Back to Gartner for Marketers Blog

Three Customer Experience Lessons From Social Media Performance in 2015

By Augie Ray | January 12, 2016 | 6 Comments

In 2011, back when social media hype was at its greatest, I wrote about the “slow-motion social media valuation bubble burst.” Since then, year after year, social business and social marketing companies that are publicly held (and thus report their business results) have consistently struggled for stable, profitable performance. For marketing leaders striving to leverage social to improve their firms’ customer experience, the performance of social companies contains lessons about the future of social media and the present of marketing.

In 2014, just three of the 11 social companies I tracked had a P/E ratio (Price/Earnings ratio), because only three had positive net earnings in the trailing twelve months–Facebook, HomeAway and Yelp. A year later, it is much the same story. In 2015, just four of the twelve publicly-traded companies in the social media and social marketing category had positive net income from continuing operations over the past four quarters–Facebook, Angie’s List, Yelp, and HomeAway. This says something important about the value these firms are delivering for both consumers and marketers. (Please see my list of corporations included in this list at the end of this post.)

Marketing leaders can learn three things from the financial performance and business models of these companies:

Facebook is diversifying and so should marketers

You don’t need me to tell you this, but Facebook has sucked up almost all of the energy in the social media space. MySpace and Friendster are distant memories, questions are growing about Twitter, Google+ is an SEO afterthought for brands, and other social companies, like Yelp, Zynga and Groupon, have not been able to deliver consistent quarterly profits.

More importantly, while most of us may think of Facebook as a social media company, it is rapidly expanding into a much more diverse organization. Much as Google did over the past fifteen years, Facebook has parlayed its early success with one offering into a broad platform for the future. Today, Facebook owns three of the top ten mobile apps in the U.S., offers the two most popular messaging apps in the word, is a powerful player in the ad targeting and measurement space with its acquisition and relaunch of Atlas, is working on artificial intelligence to serve customers, and will soon make an entry into the consumer hardware category with Oculus Rift.  (Watch for my Gartner report on the implications for marketers of Oculus Rift and other Virtual Reality platforms in the coming months.)

Just as Facebook is widening its reach outside of social business and into messaging, virtual reality, intelligent agents and other innovative technology, so too must marketers think broadly for future success. Social media is not the easy answer for brands’ reputation and advocacy needs, and just as Facebook is diversifying its focus, so too must marketers expand theirs to deliver the experiences customers expect and want.

The sharing economy will change the customer experience landscape, but a long road lies ahead

As the private valuations of Uber and Airbnb skyrocket, it can be easy to ignore the many challenges ahead for the maturing collaborative economy. While this trend is already altering some established categories (with Airbnb challenging the pricing power of hotels during big events that earn premium pricing and Uber contributing to a significant drop in the value of a New York City taxi medallion), there remain plenty of challenges for collective consumption, crowdsourcing, and gig economy business models. These include employment law, local and national regulation, liability and risk, taxation, consumer adoption, and competition (from both new and traditional players).

The 2015 experience of both public and private firms in this new category tells the story. Publicly-held Etsy and Lending Club have tumbled since their IPOs. Some privately held firms also struggled; gig economy cleaning service Homejoy shuttered in July over employee classification questions, Sidecar (an Uber and Lyft competitor) recently closed its doors and Oyster (a collective consumption “Netflix for books” startup) is sunsetting this month.

The combined rise of sharing behaviors, decreases in technology costs and increased power of consumer-side mobile platforms means individual ownership and consumption will continue to erode while collaborative models rise, but the change will not happen overnight. Business leaders must plan now for the long-term customer experience changes the sharing economy will bring, but they must be cognizant of the lesson learned from e-commerce: While it took almost twenty years for e-commerce to rise from zero to 7% of total U.S. retail sales, the online retailers that are today winning were the ones that took e-commerce seriously sooner rather than later.

Social media marketing will continue to be a struggle in 2016

With the decline in organic reach on Facebook and brands’ struggles to quantify social media outcomes, there has been little to crow about in social media marketing other than the success of paid ad offerings. While marketing leaders keep hoping for stronger social media return, just 15% of CMOs have quantitatively proven the impact of social media.

Paid social media marketing strategies will keep growing in 2016, but the poor scale of organic brand reach will remain a challenge. For example, Coca-Cola is among top 10 most valuable brands in the world with customers enjoying its beverages at a rate of 1.9 billion servings per day, but Coca-Cola’s “people talking about this” figure (the sum of a week’s worth of page likes, post likes, comments, shares, and check-ins in the U.S.) is just 22,000 today.  It is difficult for brands in many categories (but not all) to deliver on their marketing objectives with the sort of scale that unpaid social media delivers.

