I am very proud to announce that BabyFin III is coming in November 2007!!! This will be our third child and we are very happy to be blessed again. Jose, I am going to catch you :)
While flying to NYC today I read an interesting article talking about “the three-screen universe” (TV, PC, and cell phone/gaming gizmo/iPod). The basic premise was that we have so much information available to us that it is potentially causing a social breakdown by contributing to ADHD type behavior and actually isolating us from interacting with one another. The more I thought about this I began to apply the meaning of the article to myself. How many times a day do I check my smart phone? 10, 20, 30 times a day??? Knowing me it is probably more like 50-100 times a day. Then I think about all the time I spend gaming (granted the kiddos are asleep) but that time could be spent interacting (No co-oping with your buddy does not count) or sleeping and of course the weekly TV (LOST) and during football season the weekly Oklahoma Sooner game. Then I started thinking about potential disruptive behavior in meetings, laptop open and working during meetings, checking the smart phone 15 times during the meeting, etc… you know you do it or have done it at one point in time. The whole point is to just say every once in a while before you go to pick up that controller or smart phone/ipod/blackberry think about doing a little something for society and interact (positively) with your environment and don’t feed the e-mail monster. It will still be hungry in the morning.
Changes have been in the works over the past few years, dramatic changes and challenges are beginning to have an effect on traditional business. You look at software as a service (SaaS), service oriented architecture, and especially Web 2.0 and how organizations are trying to define new strategies. From my perspective, I focus a lot of time around discussing Web 2.0 and the value to traditional business.
Some of the common questions that are raised are: how do I calculate ROI around community? What are the contributing factors? How do I know that it is truly beneficial for me to have a community vs. not having one? The most common mistake when calculating ROI around community is to focus solely on the activity of the community. Things like unique visitors, page views, session time, community click throughs, read-to-post ratios, are all very useful in defining the health of a community, but they alone do not translate into a tangible business value that you can hang your hat on. When reviewing ROI you have to look at economic indicators such as the incremental value of the community and conversion rates.
Incremental Value is the difference between the value created by a business with an online community and the estimated value that the business would generate in the absence of community. There are a few guidelines that serve as baseline factors when calculating ROI. Research shows that Community members make up only 5% of the overall customer base, but this group accounts for 30% of the purchases and average transaction size is twice as large for community members as for non-community members. One of the biggest factors in calculating Incremental value is the referral factor. Community members are twice as likely to refer others to the site and the retention rates are 50% longer for community members than for non-community members.
With that in mind I began the process of creating a formula that took into consideration variables such as Advertising Dollars, Potential Market, Current Market Over Time and Direct and Indirect Growth to both Community and Non-community Members as well as accounting for retention and Word of Mouth. The end result is the following:
(A+(Nt/M) (b)) (M-Nt) = Community Member
(A’+(Nt‘/M’) (b’)) (M’-Nt‘) = Non-Community Member
Here are the variables
A= Advertising Dollars
Nt=Current Market over time
b= Direct Growth + Indirect Growth (CMs)
b’= Direct Growth + Indirect Growth (NCM)
r = Retention = 10% or .1
w= Word of Mouth Referral = 5% or .05
c= Content = 5% or .05
b = referral + 2(.005) = r + 0.0115
b’ = referral + (.005) = r + 0.01/2
So with this in mind you can look at this practical example:
10,000/1,000,000 (b) (1,000,000 – 10,000)
b=.1 + 2(.05) + .05 = .25 b= r + 2w + c
b’= .1/2 + .05 = .1 b’ = r/2 + w
CM (10K, 1,000K) = (.25)(99,000) + 10,000 = 34,750
NCM (10K, 1,000K) = .1(99,000) + 10,000 = 19,900
Thus based on the criteria referenced above, having a community will yield a 74% increase over time as compared to not having a community based on the sample size.
In future posts I will look at another example of ROI calculation based on the average value of a Non-Community Member compared to the value of a Community Member. This will focus on monetizing the community and assumes a product based community. This requires an understanding of the average transaction per customer, total customers (projected or actual), potential market and the current conversion rates of the product. I will also review how Subject Matter Experts and Word of Mouth is calculated to come up with the 5% referenced above.
Viral Marketing is now one of the most powerful ways to market online. The key to viral success comes down to interruption vs. invitation. Traditional media such as television has the potential to reach hundreds of millions but the message may not resonate or be clearly discerned by the prospective target audience due to the “noise” and passive positioning associated with this type of delivery. The beauty of viral messaging is that it has a much better chance to get the users attention as the message is either coming from a trusted source, a recommendation, or meets the search criteria defined by the user. Also, this type of message is available on-demand which gives the user ultimate control over when and where consumption occurs.
One viral aspect that is getting a lot of attention is online video. If you are reading this you have more than likely viewed a user created video on YouTube or some other site and you are not alone. Online video is beginning to garner more attention from average viewers with 4% of people over the age of 18 watching videos daily and another 14% watching at least once a week. Research shows more organizations will be shifting marketing dollars to producing and positioning online videos. The reason for the shift is that video ads show a propensity to generate higher ad interaction and longer ad viewing (2/3 of the way through on average) this in turn leads to higher click-through rates.
So as an organization you may be thinking about focusing on online video or maybe you are looking to tie into user generated content and incorporate your advertising. If so, you need to focus on a few key factors. As with any type of marketing activity consistency is the key. Ensure that you are intrinsically linked to your brand, your video should require online interactivity and it needs to have synergy with offline marketing material. The other key factor revolves around the concept of Social Media Optimization or SMO.
SMO is the process of optimizing your online media presence by becoming more visible through searches within online communities and community web sites. The concept of SMO is to increase the chances of your video being distributed more widely through community search engines. This is very important as this is the key driver for this type of viral strategy.
As you consider your viral strategy it may become clear that you need a solid community presence associated with your brand. This is where branded community offerings can be applicable. Integrated platform (Blogs, Forums, File, Photo Galleries, Video & Podcast support, RSS) that streamline the positioning of an online community. Let me know if we can assist you with your community or viral marketing needs. We would be more than happy to assist. Feel free to contact me with questions at email@example.com