CRITICALLY DISCUSS USING SOCIAL

NETWORKING WEBSITES TO ACHIEVE COMPETITIVE

ADVANTAGE IN Dan Caruso

UNIVERSITY OF SURREY

BSc Business Management

Abstract

This study presents a critical discussion of the use of social networking sites to gain competitive advantage in business. Using a variety of secondary evidence from academic sources, as well as company and media reports, it considers whether or not businesses should see social networking as the missing link between them and their target markets. Technology has already enabled companies to build up a profile of their customers, often on an individual basis, as transactions leave a trail of digital information. However, this is mostly retrospective; social networking has the additional potential for revealing what consumers are thinking and doing in the present, or even what their future needs might be. This paper argues that the real ability of social networking to deliver competitive advantage has yet to be comprehensibly established. Moreover, its benefits are likely to be mediated through the nature of the business being promoted, and its overall strategy. It must also be considered that a major shift to social network marketing will have a considerable impact upon conventional marketing channels, such as television, as well as the marketing profession itself. It is the recommendation of this study that further research be undertaken into specific instances of success and failure in social network marketing, enhancing our understanding of what is still a fledgling industry.

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Contents Page

1. Introduction……………………………………………………3

2. Methodology…………………………………………………..5

3. Literature Review……………………………………………...6

i. Competitive advantage…………………………………………6

ii. Marketing………………….…………………………………..7

iii Globalisation and social networking………………………….8

iv. Marketing ethics…………………………………………..…9

4. Findings and Discussion………………………………………10

5. Conclusions and Recommendations…………………………..14

Bibliography……………………………………………………..17

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1. Introduction.

This paper presents critical discussion of the use of social networking sites to achieve competitive advantage in business. As will be discussed, viral or ‘word of mouth’ marketing is not a completely new phenomenon. However, web-based social networking sites are a relatively new development in marketing terms, with the first variants appearing in the mid 2000s. As yet, their real potential for creating competitive advantage has yet to be fully established; the media itself is constantly developing, and marketing professionals are still coming to terms with its use. What is certain is that it can be highly profitable. As Kozinets points out, $1.54 billion was invested in ‘word of mouth’ marketing initiatives in 2008, a figure expected to rise to $3 billion by 2013; ‘…The internet’s accessibility, reach, and transparency have empowered marketers who are interested in influencing and monitoring WOM as never before…As markets change, marketing theories must also change to accommodate them.’ (Kozinets 2010: 71). The Internet Advertising Bureau calculates that, on a like-for-like basis, advertising on social media sites increased by nearly 200 per cent in 2010, compared to 2009. (Bradshaw 29.3.11).

Social networking has both advocates and detractors in marketing terms. Observers such as Weber have argued that it ‘…will be the most critical marketing environment around. Much the way newspapers were critical in the 1800s, magazines and radio were critical were critical in the first half of the twentieth century, and television was critical in the second half, the Internet began to become significant in the 1990s.’ (Weber 2009: 15). However, this is not a universally held view. Whilst it is perfectly reasonable to argue that social networking media has an important niche in contemporary communications, it is far less certain what form this will take in the future, or which companies will succeed in providing it. As the Financial Times points out, ‘…Networks have a distinct tendency to flame out after a promising start. The big question, then, is whether the same will happen to Facebook… in previous internet generations, services such as AOL and Yahoo had similar advantages. It did not stop their users abandoning ship when they passed their peak.’ (Gapper 2010). This is a critical point when considering whether social networking can really provide competitive advantage for business. Ultimately, individual businesses will have to decide whether to use this or more conventional channels for their marketing; they will also have to decide which particular network provider to go with. These decisions are likely to have important outcomes for the businesses concerned, and it can be assumed they will apply rigorous commercial criteria before making them.

Overall, this paper argues that social networking does have the potential to deliver sustainable competitive advantage to particular businesses. However, this facility will be mediated through a number factors. Firstly, the type of business involved, and whether it is a consumer facing or business to business enterprise. Secondly, the extent to which its existing marketing output may be adapted within a social networking format. Thirdly, how useful social networking will be in helping businesses detect and adapt to new or emerging trading conditions. With the economic environment set to remain challenging for the foreseeable future, competitive advantage will be obtained by those organisations which are most sensitised to the new developments, and able to respond in a timely manner. It must also be remembered that social networking sites are themselves not infallible in either marketing or business terms, and their capabilities vary. Whilst Facebook appears unstoppable in 2011, its rival MySpace has seen its success dwindle, and has been put up for sale. Other businesses in the market, such as Friendster have closed altogether. (Nairn 2011). All of these

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considerations, viewed collectively, will determine whether each business can rely totally on social networking for its marketing, or merely use it as part of a more holistic approach.