If social media marketing was living up to its promise (outside of select verticals such as B2B, entertainment, and style), companies that provide social ad products and services for marketers would be increasing pricing, margins, and performance. Instead, Yelp and Twitter are still working to convert their strong consumer adoption into a profitable advertising model, and companies that furnish community, marketing, and promotion platforms are no better off–Jive’s community offerings, Zynga’s social game advertising and Groupon’s social deals have not lived up to their early promise.

Until these social media marketing providers can deliver the results brands expect–the kind that permits increasing prices and margins–these companies will continue to find it difficult to post consistent quarterly profits. The business results of 2015 suggest to me that 2016 will be a challenging year for marketers looking to leverage organic social media strategies and to validate social returns in many business categories.

Of course, social continues to be a powerful force shaping the customer experience and affecting the way consumers learn about and engage with brands. In 2016, Gartner will continue to research and guide marketing leaders on the right ways to leverage paid and organic social media, how to measure social media investments and the ways in which customer experience professionals can leverage Word of Mouth, both online and off, to deliver stronger awareness, preference, and loyalty.

The social business list

I’d welcome your input on the companies I include in my list of social media and social marketing companies. I chose not to include firms like Google and Salesforce since they derive little of their revenue from social offerings. My goal is to include only those companies that are publicly held and procure a substantial portion of their revenues from social networking, social advertising, peer-to-peer commerce or other forms of social business. If you think I missed any social business companies, please let me know.

Angie’s List P2P ratings
Facebook Social network and advertising
HomeAway P2P commerce
Zynga Social games and advertising
LinkedIn Social network and advertising
Jive Software Community platform
Twitter Social network and advertising
Bazaarvoice Social business services
Yelp P2P ratings and advertising
Lending Club P2P commerce
Groupon Social deals and advertising
Etsy P2P commerce

Leave a Comment

6 Comments

  • Penny says:

    What about TripAdvisor?

    • Augie Ray says:

      TripAdvisor might be one to consider, Penny. Considering all the sites they own, I wonder if it would be considered partially, mostly or all social. Some of their sites are a great fit (TripAdvisor, Flipkey, etc.) while some are more traditional travel booking sites (airfarewatchdog.com, BookingBuddy, etc.) Good suggestion, and they had a good year in the black in 2015. Thanks for suggesting it!

  • Mike Wise says:

    Augie, curious about your take on HubSpot. With their inbound marketing and lead nurturing system, savvy content marketers are seeing great results. The HubSpot user base continues to grow. That seems counterintuitive unless users were seeing measurable ROI, especially since the pricing model is not cheap. Here’s a recent article with some details. Hope it’s OK to add it for a point of reference. I know Paul Roetzer – he’s legit. Thoughts? Thanks for sharing. Glad you’re doing what you’re doing…
    http://marketingland.com/marketing-agencies-can-learn-hubspots-growth-129736

    • Augie Ray says:

      Mike, it’s a great and valid question. I actually had Marketo in my list in 2014 and had considered adding Hubspot for 2015 (since it had its IPO late in 2014), but after some discussions with my peers, it seemed inappropriate to include either as a “social business” since social is not a majority of either’s offerings. Hubspot offers a broad marketing platform where social media is just one component along with websites, email, SEO, CRM, lead management and other sales and marketing services.

      Perhaps more to the point, since I was equating companies’ performance with their ability to raise prices to happy clients and deliver positive net income, I would have to point out that Hubspot is not profitable. I am not evaluating the firm as an investment nor making any predictions–I’m simply pointing out that Hubspot did not have a positive quarter in the trailing 12 months. Obviously, marketing automation is a huge trend, so perhaps Hubspot will demonstrate it is gaining pricing power, building margin and seeing net income this year, but in evaluating 2015 performance, it remains a company that hasn’t been able to build the right scale or to increase pricing and margins enough to pull into the black.

      It will be interesting to see if 2016 is the year many of the companies on my list (and some not on my list, such as Hubspot) will achieve profitable business models, which would then suggest they are delivering the services clients and consumers value at the right price, margin and scale.

  • Jerome says:

    If you’re going to include Jive, I would also add Lithium.

    • Augie Ray says:

      Lithium has not had an IPO, so they’re not public, yet. I was only including companies that are public and thus must disclose financial results. But once they are public, I would definitely include them in this list!