Four Social Media Questions You Must Answer During an Economic Downturn

Most of my readers are interactive marketing professionals, they are experimenting, using, or living in the social media world –for some, it’s part of their very being and defines them professionally, and personally.

Social Media (which has gained popularity in the last few years) has never stared down an economic downturn, My CEO sees at least three to four quarters of reduced technology spending, and Chris Kenton sees even a more dire situation.

Four Social Media Questions You Must Answer During an Economic Downturn Whether you’re a CEO of a social media company, a professional blogger, or a community manager at a large corporation, you’d better be able to answer the following questions:

1) Is social media usage going to increase or decrease during a recession by consumers? In the last tech bust, I remember many tech professsionals going back to school, becoming real estate agents, or fleeing silicon valley, will migratory usage patterns evolve in social media? Yet even if usage of these tools increases, yet do these consumers have buying power?

2) Will brands and marketers increase spending on media that is generally unproven? Blog network Gawker recently laid off staff in anticipation of advertising dollars dried up, the key word here is anticipation, it hasn’t fully hit yet. Anecdotal case studies are available everywhere about social media, but hard ROI measures are hard to find –will marketers lean on the guaranteed 1-5% return on traditional advertising?

3) Will these be tools to improve communiation and collaboration within the enterprise? Time to think internally here, with travel prices going up, companies reduce travel plans, will these tools increase productivity, or will face to face meetings still prevail? Are these tools effective in communication beyond the ‘shiny’ factor?

4) Will the economic downturn force efficiencies to occur by shedding companies that lack innovation? The dot com bust was considered a market correction, is it now time to get rid of the new wave of dot coms that are missing vowels? or are the operating costs just too inexpensive that they will still thrive –and keeping markets crowded.

I’ve lightly weighed both sides above, I have my ideas, but would love to hear your thoughts below, I’ll state mine too.

Update: this post by James Duthie has thorough analysis, a must read.

  • Dan

    Good questions. I’ll let myself fall into the easy mode of answering exactly what you ask, as if I’m in a high school classroom.

    1) social media usage among consumers will increase, in part because they’ll have more time on their hands, but also because social media is an outlet for their frustration, for finding jobs, etc.

    2) brands and marketers will rely more heavily on proven media as their overall budgets constrict, leaving less room for experimentation

    3) successful enterprises, including government, will continue to deploy enterprise 2.0 tools, but those hit hard by the recession will put enterprise 2.0 plans aside until they’re more flush with cash

    4) companies that lack innovation are always shed, eventually (i assume you mean startups); with less investment capital now available, companies will have a harder time getting to their exit point; sure, some may stick around because it’s less expensive to keep something alive, but it’s not free

    Finally, in answer to one of your implied questions, this should be a great time for social media from the perspective of mass participation in the conversation. Economic downturns can be opportunities for new ideas to be born, and with lots of ideas flying around, it may be fertile ground for the next great thing to get its start.

  • Peter Cunningham

    My Tu’pence worth

    1) Is social media usage going to increase or decrease during a recession by consumers?

    As Dan said – those who lose their jobs will have more times on their hands and will see social media as fun, a way to keep up morale, a way to network with business colleagues and hear about job opportunities. Things like the need to publicise your skills and learn new skills should increase the use of social media.

    If the economy really nose dives, those who keep their jobs tend to get paranoid and work extra hours and try to look super busy all the time in case some consultant comes along and identifies them as an overhead. Also loose work practices, like being connected to FB all day, will be tightened up on. That will be a culture shock to the generation Y/generation slacker types.

    2) Will brands and marketers increase spending on media that is generally unproven?

    Ulimately all media spend will need to show ROI. It is amazing that ad agencies have managed to sell TV and billboard ads for so long with no visible ROI.

    A higher percentage of spending will go online as now more people are online and the ROI is easier to track. Expect increased pressure to deal in CPA and not CPM!

    3) Will these be tools to improve communiation and collaboration within the enterprise?

