Tom Webster, writing and speaking

Social Media Engagement And Financial Success Are Both Trailing Variables

Added on by Tom Webster.

Wetpaint and the Altimeter Group recently released a study that indicated a correlation between social media presence and financial success amongst the world's top 100 brands. The methodology used to ascertain this correlation was fairly arbitrary--the study authors basically looked at a quantitative measure of the number of social media channels the brand engaged in, and a sub-score within those channels to measure 'engagement.' Two things initially struck me upon reading the study: first, my knee-jerk reaction to all such studies, correlation does not imply causation. Second, the methodology does impart a bias towards multiple channels--even if engagement within those channels is low, a brand that at least makes the effort across 5 or 6 channels will load the hopper with more engagement marbles than even the most engaging brand effort on one channel could ever hope for.

What practitioners of social media want to believe, of course, is that higher levels of social media engagement are somehow related to financial success. Even if you accept the arbitrary channels-times-'engagement' score as a measure of social media presence, the study cannot prove this. In fact, it cannot even be accurately stated by a correlation such as this that social media helped at all, and may have even been a limiting factor in the financial successes of those brands, if you consider the opportunity cost of such efforts and where else that time and money could have been spent. Now, I'm not suggesting that--just pointing out that all of these scenarios could be possible even under the constraints of this study.

I found a pretty credible deconstruction of the regression in this study over at This is the Green Room, and I can't argue with the statistics. The blog's author is fairly dismissive of the conclusions of the Wetpaint/Altimeter study, and pointedly states

Here’s my alternative: “floundering companies spend less money on social media, and are less effective in that arena.” We would also accept “superlative companies have excess cash and spend it on social media.” Investing in social media is a cost measured in tens or hundreds of thousands of dollars; revenues are measured in the tens, hundreds or even thousands of millions of dollars. Are we really to think that social media has a thousandfold multiplicative impact?

Now here's the rub--I can't argue with that. A statistician is always on solid ground when pointing out that correlation does not imply causation--and in fact, the two variables might even work at cross purposes.

However...

It should be pointed out that the brands represented in this study were not a mix of losers and winners (despite AIG's presence at #99). The sample universe for the study consisted of the 100 most influential brands, according to the latest Interbrand/Businessweek study. The "losers" in the Wetpaint/Altimeter study weren't Montgomery Ward and Circuit City--the losers were companies like Mercedes-Benz, Goldman Sachs, Porsche and Louis Vuitton--brands that continue to pour money into other marketing channels and are not necessarily "floundering."

This of course highlights what I see as a bigger problem with the study's methodology: the confounding variable of the current economic recession. If you eyeball the list of brands listed as successful "mavens" and compare them to the unsuccessful "wallflowers," you will note a major difference between the brands in the top 20 of this study (brands like Starbucks, eBay, Dell and Amazon) and the brands that bring up the rear (lots of luxury goods and financial services institutions.) Given that the financial success results measured in the Wetpaint/Altimiter study were all taken from quarters within our current recession, it is more likely that the brands at the bottom cluster together for reasons far different than a lack of social media engagement.

So, the "losers" aren't necessarily losers, just more vulnerable in the current economic climate, which further weakens any causal relationship between social media engagement and financial success. However, while I am not willing to read a causal relationship between social media engagement and financial success into this study, I'm also not willing to be so dismissive of the role of social media--or, more specifically, the underlying drive behind social media engagement--and the success of those companies. Twitter consigliere Dave Martin points out in his blog that "money is a trailing variable." If you do the right things in business, the money usually follows--it doesn't happen in reverse. The companies at the top of both the Interbrand Global 100 and the Wetpaint/Altimeter study are financially successful because they have a bias to be so, led mainly by a customer-focused culture.

Social media engagement is likely unrelated to this financial success in that social media engagement is also a trailing variable. You can't go from being a moribund company to a thriving one merely by being active on Twitter. What happens first is an internal shift--a drive towards transparency, towards customer service, and towards becoming a completely customer-focused entity. Thus, companies like social media darling (and justifiably so) Zappos are successful not because their CEO spends a lot of time on Twitter--Zappos spends a lot of time on Twitter because it is consistent with their already-established brand values. Zappos gets the real interaction between customer and company right--at the order point--and their social engagement is a natural by-product of that internal philosophy. Without that initial drive, and without engineering the company completely around a high-quality customer service proposition, social media would be irrelevant; a distraction. It's cool that I can send Tweets to Tony Hsieh, but only because I got the shoes I wanted, got them cheap and got them fast. If they didn't lick that one, I would think twice about the Twitter thing.

All of this is a very long-winded way of saying that I subscribe to a very new historicist view of the relationship between social media engagement and financial success. They are both trailing variables that trace their true cause to a third set of variables. If you have built a transparent, customer-focused and service-oriented operation from the ground up, money will follow, as will the natural desire to engage across as many channels as possible. But if you haven't built the foundation, then you can Twitter to your heart's content--but neither the cash nor the 'engagement' will follow.

So I agree with the author of This is the Green Room that correlation in this study does not prove causation, or even lead to an increased probability of the same. As simplistic as such spurious arguments are, however, it is equally simplistic to dismiss the association between the two variables, which the correlation does prove. The real charge for companies is not to engage in social media--it's to transform their organizations in such a way as to make such engagement a natural extension of their business practices, and not serve merely as a marketing campaign.

Thanks for reading.