October 29, 2007 10:43 am

Can social networking boost businesses?

Barry Libert

Social networking as a consumer phenomenon has led to soaring numbers of people using MySpace, Facebook, Bebo and other sites. But what does it mean for business?

Can social networking, wikis and associated Web 2.0 tools lead to better decision-making, communication and innovation within companies? If so how and where are the examples of success?

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There are clear non-profit successes such as Wikipedia and the computer operating system Linux, but can online collaboration help build profitable enterprises?

Lastly how does social networking change the relationship between a business and its customers? Should companies be trying to found communities or interact with existing ones. How will it change approaches to product development, customer service or marketing, for example?

Barry Libert is chief executive of Mzinga and the co-author of We are Smarter Than Me: How to Unleash the Power of Crowds in Your Business . The book was a collaboration between the Wharton School, MIT and thousands of business innovators. Mr Libert previously worked at Arthur Anderson, John Hancock, and McKinsey & Company, and holds an MBA from Columbia University.

He answered your questions on Tuesday.

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What job functions will be first to adopt social networking?
Barryl, Boston

Barry Libert: Customer service is the first job function to adopt social networking. This started a few years ago with technology firms like Microsoft, Dell and Intuit.

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If consumer social networking is typified by sites with profiles, trusted networks and applications, what types of applications do you think will drive social networking in the business world? Are there any current examples in you can point to?
Bruce Antelman, Palo Alto

Barry Libert: A good example of a new social application in the business space is idea management. Two good corporate examples are Dell’s idea storm – www.ideastorm.com - and Eli Lilly’s innocentive – www.innoceive.com. In both of these cases, major companies are using idea management applications to leverage the insights and wisdom of crowds to source and improve their product creation and innovation.

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What is your opinion about 3D-social networks, i.e. virtual worlds? Has this some specific potential for better communication and innovation, or is it just hype? Would Second Life be a suitable platform, or is it a better idea to develop a proprietary virtual world for a specific company?
Roland Legrand, Brussels, Belgium

Barry Libert: We are keeping a close eye on 3D-social networks because we do see potential opportunity there down the road. Companies like IBM, Cisco, and Starwood Hotels have invested some significant time and effort in Second Life already. All three have used the site for virtual conferences, product trials and concept testing. However, I do think it will take some time before these networks really take hold in the business world.

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What do you think makes the difference between success and failure for brands who try to engage communities across social networking properties?
Kit Hunwicks, Bristol

Barry Libert: We have three rules that we believe are make the difference between success and failure for companies working to engage their customers in a social networking property.

1) Give up control – this is the toughest one for any company’s leadership because it goes against the ‘command and control’ mentality

2) Everyone has a crowd – start with your crowd (employees, customers, partners, investors, sponsors)

3) Focus on more than technology – technology is important but the real driver of community success is a good strategy, moderation, and business intelligence

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In which way can social networking change customer relationship management during next decade, and increase the profit margins of corporations globally?
Viktor O Ledenyov, Ukraine

Barry Libert: If companies really engage their customer “crowds” using today’s social networking technologies, then they will fundamentally create real, trusted relationships with their customers where there is a free flow of ideas, insights and feedback.

The result is that customers will for first time be truly engaged in a corporation’s product innovation, development and services. For the company that will mean better products with fewer errors and omissions and for customers a sense of belonging that will result in great purchases and more loyalty. In fact, this will extend to the point where a company’s customers will event help a corporation market and sell their products because they will know that they were an integral part of the process.

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What are your views about social networking with newly arrived migrants and overseas students looking to connect with others after coming to a new country? I work with an NGO who works to re-settle newly arrived migrants and refugees experiencing high levels of social dislocation and isolation.
Stephanie Lagos, Melbourne, Australia

Barry Libert: Many big companies like State Street are already successfully using social networking tools like wikis to facilitate collaboration across geographies e.g. development teams in the US, India and China. There is no reason that these same techniques/tools couldn’t be applied to migrants and students – especially with the accessibility of web access through public libraries, schools and internet cafes. The real key is having a group of “traffic cops” to help keep everyone moving in the right direction and thus alleviate some of this social dislocation and isolation

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How much will social networking cost a business to set up? And what are the ongoing costs?
Tapiwa Mukwapuna

Barry Libert: There are two types of social networking software services available today for businesses – self-service and full-service.