    Yes yes yes. With petrol that costly and travel budgets down online collaboration is the way ahead. Thats why Cisco bought Webex and IBM just launched Bluehouse. But also think Zoho, Google Apps, Salesforce.

    4) Will the economic downturn force efficiencies to occur by shedding companies that lack innovation?

    No – its not all about innovation. Its is about critical mass and providing value to customers. If it was about innovation then Microsoft would have ceased to exist years ago.

    Social media has exit costs – your posting history and social graph. Those that have a critical mass of users and who are profitable will survive.

  • Very interesting entry Jeremiah. This is something that I blogged about on the Impact Interactions blog yesterday as well. I took it from another angle though, experience surviving the 2001-2003 tech wreck that killed off many online community projects.

    While trying to determine demand is important, internal politics and budget decisions trump assumptions on usage. Because of this, social media managers must dig into metrics and prove the value of their projects. We belong to the online community research network and are constantly shocked at how many organizations have no idea or do not intend to measure the business value of their efforts. That ends up being a disaster when budgets are submitted and reviewed during a downturn.

    You can find the blog entry here: http://impactinteractions.blogspot.com/

    We watched several strong brands like Sony, Ace Hardware, and others kill off their communities because the community team could not justify why the use of a community in a down turn would work.

    History repeats itself… again.

  • My CEO and I just had this conversation yesterday and much of our conversation is along the same lines of what folks are saying here.
    1. Social media usage will increase in part because this will be a way to connect with communities in a way that traditional marketing $ can not reach plus budgets will more than likely decrease for traditional ad, staffing, direct mail, etc.

    2. With investing in stocks, real estate, etc. Social media investments may be a more viable option.

    3. Definitely, already, we have tools to help foster communication, collaboration and scheduling and manageing online events/webinars, etc. This will be a means for reaching the same audiences and reduce escalating T&N related expenses.

    4. Uncertain about this one. But it is interesting how in the .com error, everything was free and banner ads were the fuel for these free services. Today, the model with free Web 2.0 tools seems to be the game, but not sure how funding will support these. I love the question… “is it now time to get rid of the new wave of dot coms that are missing vowels?” In our industry, there are many great and innovative products that don’t make it because there just isn’t a lot of sales/marketing efforts to get it out there and the larger companies either buy them out or they move on. There are a lot of great free Web 2.0 tools out there, word of mouth and connectivity with bloggers, etc. help to increase there awareness. I believe those with a viable business plan and a monetization strategy will succeed and could benefit in the way of added investments. I wondered how long the “free” notion would last. The question is, what model will social media companies move toward in order to create a model that shows growth beyond community size, hits,but probably now to include revenue? Or is that an element that can not a requirement yet? Thanks for posting. Timely.

  • I agree wholeheartedly with Peter that everyone is going to have to get better at showing ROI. The time for play and experimentation is probably over.

    But for those who’ve learned enough from playing and experimenting to deliver business results, I think the tools of social media are such cost-effective communications channels that they’re not going anywhere.

  • Times of distress can cause us to be more innovative and try things that give us hope to be stronger once the malaise is over.

    I purport that for Web 2.0, or any other names you would give for the social tools, to have staying power, IT HAS TO PROVIDE UTILITY rather than fun.

    So I think (1), (2) and (3) will trend positive may be just to a lesser degree.

    I believe there will be more concerted effort to invest in these tools to be more productive or competitive.

    We are already seeing successes in our users and clients on our Platform, many Gen-Yers growing beyond the Facebook and mySpace, finally learning to leverage the social tools to be more productive for collaboration and communication internally and externally in new ways they, or we for that matter, never thought of before.

    We believe such experiments will grow in difficult times especially with STILL affordable tools even with smaller/limited budgets.

    On (4), that’s a natural life cycle weeding out the weak. Many will adapt successfully for sure.

    C.H. Low, CEO, Orbius

  • Great questions you’ve posed here Jeremiah.