It is also important to establish what the drivers will be in the expansion of web-based marketing. This paper argues that social networking is essentially an element in the knowledge economy, but one which provides previously unavailable levels of knowledge to all of the parties concerned. This is the leverage available to social networking sites; they are intermediaries between businesses and consumers, with the power to render traditional, undifferentiated mass marketing far less relevant. Before social networking appeared, companies were already pursuing their own paths to customer relationship marketing (CRM). Using a combination of radio frequency product tagging and loyalty schemes, they were actively trying to predict, influence, and control consumers’ behaviour through a better understanding of their needs. Social networking can offer even greater levels of transparency, but at the price of establishing a new balance between supply, demand, and access to markets.

Many observers have argued that a salient feature of this will be a shift of control from companies and marketers, towards consumers themselves. (Kerrigan and Graham 2010: 316) Whilst this is perfectly logical and reasonable, it is not necessarily the whole picture. It is far more likely that there will be a continual rebalancing of power between consumers, social network providers, promotional agencies, and companies with products or services to sell. Moreover, this rebalancing will not remain consistent, but will be renegotiated as social networking itself continues to develop. This is partly because the social networking sector itself is unlikely to remain a static market. At present, it is dominated by particular incumbents, such as Facebook and MySpace. However, whilst the market continues to grow, this will not necessarily remain the case. New entrants and substitutes may challenge and destabilise the market, enforcing yet more changes in the dynamic between consumers and vendors. As Kelly explains, the problem for today’s consumers is ‘…trying to make sense of so much information amid so much sterile, all-about-us marketing information. If you want people to listen to you, don’t think of yourself as a content provider or an information distributor.’ (Kelly 2007: 23).

The paper examines these issues according to the follow schema. After outlining the methodology to be used, it presents a brief overview of social networking in the form of a literature review. Secondly, it considers the issue of sustainable competitive advantage in the abstract, comparing the ‘ideal type’ with specific instances of social network marketing. The study concludes by making some key recommendations for the successful implementation of a social networking based marketing approach.

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2. Methodology.

This is a predominantly qualitative or phenomenological study, based mainly on secondary sources and contemporary media reporting. However, as it also takes account of positivist evidence as appropriate, it cannot be said to be contained entirely within a qualitative research paradigm. As Collis and Hussey point out, it is seldom possible to keep positivist or phenomenological studies strictly within either paradigm. (Collis and Hussey 2003: 48). Quantitative studies, for example, usually incorporate some kind of modelling extrapolated from statistical data, at which point they become intrinsically less positivist. Meanwhile, qualitative studies which use data obtained from certain contexts often attempt to interpret them across far wider situations, rendering them far less phenomenological. Consequently, as Collis and Hussey argue, positivist and phenomenological research models should be thought of as the extreme ends of a continuum, which the focus of any real research process moving along it as appropriate. (Collis and Hussey 2003: 47-48). Qualitative research, as Denzin and Lincoln point out, does not prioritise any single methodology over any other, and neither does it ‘… have a distinct set of methods that are entirely its own.’ Therefore, qualitative research may involve ‘…semiotics, narrative content, discourse, archival, and phonemic analysis, even statistics.’ (Denzin and Lincoln 1998: 5).

The nature of the subject means that the scholarly literature does not adequately discuss all of the contemporary developments; events are simply moving too fast, and it will be months or years before academic publications can analyse them. However, whilst business and media reporting provides the necessary empirical evidence, it is still important to triangulate this with the appropriate theories and frameworks. As Bryman and Bell indicate, triangulation requires that the ‘…results of an investigation employing a method associated with one research strategy are cross-checked against the results of a method associated with the other research strategy.’ (Bryman and Bell 2003: 482). In this instance, media reporting of the latest developments in social network marketing is cross- referenced with generic models of competitive advantage.

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3. Literature Review.

