Can social media predict the future?

We all know reporters love to prognosticate, their opinions respecting no temporal boundaries. But now a whole other industry has grown up that lives off their stories, trying to predict future events based on today’s news coverage. Companies like RavenPack have built a business by sifting through news stories in near real-time, looking for the sentiment of coverage related to publicly-traded companies. They claim this information can be profitably used to predict fluctuations in stock prices.

Predicting stock price moves based on current media sentiment has logic to it – readers are also traders, so if we see a string of gloomy stories about IBM’s recent product announcement, then some of us will likely dump the stock. And our likelihood to take action is proportional to our trust in the news source: If we see negative reporting in the Wall Street Journal that outweighs positive opinions on iLoveIBM.com.

Now we have social media and the prediction game has got a good deal more complicated. Researchers at the USC Annenberg School have been working hard to see how social media traffic can be used to try and predict future events. They started by looking at new movies and tried to correlate Twitter messages to first weekend receipts. They managed to get very good at estimating this, often better than industry experts, and what they found has broad implications for social media marketing.

The Annenberg team discovered that the best predictor of box office outcomes wasn’t the volume of traffic related to a movie, but the net sentiment expressed. In other words, quality beats quantity in predicting outcomes. A new movie might get a lot of buzz, but that wasn’t predictive of making a lot of money. This confirms what companies like RavenPack have long known: it’s the tonality, not the totality of coverage that really matter.

The takeaway from this? We need to be very careful how we measure social media outcomes. Measuring retweets, mentions and the raw volume of coverage for your brand just isn’t enough. Yet this is what most people do today.

Annenberg, in co-operation with the LA Times, are now trying to see if they can use their system to predict the outcome of this week’s Oscars. If you believe them, we should expect a big upset: The winner for best movie will be Midnight in Paris. Here I’ll make a prediction of my own: Much as I liked it, Midnight will lose.

Remember, I said that being able to predict stock fluctuations worked because readers are also often traders; the same logic does not apply to Oscar voting. The Oscar outcomes are based on the opinions of a mere 5,700 members of the Academy. Winning others awards such as BAFTA are a much better indicator of Oscar success.

The lesson here is that listening to everyone’s opinions is often a mistake. Instead, we need to target on influential audiences – potential customers, shareholders, employees – and understand clearly how they impact our brand and business.

What CMOs want from Social Media

A week or so ago The CMO Club published a short whitepaper titled CMOs on Social Media Plans for 2011. The report is a continuation of research begun in 2009 and gives a longitudinal view on how marketing leaders are thinking about Facebook, Twitter, LinkedIn and the rest.

So, what's the Cliff Notes summary? The research is a classic example of a glass half-full or half-empty, depending on your preconceptions. Take the question “What social marketing activity brings you the highest return on investment?” The glass half-full answer is that for most social media tools, the percent of CMOs that believe they provide “average to significant” ROI has more than doubled. In contrast, the glass half-empty answer is that well over 50% of CMOs either don't know or see no ROI for the vast majortity of social media activities.

What explains this? Certainly not a lack of data on which to draw an ROI conclusion – under 20% of CMOs have no way of measuring the value of social marketing. But the majority are measuring activities rather than outcomes, by which I mean things like site traffic, number of mentions, or number of posts. This is the More School of Marketing, who's thesis is that if we do more things, and we see more things happen, then we must be doing more things right. This is, or course, wrong.

Only a small minority of CMOs report measuring increased sales, or order size, or reduced call volume – all things that can be tied directly to a real ROI. Why so few? Because it is so hard.

Despite the abundance of data that comes with much online-based social media, there's very little insight into how social marketing really impacts the bottom line that isn't anecdotal. Take the example of a typical corporate blog: it is trivial to measure-to-death the traffic on the blog, and even to understand visitors feelings and dispositions. Blog comments and the migration patterns of visitors might give you richer insights. But unless your Zappos selling shoes or Amazon selling books, its tricky to equate all this traffic to a purchase, a sales problem solved, or a repeat buyer. For most of us in marketing, the trail from social media activity to eventual ROI is convoluted, long and indistinct.

Despite this, my glass remains half full. Saying that social media has value to marketing is like saying the sky is blue; saying that social media has ROI for business is hardly controversial either. What is difficult is quantifying where the value emerges and how much value can be gained. This is what CMOs want to know. The report is silent on these questions, and for most of us the answers will remain elusive.

What does Twitter and a Charles Dickens novel have in common?

Answer: Both have 140 characters.