    Keeping it simple – I think the way that our economy is right now, it provides greatest opportunities to those companies/individuals willing to take the risk while everyone else is pulling back (i.e. gawker).

    Social Media usage as a whole will increase as marketing budgets begin to decrease. But the key will be, how many of these companies actually understand the space vs. just trying to utilize a less costly marketing strategy? By weeding those companies out, you’ll then be able to see who will benefit and even profit from this economic downturn.

  • WayneK

    C.H. low wrote:

    “We are already seeing successes in our users and clients on our Platform, many Gen-Yers growing beyond the Facebook and mySpace, finally learning to leverage the social tools to be more productive for collaboration and communication internally and externally in new ways they, or we for that matter, never thought of before.”

    C.H. hits the nail on the head here. When users learn to use social tools for more than fun, ROI will naturally become apparent. Any examples that you can share C.H.?

  • The issue is and I believe Jeremiah or one of the commenters may have mentioned it is that we have no historical data to go off of. I.e. what to do, or what happens to social media initiatives in an economic downturn. So we’re not sure if communities grow, shrink-band together or what.

    But since there is a lot of gray area, I’m of the thinking that maybe this is more of an opportunity to define and determine the outcome before it happens. Social Media has that potential because it is so user-centric.

  • With less then 10% of all adv. spend online today, Online will continue to grow (market share) even in a bad economy. As a direct result, Social Media will also benefit. Money not spent on social media projects over the next few quarters (due to economic downturn) will ultimately still be spent ($$ will move into this sector more and more as time goes on).

    Not to highjack your thread away from your original 4 questions, but I would add that tough economic times are an excellent opportunity for smart companies to grab market share. There are way too many SoMe startups doing the same things. Lastly, expect this space to commoditize quickly.

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  • 1. To the extent social media is used by consumers, the tide seems to have already turned. People generally prefer to experience a brand in the context of a conversation and have expectations around those communications. Companies that are able to nimbly navigate those expectations stand a far greater chance of interacting intelligently with those consumers, recession or not.

    2. While specific hard ROI measures are hard to quantify or qualify at this point in time, there is plenty of anecdotal evidence to support the use of social media, particularly soft ROI measures, such as brand perception. Also, depending on the context and use cases, whether recruiting, marketing or consumer relations, many social media tools don’t require much more proof in terms of their utility. The ability to communicate with people where they are, in the language they speak, using the device they are using at the time puts a company at a competitive advantage. How does one argue against that?

    3. Within the enterprise, the ability to use social media for knowledge capture, growth and development and general communications that are more flexible and reduce inefficiencies are more than ‘shiny’ factors.

    4. Companies that aren’t focused on ROI to some extent, and lacking a strategic focus may flounder, but by and large innovation should flourish during a downturn or recession, and companies that recognize the reality of a global, multilingual, diverse marketplace — and the role of social media in that context — would be smart to continue innovating.

  • On your first question: I think it will probably increase for a few reasons. 1. People are bored so they have more time to roam on the internet. 2. They are feeling the need to network with others so they can have a backup plan in case their job goes south. There’s so much buzz right now around social media that I think people will say “You know whatever I’ve been doing hasn’t been working so great. I need to try that online social thing. I hear there’s lots of opportunities there.”

  • My 2 cents worth (now worth 1.3 cents and by the time I finish writing this, 1.1).

    Overall I would tend to agree with Andrew Finkle above. These downturns separate chaff from wheat in all markets. The economic downturn will give users the extra leisure time to really see if they are getting value out of the different social media platforms that are available and they will vote with their mice. This will accelerate the wheat/chaff separation of these services: so as AF suggests, I believe there will be some casualties (some high profile?) but the good services and platforms will thrive in this downturn market.

    Now short answers to the questions as I believe the above represents the commentary to justify my answers.

    1) Usage will increase due to the simple fact people will have more time to spend at home with less money spent going out. The main social media contenders will spike with usage then trickle back to previous numbers as users experiment and find services more tailored to their usage patterns.

