Wrong Place, Wrong Time

100 days ago Facebook’s IPO fiasco stunned Wall Street and at least some of the world.  We have learned that the IPO price was inflated because Wall Street needed a big winner and some combination of Facebook executives, underwriters and analysts overvalued the stock.  It appears that the overvaluation was complicated by the NASDAQ mishandling of the IPO (NYT).  What is not talked about as frequently, however, were all of the blogs and articles that questioned Facebook’s valuation prior to the IPO.  For example, Steve Henn and Zoe Chace devoted a week of broadcasts (the week leading up to the IPO) exploring Facebook’s value.  One great statistic they provided on May 15, 2012 was the price-to-earnings ratio of Facebook: “At current levels, it would take Facebook 100 years to generate enough profits to pay for itself.”  They then translated that ratio into advertising dollars: “Facebook will need to attract 10 percent of all advertising dollars spent on the planet ‘across all media – print, billboards, radio, television, Internet.’”  It is amazing to think that anyone believed that Facebook by itself could attract this amount of world-wide spending.  Yet, investors were legitimately attracted to Facebook as the marketing platform of the future.  Were those people crazy?  Maybe not.

Rather than dwelling on what has happened, what do we see if we focus on what will happen?  Does Facebook’s failed IPO provide an indicator of the future of social media?  I think that the answer is ‘yes,’ and that the direction it points is in fact to an increase in the use of social media through next generation social media platforms that build on Facebook, Twitter, and Linked In successes.  Earlier this month Bill Lee wrote a purposefully provocative article for the Harvard Business Review Blog entitled “Marketing is Dead”:  “Many people in traditional marketing roles and organizations may not realize they’re operating in a dead paradigm.  But they are.”  Lee justifies this assertion by pointing to studies that indicate that consumers define their own pre-buying research rather than follow marketing cues, and other studies that demonstrate corporate fatigue with paying for marketing campaigns that cannot show clear ROI.  He also cites Facebook’s IPO as an example of a last gasp of traditional marketing.  Lee suggests that companies should realign their efforts, focusing on “community marketing” and Word-of-Mouth efforts through social media.  Peer-to-peer marketing efforts, he asserts, are the ones that may succeed in the future.

Lee’s article is interesting in that it appears to contradict itself:  on the one hand, it calls Facebook a diversion, and, on the other hand, holds out social media as the platform of the future.  In fact, Lee is simply demonstrating the ironic issue with Facebook that helps to explain the problematic IPO.  Think back to the Henn/Chace statistic.  Investors fully expect that 10% of all advertising will and can be controlled by social media.  The problem is that Facebook was the wrong tool at the wrong time.  Traditional marketing structures continue to compete with and coexist with social media.  Social media, likewise, is in its infancy.  Facebook is too big, undifferentiated and unwieldy for business use.  It is too unreliable as a corporation to build much consumer trust.  Finally, it is simply not technologically advanced enough to fully inhabit mobile devices.  As social media communities grow, segment, differentiate themselves, and demand better service from corporations, social media will eclipse traditional media.  The “social capital” that Lee discusses will accumulate around individuals and communities in the social network, and businesses will fully shift their newly reformed marketing efforts to those locations, too.

Resources:

CNBC Market Alert – Facebook IPO Blame Game.  Retrieved from http://video.cnbc.com/gallery/?video=3000111062

Henn, S. & Chace, Z.  (2012, May 15).  Is Facebook Worth $100 Billion?  NPR Planet Money, Retrieved from http://www.npr.org/blogs/money/2012/05/15/152736516/is-facebook-worth-100-billion

Lee, B. (2012, August 9).  Marketing is Dead.  HBR Blog Network, http://blogs.hbr.org/cs/2012/08/marketing_is_dead.html

Rooney, B. (2012, August 21).  Facebook:  A Desperate Need to Be ‘Liked.’  Huff Post Tech, Retrieved from http://www.huffingtonpost.com/brian-rooney/facebook-stock-price-mobile-app_b_1811548.html

Rusli, E.  (2012, August 22).  Citigroup Assails Nasdaq Over Flawed Facebook I.P.O.  DealB%k, New York Times, Retrieved from http://dealbook.nytimes.com/2012/08/22/citigroup-blasts-nasdaq-over-facebook-i-p-o/

Book Buying and Beyond

One of the great traditions of elementary school in the US is Scholastic books.  I remember bringing home the paper catalog, choosing a book, placing my order through my teacher, and a few weeks later getting my book at school to bring home to read.  It was a real treat.  Of course, these days, Scholastic books are a huge online extravaganza.  Although my child still brings home paper catalogs, the ordering can happen online.  The order goes to the teacher, I pay with my credit card, and the book comes home same as always.

The website has some tremendously valuable attributes.  First, it can be searched via a number of methods, including by the paper catalog issue/page, by author or main character and by age/school level.  Second, the site includes educational and instructional materials for parents, as well as expanded merchandise selections.  Third, the site allows teachers to interact with parents.  The teacher can suggest books that the students in the class might use, and teachers receive points that they can use to purchase instructional items for the classroom based on the amount of money that parents spend that year.

Scholastic has moved beyond books and into learning with a capital L.  Recommended reading lists that blend marketing with information are posted, but they are enlivened by commentary from actual parents.  See the comments on the Top 100 Books listing, including suggestions of books that are missing (Chicka Chicka Boom Boom, Roald Dahl titles, and no Laura Ingalls Wilder).  Blogs include advice on how to help children attain reading and writing literacy.  For example a recent article found via the parents Scholastic Facebook page (but hosted on Scholastics’ website) shows how to set up a writing center for children 5-7.  Beyond that, however, photos make the Scholastic Facebook timeline bright and helpful.  Children’s cardboard box structures, dog photos, and book covers illustrate the creativity that accompanies child critical thinking and literacy skills.  Click here for a great example of what kids can do with boxes!