2010 may well be the year remembered for marking the watershed between old and new media. After all, this is the year in which the odds-on favorite movie to win the Best Picture Oscar is about a a bunch of geeks writing social media software. It's also the year were the WSJ among others foresaw a social media bubble emerging. But whether Twitter, Facebook and the rest are really worth their extravagant evaluations is almost beside the point; it is unlikely that by the end of the next decade we will have any US daily newspapers, and the conventional information economy will have been reinvented.

But that isn't why I'm writing on New Year's Eve. This fall my eldest daughter was in the school play Oliver!, and this encouraged me to reread the book. It is a dark tale world's away from the jaunty musical, though many of the significant characters like Bumble, The Artful Dodger and Fagin are similar and true. It's a great, long novel (originally serialized in monthly installments) full of the usual Dickensian cacophony of character and plot. Over the holidays I also started Paul Murray's new and excellent Skippy Dies; at over 600 pages, it too is packed with character and plot, humor and tragedy. So my question is this: Is the sea-change in the media world ensuring the end of this kind of rich, detailed and thoughtful discourse? Nick Carr thinks so, and he's not alone; his eloquence had me convinced. And truthfully, what passes today for "news" in the new media world fills me with dread.

But I'm no longer to pessimistic. My eldest daughter is also an addicted reader, and The Hunger Games series got to her. It's on my list to read too,  but I'll be doing this on our ipod. There is a real social media bubble, and it will burst. But new media has already destroyed the conventional economic model for how mass media works, and how we get information, art, entertainment, even friends... But there is plenty of room for 140 characters, be they Bumbles and Fagins or A and Bs. Information of value, stories that sell... the content itself will likely not change much at all. McLuhan's prophecy is at best only partly true; the medium is rarely the message.

Is social media good business?

Lets compare a couple of stats --

A few months back, audited circulation data showed that subscriptions to the New York Times had fallen below one million for the first time in living memory, and declined a whopping nine percent year-over-year. Around the same time Mashable reported that Twitter traffic was growing at a hyperbolic 1300 percent year-over-year, with over 1.2 billion tweets a month.

Numbers like these are thrown about all the time to illustrate an undeniable shift in the way we consume information, news and a whole load of gossip. The economic consequences for the Dead Tree News Business is dire and well-documented, but what about the business prospects for the social media upstarts that seem to be precipitating all this change? Are they making boatloads of cash?

There's no doubt that the main revenue stream that drives the information economy – advertising – is seeing a shift towards online spending:

Forrester Research data for online advertising revenues.

Looking at the Forrester Research numbers, overall online advertising in the U.S. is expected to have a CAGR of about 17 percent over the next few years, which aint too shabby. Within that, social media advertising will be a rocket ship, with 34 percent CAGR, reaching an impressive $3.4 billion in 2014.

All very nice, but does this all add up to big profits? According Reuters, Facebook made a whopping $800M last year, or about two bucks for every user (let me repeat that – over a full year, Facebook made all of $2 for every active account). Small potatoes you may say, yet this was enough for the company to eek out a $10M profit, at least on paper. Facebook's revenue growth has come as the number of users on its website has exploded: the company started 2009 with the January announcement that it had reached 150 million users and by December that number had swelled to 350 million.

What about Twitter? Bloomberg reported that even on a sliver of revenue from Google and Microsoft, a mere $25M, Twitter is also profitable. They have about 58 million users, so they're getting about 40 cents a user. Poor MySpace, owned by News Corp., has something like 111 million users and made about $360M last year (down from $460M the year before), or about $3.50 per user.

None of this could be described as printing money, in my opinion, and there's a very healthy debate about the long-term viability of social platforms as self-sufficient, profitable businesses. Here's Charles Hugh Smith writing on the investor site Benzinga:

Facebook will never be very profitable, for it is a utility which will never be able to charge its users. Its free functions are more valuable to marketers than its advertising, hence it will never generate big ad revenues.

Bo Peabody in the Washington Post thinks social media outfits will always be “crappy businesses”, while Henry Blodget at BusinessInsider thinks Facebook et. al. are the next Google. They can't both be right, but they could both be wrong.

Most likely, some social media properties will figure out a way to make advertising and other revenue streams pay their way. Some will have frothy IPOs. Most will die slow deaths. What I'm sure about is that none of these companies will duplicate what the New York Times does, nor should they. Whichever way you cut it, the vital statistics for the news business remain terrible.

What if Marshall McLuhan was alive and on Twitter?

Marshall's Diary Sept 19 2009

Dear Diary:

If anyone had really bothered to read any of my books and paid attention they'd know that so-called “social media” is (a) a disagreeable tautology and (b) my invention.

Just today I came across a new example of said social media, hideously described as a “new invention” (tautology!) and named, in typical twee fashion, Twitter. The chattering classes are now the twittering classes, and everyone is aflutter about how this is revolutionizing the way we communicate.