    2) No. The numbers will be there but the marketing departments will stick to tried and tested… radio, t.v. and print will see increases, and so will Internet but at it present rate of increase and not an unusual spike pattern. Conservative will be the buzz work with a ruthless attempt at a good ROI but it will not be fun for our friends in marketing.

    3) There are so many enterprise 2.0 tools exploding onto the market place that many businesses unfamiliar with these tools will give them a shot. There will be more and more “try before buy” options … but sadly, without proper guidance as to how to use these tools effectively, I think many businesses will spend a lot of time trying to cram old practices through new work flows and end up wasting time … and then reverting back to old methods.

    4. No one will going to get “new” funding (or at least very few) so not many newcomers are going to emerge – even with the low entry costs. If you are in market, stay innovative or you will be tossed on the scrap heap. Be wheat …..

  • Cost savings.

    Social media technologies can curb costs and improve productivity. “Think internal” is important, this goes way beyond promoting and selling.

    Advertising and marketing budgets should be just ONE source of funds for social media projects. It’s our job to demonstrate why, and where else the tools have real business leverage and ROI.

    Innovation, R&D, HR, administration all stand out. But really, where within any business can you safely say email has *NO utility? These are tools that can be every bit as versatile, and they are to be applied, intelligently, to a broad range of business problems.

    *Did you say on the shop floor? Out in the field? During transit? Guess what. Mobile-enabled social networks and platforms (obviously I’m partial to microsharing ones, but there are many possibilities) take social media there too.

  • Apparently there is a consensus about the people at home looking for entertainement while not working:
    So do you want to target those who are at home and unemployed having time to entertain themselves on Social Media?
    Or those that still have a job, hardly any time to play on Social Media, but are spending money?

    In any case the Internet and the communication channels are the future.

    If you want to buy any product as a consumer or as a business manager, you first search on the Internet.

  • 1) Usage will likely increase because users will be at home more often with money being troublesome to some, but I don’t think that we should count on those users buying. Honestly it depends on the market and who are the targets for each company. For anything that is a necessity it should stay pretty consistent. That doesn’t take in account that the holiday season is coming however and that could change any predictions. I think companies would be smart to go forth with leveraging social media because it’ll save them money and let them build relationships during the downturn that could spur more results in the longer run.

    2) We don’t have a standard metric for ROI, but we can still predict what consumers are likely to do based on research and other methods of finding out what they want. Given that social media gives companies a way to listen to what the vibe is, it’s a low cost channel to figuring out strategy for the coming (or current) recession. I think the low cost but easy outreach method will keep spending in place or even increase it in some cases. If social media proves to be a bust for the company, of course it’d be one of the first things they ditch. That’s just smart.

    3) I think the tools are effective and sure there are some issues with productivity but isn’t that the responsibility of the companies using the tool to teach their employees the way to use it so it keeps productivity in line? If a company decreases travel then they’ll need better ways of staying in touch until things come into control. One of the best ways to do that is to use a company Yammer account or even a company Seesmic or 12 seconds account for face to face updates where you don’t want to use Skype or teleconferencing.

    They are useful in making the human connection if travel is impossible.

    4) I’m not sure what I’d bet happening on this one. It could depends on the company’s business model or the investors panic level. I lean towards thinking since these companies are less volatile that they could be seen as better and less risky investments therefore keeping the market crowded.

  • In regards to question 2: A poll on my blog recently showed (and the trend is repeated in the comments above) that 38% see an increase in spending an 38% a decrease with 21% at no change in social media budgets.

    I think that the social media budget will be impacted by overall budget trends as organizations struggle through the financial storms, but less so. Companies that I am speaking to see social media as a critical way to compete and to build relationships; if possible, they will invest.

    Link to poll: http://constructingsocial.com/2008/09/financial-crisis-impact-on-social-media/

  • If history is any guide, these are the sources of revenues for social media companies that will be hammered during this downturn, as they were in ’00 and ’01:

    – sponsorship advertising
    – banner and link advertising
    – partnership revenues
    – VC financing

    Overall traffic should be fine. Advertising with demonstrable ROI (keyword search and classifieds) should be OK.

