends your audience asset can distribute to you.

And for those fixated on ROI justifications:

Assuming that Chris worked 80 hours per week for five years creating valuable content (a number that I believe is conservative), he invested 20,000 Brogan hours into building this asset. Does the investment justify the return? I think so.

Photo Credit: C.C. Chapman

Here’s how the item is described in the report:

FCC broadcast licenses are granted for maximum terms of eight years and are subject to renewal upon application to the FCC. The terms of several of the Company’s FCC licenses have expired, however the licenses remain in effect until action on the renewal applications has been completed. The Company filed all of its applications for renewal in a timely manner prior to the applicable expiration dates and expects its applications will be approved as the FCC works through its backlog. The Company’s network affiliation agreement intangible assets are due for renewal in a weighted-average period of three years. The Company currently expects that it will renew each network affiliation agreement prior to its expiration date. Costs associated with renewing or extending intangible assets are insignificant and are expensed as incurred.

Let’s think about this for a minute. Media General is a company that owns 18 television stations, 21 daily newspapers, and publishes over 200 specialty publications. It’s broadcast business unit is required to purchase licenses from the Federal Communications Commission in order to transmit programming. FCC licenses are scarce resources, meaning that if Media General owns one, its competitors can’t, creating a competitive advantage that Media General has assigned a real financial value to through its balance sheet.

Compare and contrast Media General’s broadcast business with those of us who publish content online. We have no such restrictions. We don’t need to purchase FCC licenses and therefore are not subject to their trappings, such language restrictions, geographic limitations, public service announcements, and bidding wars that translate into hefty operating costs. Add the cost of broadcast equipment and radio towers, and we, the digital content producers, have a huge competitive advantage over traditional broadcast companies just by comparing our respective distribution costs.

Historically, traditional media companies have made their money by investing in two things: building their audiences and owning the distribution channels to those audiences. In the past, the combined value of these pieces was large enough to sustain a profit through renting access to them through advertising. Unfortunately, the value of today’s broadcast assets may have dropped to a point where the rent (advertising) won’t cover the mortgage (distribution costs) anymore.

And lastly, let’s revisit the question asked earlier: “Where did that $426 million go?” Did it just vaporize into thin air? Maybe not. I contend that its value was absorbed into the digital distribution channel, where it sits, waiting for smart companies to take advantage of it…companies that believe that Audience is an Asset.

Tags:Audience is an Asset Ron Ploof ronamok FCC licenses

I don’t blame them for their confusion. It seems that whenever they ask about social media, the explanation involves unfamiliar terms (blogging, podcasting, twittering, Facebook wall entries) rather than the long term objectives that these activities support. C-Suites want to invest time and money into social media, but won’t until someone can explain the business case using terms that are more than ten years old.

Recently, I’ve been searching for a tall thin concept that helps C-Suites understand the role that social media plays within their organizations. If I’m successful, it will answer all of the lingering questions, including those such as ROI, objective, strategy, goals, and tactics.

My research has oriented me toward Audience is an Asset–a concept that an audience built through social media channels is a corporate asset with real financial value.

Over the next few posts I’ll be sharing with you some of the insights that I’ve been gathering while studying the balance sheets of traditional media companies.

In the mean time, I’d love your thoughts.

Photo Credit: a r b o

Tags: audience is an asset audience as an asset ron ploof executive executives c-suite financial balance sheet