In fact Scholastic is moving to compete with Kindle and the Nook.  Their website includes links to different apps that allows me to use the Scholastic books with my child in a few formats (including a mobile app that records the amount  of time the child reads as part of a summer challenge to motivate reading, and an e-book app).  The e-book app just won the “2012 Editor’s Choice Award” from The Children’s Technology Review (PR Newswire).  According to the company’s summary of the first quarter of 2012, e-Book sales were a large part of its 10% growth (Scholastic reports).

A 2010 Harvard Business Review story overviewed a new model of consumer behavior called the “consumer decision journey” (CDJ) which was originally introduced in a June 2009 issue of McKinsey Quarterly (Edelman, p. 1).  The CDJ model replaces the sales funnel model, showing that consumers spend more time in the evaluate, enjoy-advocate-bond parts of the purchase process than in the traditional winnowing process the funnel model emphasizes (Edelman, p.8).

CDJ ModelFigure A (Edelman, p. 8):  CDJ model – the post-purchase phase is extended and retains a relationship with the product.  Consumption is not limited to the immediate purchase, but includes more emphasis on the emotional connection the consumer feels to the brand through the social process of sharing the experience with others.

 

 

 

Figure B (Edelman, p. 8):  Traditional sales funnel – all of the emphasis is placed on the movement from awareness to decision in the pre-purchase phase.Funnel Model

The new open-ended relationships that consumers have with products, created by easy access to information sharing, means that retailers need to renew focus on creating a reliable, coherent message that aligns in reality with their product.  Scholastic’s entry into the book app market, with its track-record of helping parents help their children, is another win for parents who want to foster literacy and creativity within our upcoming generation.

Sources:

Edelman, D. (2010).  Branding in the Digital Age:  You’re Spending Your Money in All the Wrong Places.  Harvard Business Reviewhttp://hbr.org/2010/12/branding-in-the-digital-age-youre-spending-your-money-in-all-the-wrong-places/ar/1

Scholastic, Inc. (2011, September 22).  Scholastic Reports Strong Fiscal 2012 First Quarter Results.  Scholastic Media Room, Retrieved from http://mediaroom.scholastic.com/node/498

Scholastic, Inc. (2012, May 24).  Scholastic Storia Awarded The “Editor’s Choice Award” by Children’s Technology Review.  PR Newswire, Retrieved from http://finance.yahoo.com/news/scholastic-storia-awarded-editors-choice-170600046.html

Facing the Future

Does the Facebook fiasco of the last week matter?  It does, because it identifies the forces and tensions that are struggling to determine control of social media and the future of virtual communities.  In one corner are the companies that structure the internet, such as Facebook, that create the technological interfaces that bring people into contact with other people, goods, services, and information.  In another corner, there are the investors, corporations, companies, and other institutions who hope that these communities will serve as markets and prospective client bases that will generate profits.  In a third corner there are the various individuals who hope to engage with other individuals, companies, and other information sources in an honest, trustworthy manner.  As the Facebook story shows, there is no simple alignment between these forces.  For a full blow-by-blow of the last week, see Julianne Pepitone’s CNN Money Blog.  The key question, however, is simple.  What is Facebook worth?  From the investor perspective, does Facebook have a clear plan for how it will monetize the personal information that users provide to it in overwhelming amounts every day?  From an individual user perspective, does this plan provide enough benefits to keep the daily download of free and valuable information flowing?

It is easy to understand why Facebook’s collection of data makes marketers salivate.  Users willingly share contextualized information about who they know, how they know those people, and what interests they share.  The majority of adults who use social media, according to a 2011 Pew Internet Survey, use it to stay in touch with current friends (67%), family (64%), and old friends (50%); the next highest reasons are sharing hobbies or interests (14%) and making new friends (9%).  Marketing 101 tells us that the way to a consumer (or client’s) heart is through his/her needs.  Propose a solution to a clearly defined problem and the sale is at least half made.  Marketing 101 also tells us that people are more likely to trust information from known sources, including people they know or organizations they trust.  Publicize a product or idea through word of mouth, and obtain stronger credibility and more lasting awareness.  The contextualized information available through Facebook is a treasure trove of information that marketers can use to sell effectively.  Just browse Inside CRM’s 100 Tools and Tips.

So why the doubt this week?  First, investors are not convinced that they will receive a return on their investment.  One question is whether Facebook has the technological infrastructure in place to literally translate ‘likes’ into sales in a structured, guaranteed manner. The technology for culling through the mass of information to identify the most lucrative correlations and act upon them in a timely fashion may not be mature enough yet.  However, there is another issue.  Will the Internet communities created through technological interfaces such as Facebook remain constrained by those technologies?  Or, will they also mature, and demand more communal control over the terms of their participation?

Sources

Editors.  The Facebook Marketing Toolbox:  100 Tools and Tips to Tap the Facebook Customer Base.  Insider CRM, Retrieved May 26, 2012 from http://www.focus.com/fyi/facebook-marketing-toolbox-100-tools-and-tips-tap-facebook/

Pepitone, J. (2012, May 23).  Facebook IPO:  What the %$#! happened?  CNNMoneyTech. Retrieved May 24, 2012 from  http://money.cnn.com/2012/05/23/technology/facebook-ipo-what-went-wrong/index.htm

Smith, A. (2011, November 15).  Why Americans Use Social Media.  Pew Internet Survey.  Retrieved May 24, 2012 from http://www.pewinternet.org/Reports/2011/Why-Americans-Use-Social-Media/Main-report.aspx