    So, answering your questions:

    1. traffic in social media should continue to grow
    2. brand and marketing advertising — crickets.
    3. plenty of tools, but new partnership sales will be cut by over 50%
    4. all web companies have huge innovation and execution capabilities

    At some point during this recession, I expect a total give-up on advertising on the Internet. Keyword search and classified pages excepted. The next cycle will be all e-commerce, all the time.

  • Next week I organize a workshop for some IT-managers in the North of Holland. Question 3 is part of that workshop. I will discuss question with a survey. I’m curious how others (you all) are thinking these aspects. ref: http://www.peertopeer.nl/?page_id=91

  • Replying to Wayne K.

    First let me share this in USA Today titled Social Networking Site Help Companies Boost Productivity. (http://www.usatoday.com/tech/products/2008-10-07-social-network-work_N.htm) that provides the same thought as this post.

    Laura Fitton mentioned a few use-cases and we have encountered in some of our prospects as well. But I’ll mention a few use-cases we have.

    One is building a private network of internal employees and partners to collaborate on business(process) and product innovation in diverse locations.

    A college department is building a private network of their faculty, students, alumni and fellow researchers in other universities to remain connected throughout their professional life and collaborate to further their relatively new field of study. This group has given us very interesting feedback since most of them are Facebook users. We have two other student groups who have outgrown Facebook and Google Groups transitioning to our platform.

    One VC is trying to see if he can use our platform to collaborate on a deal he is working on. I admit, this one is still early and yet to prove itself. It is private also. This was not expected for us.

    Shows you how people can be imaginative to improve productivity.

    And we have had many similar conversations with brands, marketers and organizations seriously beginning to accept that inviting users is akin to having a global focus group. They would like some parts of these conversation public, some private. But many are still figuring it out. Many cannot surrender complete control to their users, it is too big a leap. But they know they have to and are letting go but in stages.

    We encourage them to start with a small project to reduce their risk, but do get started to learn. They can then be ready when they decide to invest more or expand the scope in the future. Note, technology is only a small part of the cost. People, training of people and content creation is actually larger portion of total project cost.

    These are real cases that points to trends and attempts to take social tools to the next level and all utility oriented. We actually get a lot of requests from users of tools that can help them in ways that we never thought of.

    All these validate the thought leadership by Jeremiah, all of you here and others on similar blogs that help elevate the Groundswell.

    I hope these are helpful.

    C.H. Low, CEO, Orbius

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  • Thanks, Jeremiah, for the link to my blog. I don’t think I can add to the many insights that have been shared in the comments here. I would simply say this is a natural part of the economic and business cycle. It sucks, no doubt. But disruption is necessary–it clears out the deadwood, challenges the status quo, and gives rise to a new cycle of innovation and advancement. Every time we try to prevent disruption, to extend the party, the hangover only gets bigger.

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  • BOB

    Social Media will be affected by the economy a decrease for about 4-6 months.
    Until B2B companies in a larger quantity start to look at reducing cost.

    No increase in brands and marketers spending on media over the next 2-4 months.

    Companies are looking to the internet to reduce cost but are still selective in where to place their wallet. The internet can be used to cutting the timeline –communication to Distributors to Reps to increase involvement.

    Yes, all industries will be affected by the downturn, which will fuel the negative spin.

    The only person who will profit from this will be companies that take chances like Buffett.

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  • Like many others, I agree with those above me. Brett Tilford said it best, “… let me try this social media thing.” With more time on their hands, more people are turning to what I now call “traditional media.” i.e. – facebook, myspace, pownce, youtube, etc… These devises are now antiquated. Myspace, regardless of THIER revenue, is a dead breed. Youtube is so inundated with “viral” marketing, it’s no longer a challenge to define what was user-generated, or what was made to appear to be so. And facebook? Like people standing in line to get into Studio54 but in the late 80’s. That gig is over. Why? Early adopters. And us early adopters are already bored with our social media options. Hell, twitter is nothing more than our mid-90’s AOL chat rooms. MTV is a prime example. It’s no longer a music television channel. It now mirrors what most have done to our beloved “social media” apps. One ad after another.