Reluctantly, I need to join the flock. I need to make it plain that if it wasn't for my genius, foresight and erudition we'd all still be licking stamps and twiddling the rabbit-ears on the tops of our television sets, or something like that. I'm the Global Village Guy, goddammit!

My start with Twitter was not auspicious. When I tried to register as “Marshall McLuhan” I discovered that a namesake had already taken my identity, complete with my photograph (not too bad, actually). The impostor has the gall to be quoting me as me (tautology?). I took this as a considerable affront, especially since some of the material wasn't exactly in context, if there is any context to be “in” on the Internet (Note to self: Is there a book in this idea? Maybe the OuterNet???).

I tried reaching the owners of Twitter to no avail (employees of Twitter are Twits, I presume, har-har). I later found out that when it comes to having an identity crisis I'm in very good company: also on Twitter is Albert Einstein (rambling), Charles Darwin (literally rambling, he seems to have restarted his journey on The Beagle), and even by good pal Marty Heidegger (who pretty much out-rambles anyone I know).

Anyway, after extensive clicking I discovered I was relegated to “MarshallMcLuhan2,” which is humiliating to say the very least. Now that I think about it, this Global Village thingy has a way of humbling you. All the world is within my reach and I feel as small as an ant.

But now to work. I need to regain myself. And most important, I have to set the record straight on why I nailed the whole social media thingy way back in 1960-something, before even The Beatles and when computers ran on rolls of paper just like my dear mother's Player Piano, and when newspapers actually made money. But I digress....

I thought a pithy first post might be this little zinger:

MarhsallMcLuhan2: In Tetrad form, the artifact is seen to be not neutral or passive, but an active logos or utterance of the human mind or body that transforms the user and his ground.

Captures the whole idea nicely I think. Not too obvious, straightforward or dare I say it, even intelligible to anyone who hasn't pondered my opus for some considerable time. Then this happened:

MarshallMcLuhan2: In Tetrad form, the artifact is seen to be not neutral or passive, but an active logos or utterance of the human mind or body that transforms...

Turns out, Twitter assumes we all have an attention span of the average newt and limits posts to a meager 140 characters. A Dickens novel has more than 140 characters! “Existential angst” has 16 characters alone!

Crap. Ah, to hell with it:

MarshallMcLuhan2: The medium is the message.

-----------------------------------------------------------------------------------

"When things come at you very fast, naturally you lose touch with yourself. Anybody moving into a new world loses identity...So loss of identity is something that happens in rapid change. But everybody at the speed of light tends to become a nobody. This is what's called the masked man. The masked man has no identity. He is so deeply involved in other people that he doesn't have any personal identity."
-- The real McLuhan, quoted in Forward Through The Rearview Mirror

Social Media Makes Money?

A lot of people, including me, have made fretful bleating noises about the dismal economics of conventional media. Not so many have made the same bleats about social media, even though these businesses aren't exactly printing cash.

Just today the Wall Street Journal reported that YouTube owner's Google are “aggressively pushing new ad formats and ramping up deals with media companies” in an attempt to make some money from the popular video site. Google acquired YouTube over three years ago and has struggled to make it pay.

Google isn't alone. In 2005 News Corp. bought MySpace for $580 million, only to see the site's popularity wain as Facebook adoption exploded. Earlier this month News Corp. announced a quarterly loss of $205M, citing MySpace as a big cost-sink. Not that rival Facebook is exactly rolling in cash itself – the company hopes to get cash-flow positive by 2010, even as the number of subscribers spirals above 250 million. In March this year Facebook let go of its CFO, and in May sold stock at an evaluation well below the price Microsoft took when it bought into the company back in 2007. Meanwhile, the social media darling Twitter is enjoying a kind of celebrity and ubiquity that seems to eclipse even famous users Obama, Kutcher, and the Iranian nation state, yet the company has essentially zero revenue and is fumbling for a business model.

This is an enviable problem to have. As more and more of our lives drift into the ether, many of these companies are becoming invaluable. Most will find a way to extract payment – directly or indirectly – from us all. The usual default model – advertising – might well work, although I remain skeptical that over the long haul this alone will be enough. And without a doubt some of the social media giants of today will wilt and disappear: People are fickle, fads change, and the very success that many social media sites enjoy will make them less appealing to users who's time and attention become stretched thinner amid all the clutter and noise.

All these services are turning the Internet into a modern-day Babel. The real money may be in technologies that keep all this information at bay, and offer ways to filter, find, manage, and assimilate content, or mechanisms for presenting and preserving our digital indentities in a coherent and controlled way. We need protection. Social media services may not charge a dollar but they ain't free -- they cost us all way too much time.