As Hakim points out, any preliminary literature review should be as holistic and comprehensive as possible, in order to identify and refine new research questions. (Hakim 1994: 17). The scope of this study requires the incorporation of several sub-genres of material, spanning competitive advantage, marketing, globalisation, and ethics. One of the principle issues here is that social network-based marketing is a relatively new phenomenon, with relatively little scholarly material published on it to date. Moreover, such material as is available in this field is exploratory in nature, because the field is still relatively fluid and open.

i. Competitive advantage.

As has been argued, social networking sites are essentially part of a knowledge economy. They can provide competitive advantage by mediating knowledge between consumers and vendors in the virtual market place. The generic sources of competitive advantage may be reduced to either cost leadership or differentiation, or a combination of both: they can reside in different parts of the value chain, i.e. inbound logistics, operations, outbound logistics, marketing and sales, or service. (Hooley and Saunders 2004: 215-6). However, if businesses are to achieve advantage through these means, it is important to understand how they themselves will use and manage the valuable knowledge provided by social networking. As Pentina and Hasty observe, ‘…The role of firm-specific competences in acquiring a competitive advantage in “high velocity” environments is emphasized by the dynamic capabilities approach that extends resource based view…to industries with rapid technological and market change. In such industries, winners are characterized by the organizational capability to effectively renew, coordinate, and redeploy internal competences to achieve congruence with the changing business environment.’ (Pentina and Hasty 2009: 364). This view is also supported by Nonoka et al., who argue that the capacity to create and utilize knowledge may be regarded as the key source of any company’s sustainable competitive advantage. (Nonoka et al., 2000: 3.)

However, as the research of Lane et al. concluded, the acquisition of new knowledge cannot, in itself, guarantee this; management also have to ensure synergy between knowledge management and strategic development. (Lane et al., 2001: p.145) It is also important that key knowledge does not remain a scarce resource, locked into one part of the organisation; instead, it should be seamlessly transferred across the whole entity, to ensure synergy and scale-economies. (Lervick and Lunnan, 2004: p.295). The important point here is that the ability to do this varies considerably across different companies; some, as Dickmann and Muller-Camen have found, can achieve differentiation and integration in parallel, whilst others cannot. (Dickmann and Muller-Camen, 2006: 582) Those companies with this ability have an innate competitive advantage where new market intelligence is concerned. As Richter and Vettel point out, this is especially the case in changing market conditions, where such advantage may only be sustained through the constant generation and distribution of new knowledge. (Richter and Vettel, 1995: p.37). As Ricart et al. point out, it is unlikely that there will be a single generic answer or benchmark practice which will be able to address all of these problems; the ‘complex ecology’ of particular markets and geographical territories can make generic business solutions difficult to apply in practice. (Ricart et al, 2004)

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ii. Marketing.

A shift to social networking based marketing implies considerable change, both in marketing channels for client organisations, and for important intermediaries such as advertising agencies. The literature on marketing is obviously massive, and since the 1990s it has incorporated a growing element of study devoted to web-based business. Social media marketing, viral marketing , buzz and guerilla marketing are already starting to produce their own smaller body of literature. (Kozinets 2010: 71). This falls principally into two sub-genres; generic marketing texts which devote some analysis to web-based marketing, and specialist texts which are entirely devoted to different aspects of e-commerce. Since the mid-2000s, these have been augmented by studies devoted to viral and social network-based campaigns. These include Kelly’s Beyond Buzz; the Next Generation of Word of Mouth Marketing, (2007), Kimmel’s Connecting with consumers; marketing for new marketplace realities, (2010), Fraser and Dutta’s Throwing sheep in the boardroom, (2008), Weber’s Marketing to the Social Web, (2009), and Jaffe’s Join the conversation: how to engage market weary consumers, (2007). There are also company-specific studies such as Kirkpatrick’s The Facebook Effect: the inside story of the company that is connecting the world, (2010).

It has to borne in mind that these are mostly vocational or instructional type texts, aimed at the professional marketing audience. They present an optimistic view of the generic processes involved with less attention paid to how they would be adapted to particular business ends. Kelly, for example, argues that word of mouth marketing should become more conversational, since it is at this level that people make important decisions. As she explains, conversational marketing helps people clarify ideas through dialogue; ‘…talking with people is how most of us learn, make sense of information…the more high risk a decision, the more we value conversations to help understand the people, the product or service, the company, and other relevant factors.’ (Kelly 2007: 17). However, as Kimmel has cautioned, neither a conversational model or any other formula for launching a word of mouth campaign can offer guaranteed value to companies which have different resources, marketing objectives, and target markets. (Kimmel 2010: 215). As Jaffe points out in straightforward language, the over-arching problem faced by all branches of marketing is that consumers have been subjected to every variable of the promotional device. Marketing has become ‘…a red flag that consumers see a mile away, and its predictable approach…marketing’s “buy now or else” pleas are falling on deaf ears. There are just too many viable alternatives for consumers…’ (Jaffe 2007: 27).

Despite the novel communications channels set up by social networking sites, word of mouth marketing is not an entirely new phenomenon. However, the level of involvement and motivation of those involved has altered over time. As Kozinets points out, ‘…Consumers who communicate marketing messages to other consumers were previously assumed to engage in this behaviour as a result of altruism or reciprocity or to attain higher status. Motivations to participate in the bold new world of network co production of WOM are more complex and culturally embedded, shaped by communal interests and communicative orientations and charged with moral hazard.’ (Kozinets 2010: 86). However, change has not

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produced a homogenous or ‘ideal type’ social network user. As Kozinets again points out, there are numerous recognizable types, for example, ‘….The citizen journalist, the tell-it- like-it-is mother, the satirical exhibitionist, the making-ends-meet professional blogger…’ (Kozinets 2010: 86).

Marketers also have to consider that, although social networking sites may offer unprecedented contact with consumers, they were originally conceived as social communication tools; as such they may be used for multiple purposes. Not all of these are readily adapted to the corporate or business world, especially where subscribers use them to campaign on social or political issues. As Kirkpatrick points out, ‘…Though Facebook was not designed as a political tool, its creators observed early on that it had peculiar potential….now…one can find Facebook-fuelled activism and protest in every country and community where the service has caught on – and that is pretty much all of them in the developed world.’ (Kirkpatrick 2010: 6) It is the volatile nature of social networking which makes some potential marketers cautious about committing to it as a marketing tool. As Fraser and Dutta point out, ‘…corporations undervalue them because they are difficult to own and control…Executives are reluctant to put a value on anything they can’t control, often citing operational risk management.’ (Fraser and Dutta 2008: 74).

It is the promotional aspects of the marketing mix which are likely to be most affected by new media use, and this will rely on the adaptability of the organisations concerned. Market leading promotional and advertising agencies are large, highly profitable concerns, who will need to be convinced of the benefits of social network marketing before making a strategic commitment to it. In this sense, such organisations may be seen as ‘defenders’, ‘…sensitized to problems associated with innovation (e.g., high cost, risk of failure, threat to the established order)…’ and placing a high value on ‘…efficiency and stability in their technology, structure, and organizational routines.’ (Blumentritt, 2006) It is also possible that a shift to a social network marketing model will alter the structure of businesses themselves, taking power away from boardrooms, and re-distributing it across the strategically important data gathering and analysis functions of the organisation. As Hernez-Broome and Hughes point out, decision making is becoming so complex that the role of the autocratic Chief Executive is being altered by new imperatives, such as team-building and communication. (Hernez-Broome and Hughes, 2004) As the research of Addison et al. suggests, flat, lateral or learning organisations, where employee involvement is high, are often intrinsically better suited to good knowledge management and flexibility. (Addison et al. 2000: p. 41) A key consideration here will be the revenues which advertising and marketing companies derive from running campaigns on behalf of clients, and how the shift to social networking will impact upon these.

iii. Globalisation and social networking.

The synergy between globalization, the web and social networking is of course not total. As Vanhonacker points out, emerging consumer markets such as China are developing and fragmenting rapidly, with increasing numbers of foreign companies desperate to reach them. (Vanhonacker 2004: p.109) However, social networking sites such as Facebook cannot operate there for political reasons. Even where these types of formal and legal barriers do not exist, it cannot be assumed that the marketing potential of social networking sites is universal or equally pervasive.

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As Dimitrova and Rosenbloom point out, factors such as culturally distant distribution behaviour require multinational corporations to adapt to different value systems. ‘…Such cultural distance creates a considerable barrier to standardised channel strategy in global markets. Thus, even a large and powerful MNC must take into account cultural differences and adapt its strategy accordingly.’ (Dimitrova and Rosenbloom 2010: 170). The ultimate test of social networking could come if states such as China were to liberalised in terms of both communication and business. Although formal barriers can be removed by political will, cultural ones might still remain. As Yan points out, it is fair to argue that Chinese society generally harbors a ‘…strong bias toward obedience and against upward feedback and horizontal learning and sharing.’ (Yan 2004: p.126) The important point here is that this is precisely the kind of generalized model or stereotype which social networks can potentially break down or clarify. However, the practical impact of social network marketing in these contexts is impossible to predict. This is a problematical situation for businesses such as Facebook, which must access emerging markets if it is to continue growing. As Kiss points out, although its rise to half a billion subscribers may appears to have been relatively effortless, the next half a billion is likely to be less so. (Kiss 2010).

iv. Marketing ethics.

Weber argues that the concept of moral purpose in communities is being renewed on the social web. By moral purpose, he means ‘…offering value and acting ethically and transparently. No business will succeed without a clear definition of its transparency in doing business…’. (Weber 2009: 18). As Conroy and Emerson point out, the ethical attitudes and standards of society are not static, and neither do they develop according to consistent or easily measurable trends. (Conroy and Emerson 2008: 907). However, as Altman has indicated, it is questionable how far corporate attitudes have shifted away from Kantian ethics, in which profit maximization remains the central value. (Altman 2007: 261) The important point here is that ethical concerns have the potential to short circuit the commercial potential of social networking, emphasizing it potential for other, more politicized forms of interaction. As Kerrigan and Graham point out, ‘It is evident from the literature…that bloggers and citizen journalists are challenging the traditional power and control of news production systems presented in the model by creating their own distribution mechanisms.’ (Kerrigan and Graham 2010: 316). If this is accepted, then it is also possible that social networking companies themselves may also find themselves challenged for control of their valuable content. As will be discussed further, businesses such as Facebook have already been successfully challenged over this kind of issue. The important point here is that, by their very nature, social networking sites are an excellent way of quickly aggregating opinion and turning it into popular pressure. As Zyglidopoulos and Fleming have observed, ‘…Closing the distance between a corrupt act and its lived consequences…is generally considered to be a function of broader contextual mechanisms like socialization, peer pressure and other enlisting forces.’ (Zyglidopoulos and Fleming, 2008: p.270). If corporate communities apply different standards to those of consumers in social networking communities, businesses such as Facebook could find themselves caught in the middle.

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4. Findings and Discussion.

Social networks certainly have the potential to increase the competitive advantage of some – if not necessarily all businesses. What must be remembered, however, is that organisations such as Facebook are themselves businesses, whose marketing output should be judged objectively. Social networking sites do not necessarily ‘market’ themselves to subscribers in the formal sense, as the initial growth of Facebook demonstrates. University campuses provided its first ‘closed’ social networks, (Levinson 2009: 121), subsequently being extended to employees of Microsoft and Apple (Lacy 2006). Facebook did not appear in the public domain until 2006. (Fraser and Dutta 2008: 60) The important point here is that although Facebook’s own dramatic growth depends almost entirely on viral market, it cannot necessarily reproduce this success for its own corporate clients. As Meerman Scott points out, when organisations attempt to harness the power of viral communications, its spontaneity is frequently lost. (Meerman Scott 2007: 73). Dialogues between social network subscribers are easily compromised when a commercial third party intrudes on the conversation.

However, from a marketing perspective, social networking was very much the right idea at the right time, at least in terms of its commercial markets. As Behnke et al. point out, by the 1990s, audience analysis and understanding had already become an indispensable part of marketing and advertising research. (Behnke et al. 1990: 217) Corporations had been feeling their way towards competitive advantage through a variety of technological innovations, predominantly on the supply side of their operations. The supermarket business Tesco took the process further in its pioneering partnership with Dunnhumby, the data collection analysis agency. By targeting its marketing using information gained through customer loyalty cards, Tesco reportedly still saves £350 million each year on the cost of mass, undifferentiated marketing campaigns. (Wood and Lyons 2010). However, the picture is still incomplete, as the mixed fortunes of Tesco corporate venturing demonstrate (Felsted 2011). Ultimately, data gathered through transactions is all retrospective; businesses can look at past patterns of behaviour, and make projections from them. However, before social networking, they could not measure what consumers are doing in the present, or the immediate future. Social networking therefore seemed to offer some if not all of the answers to this problem.

The other important elements in the rise of social network marketing lay in two parallel developments, i.e. customer relationship marketing (CRM), and integrated marketing communications IMC. Both of these sub-disciplines gained currency in marketing and management circles from the 1980s onwards. They were essentially focused on the need to retain existing customers, and underpinned by the realisation that returning customers cost less to serve, offer greater cross-selling opportunities, and therefore more profits. CMR, as Christopher et al. point out, As Christopher et al. explain, ‘…The customer’s value to the organization is the outcome of providing and delivering

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superior value to the customer; deploying improved acquisition and retention strategies; and utilizing effective channel management.’ (Christopher et al. 2002: p.39) However, the problem with CRM was that its importance was readily communicable to those staff who were routinely in touch with staff, but less so to others within an organisation. As Homburg et al. point out, in many companies, the implementation of the marketing concept ‘….is, to an essential degree, up to the frontline employees because of their direct customer interaction…Moreover, because of the considerable heterogeneity of customer needs, it has become increasingly important to successfully address the needs of each specific customer. Therefore, to implement the marketing concept, frontline employees must be able to form accurate perceptions of an individual customer’s hierarchy of needs – that is, they need to develop a high degree of customer need knowledge. (CNK).’ (Homburg et al. 2009: 64).

Meanwhile, IMC provided the internal drivers of brand value, ensuring that the dialogue only involved customer-facing staff; everybody within the organisation was now supposedly involved the understanding and meeting the customer’s needs. (Kitchen and De Pelsmacker 2004: 6) Again, these supply side philosophies could only be as good as the market intelligence available on the demand side. By the mid 2000s, Massively Parallel Processor Systems (MPPS) and Simple Object Access Protocol systems (SOAP) were linking supply chains and consumer outcomes with increasing sensitivity. (Chandran 2003: 7-12) Then, in 2006, the social networking phenomenon began in earnest. As Jaffe points out, by this point, marketing had moved from being an art to a science; however, as he cautioned, ‘…The only problem is that science doesn’t exactly do well with the kind of chemistry that deals with intangibles, emotions, illogical drivers, and fallibility…in other words, humanity.’ (Jaffe 2007: 27). In other words, greater use of data driven metrics provided marketers with increasing volumes of positivist evidence about what was essentially a phenomenological problem.

All of the available evidence suggests that, whilst they are increasingly aware of the potential of social networking to gain competitive advantage, most organisations are uncertain about exactly how to exploit this. The advertising revenues of pioneers such as Facebook are clear evidence that businesses are prepared to divert significant proportions of their promotional budget into web-based viral marketing. But who exactly is driving this process, what are the likely developments, and what changes will it bring about? What the available evidence suggests is that each of the elements in the marketing environment – consumers, businesses, and promotional intermediaries – are attempting to shape forthcoming developments. Whilst doing so, they are re-negotiating their own positions, and relationships with the other parties in the equation. This situation may be illustrated in current developments at the current industry leader, Facebook.

As these pages are being written, Facebook is at the forefront of what it says will be the next structural change in marketing. Unfortunately for this study, that hypothesis has yet to be tested, and only time will tell whether this is indeed the case, or merely another costly marketing cul-de-sac for Facebook. The first element in this change is the launch of Facebook Studio. In March 2011, Zuckerberg’s company invited leading marketing executives from around the world to its Palo Alto headquarters to unveil this new concept. As the Financial Times reports, the overall premise of this service is essentially simple. Since the impact of conventional media-based marketing would gradually be diluted by social networking, it was time to allow consumers to take over, or at least appear to. (Dembosky

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27.3.11) In one such ‘influencer’s summit’ meeting, involving marketing executives from the UK, Facebook’s director of engineering, ‘Boz’ Bosworth, cautioned that the era of selling poor products through clever advertising was over. ‘…But for ad agencies that are good at what they do – it’s Christmas…Because people will be talking about what you do and sharing it with their friends.’ (Dembosky 27.3.11). The attendees apparently gave positive feedback. The chairman of Karmarama, one of London’s leading agencies, stated that the marketing practices of the previous fifty years were about to be rendered obsolete, and seen as ‘artificial.’ (Dembosky 27.3.11) