Marketers and Wall Street Have Similar Questions for Investments in Social Media

An interesting breeze was felt last week, one which might be an indicator of how the winds may be changing for Social Media. A story published by Dow Jones Newswires quoted a Wall Street analyst on the subject of the virtual software company, VMware. I read the story because I had been a buyer of the IPO last year, but have since sold my shares. What I found interesting though, was the last paragraph, commenting on the changing perception of Wall Street for online applications within the context of Web 2.0.

"Maybe VMware has a very strong product offering today, but the question investors are struggling with is, for how long can VMware continue to have a technology lead," said Trip Chowdhry, an analyst with Global Equities Research…

VMware has started to make noise about how Microsoft is spreading the so-called FUD factor [fear, uncertainty and doubt] into the market. The company posted a defensive white paper on its Web site last month, in which it noted that Microsoft is "trying to restrict customers' flexibility and freedom to choose virtualization software by limiting who can run their software and how they can run it."

"Over the last three months or so, the entry into this space has been very aggressive," Chowdhry said. …It seems a stretch to imagine that VMware will ever return to the highs it saw last year. Chowdhry also points out that another driver in the stock's run-up was the fact that some investors have looked at virtualization as an industry, when in actuality it is a feature that most business software companies -- large and small -- are now battling to offer…

"Virtualization is a feature, not an industry," Chowdhry added. "Once it is a feature, you cannot command the same valuation as an industry." This is something that many of the Web 2.0 start-ups in Silicon Valley are going to have to learn as well, but that is a topic for another column. (END) Dow Jones Newswires

What I find interesting about this story is how similar the hesitation is for some brand marketing executives as compared to some financial analysts in the area of Social Media. I am a fan of online Social Media. I don’t think anybody doubts the transformational impact that it is having on empowering the voices of consumers with brand providers in the marketplace and the influence of sharing brand perceptions within such networks. Unfortunately, there is also a lot of suspected hype, as some corners ‘adjust’ theories on ideas such as the ‘long-tail’ in order to support their latest concept of how Social Media will affect future brand consumption – and sometimes these viewpoints lack any real experience with consumer insights or psychology (especially offline) or experience with the production and distribution realities that balance against the consumer appeal to be gained through customization. (I plan to address this in more detail with a future post.)

What is interesting, is that while everyone sees tremendous change, this quote acknowledges that it is still yet unclear where and how the most effective investment (or marketing spend) can work within Social Media (and that’s not to assume it would be anything but different for each and every brand, depending upon category, involvement, etc.). For example, the recent addition of targeted social ads on Facebook, seems like short-sighted, first-level thinking ...(yes, even if it leads toward Google-type search potential, it still seems like ‘putting the cheese in front of the consumer mouse’). That’s fundamentally inconsistent with the appeal of Social Media. And are social network sites really just a 'feature'? Why couldn't large online email providers like Hotmail or Yahoo promote social networking and profile capabilities within their vast existing email account bases? Regardless of the application or digital data stream, tomorrow’s consumer is going to quickly catch up with any strategies to reach them via Social Media, and not every approach is going to work transparently as planned.

Everyone agrees that Social Media represents a profound change for consumers and brands, but not everyone agrees on what represents the best approach to this opportunity, to date (especially for offline non-ecommerce brands). To many brand marketing leaders, it still looks mostly to be experimentation, at this point, and that must affect perceived ROI.