Return on Investment (ROI) is very a simple business concept and it exists so that when we plan to make an investment we have some metric in mind so that we can measure the success of the investment against out original expectations.
It’s just another way of saying the profit is always in the sale. If you have no idea what you are going to sell something for when you buy it how will you know if it is worth buying?
Put very simply, if no ROI is expected or can be calculated in advanced then the probability is very high that no ROI will be achieved… and if no ROI is achieved then chances are you will have lost time and money on the investment.
Now you have probably noticed that the So.Me Gurus out there at the moment battling to answer that most difficult question. What’s the ROI of Social Media? Many will try to differ the question by suggesting the question isn’t relevent yet or better still you need to put that question aside until we are in a better position to answer it.
Some have even been known to invoke the ultimate pivot strategy by turning the question into a question (i.e. What’s the ROI of your Mother). This type of response is little more than a dinner party trick that disguises the fact that the Internet and So.Me are tertiary level media (i.e. the network grows (initially at least) by feeding off preexisting media, messages and now with the advent of the So.Me relationships). So invoking the analogy of Motherhood and the nurturing of offspring is somewhat misguided in this context. A better analogy would be what is the ROI of your children?
Some of the other So.Me Gurus reposition the question by simply proclaiming that ROI is the wrong methodology for calculating the value of the So.Me. Here I agree. ROI is probably not the right metric for So.Me. How about LOL (Likes of Loses) or SOS (Share Of Social)?
Seriously though we may be better off talking in terms of Total Cost of Ownership. i.e. Your investment is the So.Me is a sunk cost that will not deliver any tangible benefit to the organisation. Intangible benefits yes. Here I am thinking about likes and shares. But tangible benefits? In all probability the answer is none… at least that is until you dramatically rethink your expectations of the So.Me.
The question then is where do you start if you are going to rethink your expectations of the So.Me?
The opposite side of the coin to the ongoing efforts to discover the ROI in Social Media is the eternal search for a business model that will allow this current generation of So.Me start-ups to monetize their web sites.
If marketers can identify the ROI then chances are the start-ups will be able to identify where they can make money out of social media… and visa versa.
So let’s see if we can try to discover where both parties can profit from solving the So.Me puzzle.
As we have seen many times before business models based on generating endless lists of likes are very popular but they are also very hard to monetize (Think: How do you monetize a social network?). So what I have done is applied the Logic + Emotion idea to the problem of monetizing list engines and this is what I have discovered.
The modelling is self-evident. High value web properties like Google have cracked the equation by servicing the need. Low value web properties like the Social Networks and Social Media service likes and allow you ti create your own lists.
For Social Media to mature into valuable web properties and ultimately deliver an ROI to advertisers and marketers they need to bridge the divide between generating lists of likes to generating lists of needs and wants.
This makes business modelling for start-ups pretty easy. If you market research tells you that you target audience would like to do that (i.e. What ever activity it is you are planning to deliver online or via the mobile phone) then you know you are on a real loser that will be very popular but extremely difficult to monetize.
However if the response is I really, really want or better still need that then chances are you have scored yourself a winner.
Likewise for advertisers and marketers the objective isn’t to be liked. Maybe not even to be loved. It is to be wanted and needed.
Needless to say, once you start thinking this way you can see why success will ultimately come to those So.Me platforms that deliver an experience where the virtual presence of the products and services of the world’s advertisers and marketer are both wanted and needed by the audience.