1. The self service model costs about $500 to $1000 per month and the company that is buying the social networking platform has to do all the work including, community design, setup, marketing, member recruitment, community management, content programming (blogging, podcasting, discussion forum moderation) and business analysis.

2. The full-service model costs about $10,000 to $15,000 per month and the social networking software provider delivers not only the social networking software it also provides all the community services listed above plus on-going management, 24x7 support and community reporting and intelligence.

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Is the time right to take a lead from MySpace and Facebook build a business social collaboration network?
Clive Boulton, San Mateo, California

Barry Libert: There is a tremendous amount that businesses can learn from leading consumer social networks like Facebook, MySpace and even LinkedIn. All three have millions of members and enormous volumes of site activity on a daily basis. Interestingly, there are a number of businesses today that are thinking about how they can use consumer social networks to help their businesses. For instance, companies like Walmart and Target have created micro-sites on Facebook to attract college students. Ernst & Young is using Facebook to recruit college students.

Three lessons that businesses can learn from these consumer sites are:

1) There is a power in numbers – the more people or customers participating in your network, the better the conversations

2) Continuous innovation is necessary, i.e. regular rollout of new feature functionality

3) Strong permissioning capabilities – allow your users determine who gets to see what and when

So back to the original question, we don’t believe there will be one business social collaboration network per se but instead numerous private networks built by companies themselves. Some may be consortiums or industry groups but business in general has too many different audiences to create one uber-network.

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In terms of new product design, are you saying that social networking can help within a company, or by roping in the customers? If the latter, what about confidentiality? Won’t your competitors benefit?
Rupert Coates, Berkshire

Barry Libert: Yes - we are saying that social networking will fundamentally help a company develop, design and even deliver new and better products and services.

For example, Proctor & Gamble is using www.vocalpoint.com to create new, stronger and more direct relationships with their customers and prospects the result of which, for example, is Dawn Direct Foam. This was a new product launched in 2005 where P&G used their vocal point connector mom’s (e.g. their social network) to create of word-of-mouth marketing to drive PR, advertising, and sales. P&G armed their connector mom’s with real value - information that would help in their conversations with others.

With regards, to confidentiality, we think it is incumbent for company’s to provide both transparency and trust - by protecting the names of their community members. But, like Facebook, transparency breeds deep and long lasting relationships. Consequently, it is important the community provider not resell the members names or profiles.

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Traditional management and decision-making processes are very structured and efficient, and speedy. How can the much more anarchic and sprawling social networking approach compete on efficiency and speed?
R.S. Patel, India

Barry Libert: Great question, however, I’d like to respectfully disagree with your premise that traditional management and decision-making processes are very efficient and speedy. Based on my past experiences with McKinsey, Hancock and Anderson, I’ve seen that management at many large companies actually gets in the way of efficiency and innovation as they try and preserve the status quo. Where social networking helps alleviate this bottleneck is through expediting innovation, flattening the organization (anybody’s good idea can float to the top) and ongoing capturing of best practices. In short, the crowds do have wisdom and it’s valuable for companies to harness that wisdom.

In follow up to the second part of your question, social networks, like any large group, have emerging leaders, even if those leaders don’t look or sound like traditional business managers. Truly successful networks are carefully and directly moderated by both the community owners, and community contributors. Careful moderation ensures that interactions stay both focused and forward thinking.

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I work for a nonprofit organization. Will the costs of developing an online collaboration tool provide sufficient return on investment? How do we measure ROI?
Darris G Williams, Highland, Utah, USA

Barry Libert: In the long term, the answer is absolutely. However, communities or social networks that use online collaboration tools take time to grow. As a result, ROI will come over a one to two year period in the form of better (and less expensive) customer service, greater marketing reach, richer product innovation (done using fewer employees) and larger share of wallet from deeply engaged customers.

Over time, hard benefits and real return on investment will continue to emerge in the form of cost savings and improved revenue. For example, Nike is partnering with its customer community to drive word of mouth marketing that will ultimately save them over $250 million per year in traditional advertising costs. Other companies are starting to see some of these same benefits.

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