    1. Of course it will increase. That’s regardless of a recession, though. Too many people are still late in the game. When my 58yo mother asks me about how to upload photos to her FB profile, our online community has collective issues.

    2. They’ll continue to spend thinking it’s the “hot new trend”. Trend equalling return. Wrong! It’s a social media people. SOCIAL. That means nobody wants to bombarded with your f’n campaign. It’s like being at a bar and having someone walk up to you and ask have you heard about the new lease program on Maxima’s offered over at X-Company Dealership. Nobody gives a shit. And that’s why your returns suck.

    3. Without a doubt. Keep things internally. No reason to slap an ad on it before it goes out. Though, face-to-face has worked for centuries, and has measurable return. Like trying to sell a house to you online, or while we’re both AT the house.

    4. Not at all.

    Next time your enjoying your favorite social media, I encourage you to take notice of the ad space. What has enticed you to “click here”? Or do you just continue to surf unaware that ads even exist? Seems to me we’ve all become too comfortable with the plethora of online marketing practices that we rarely even notice what is happening around us. Like watching TV and only getting up during commercials. Innovation will be key. User-generated content will still prevail. Next time you formulate your strategy, ask how your users would use your product/service. Give them that product/service, and let them use it. No need for all the “offers”. WOM is the most cost-effective social media.

  • WayneK

    Thank you C.H. low – -that was very helpful

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  • There is enough information here in the comments to create a small guidebook.

    The strongest theme running through this thread is that laid-off/downsized workers will have more time to utilize their social networks, and I agree. Watch for LinkedIn’s Q&A feature to explode with partnership and going solo announcements. The old saying is that the time to act is when there is blood in the streets.

    I think that we are almost there.

  • As social media is such a rapidly evolving field, new methods of collaboration are emerging every day. This is a reflection of the creativity that is out there, in spite of the current tight economy. Many of the new collaborative efforts are basically free to create, so some of the unemployed workforce is contributing to the overall depth of available social media tools.

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  • Just wanted to say a quick thanks for the link to my post Jeremiah. It’s much appreciated (and an honour).

  • Good insight James.

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  • 1) I agree that usage will increase during this recession. One important thing to remember about social media is that in addition to facilitating communication, it is an entertainment outlet; Increasingly, consumers will use social media to occupy voids of entertainment time because it is free.

    2) I believe the bigger question is what will happen to media dollars as traditional media fail to deliver on expected results. I believe if companies focus on bringing value to their inner circle of customers, this will become a better mechanism for growth, especially in social spaces. As far as measurement goes, why not just ask consumers what they think rather than rely on campaign conversions and sales leads targets?

    3) I hope so, especially as airline industry falters- as it looks like they are next in line for a bailout. New tools for collaboration will only become an increased priority and of course, technology will facilitate that.

    4) If you build it and they come, great. If not, it’s time to start over.

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  • Times of distress can cause us to be more innovative and try things that give us hope to be stronger once the malaise is over.

    I purport that for Web 2.0, or any other names you would give for the social tools, to have staying power, IT HAS TO PROVIDE UTILITY rather than fun.

    So I think (1), (2) and (3) will trend positive may be just to a lesser degree.

    I believe there will be more concerted effort to invest in these tools to be more productive or competitive.

    We are already seeing successes in our users and clients on our Platform, many Gen-Yers growing beyond the Facebook and mySpace, finally learning to leverage the social tools to be more productive for collaboration and communication internally and externally in new ways they, or we for that matter, never thought of before.

    We believe such experiments will grow in difficult times especially with STILL affordable tools even with smaller/limited budgets.

    On (4), that's a natural life cycle weeding out the weak. Many will adapt successfully for sure.

    C.H. Low, CEO, Orbius

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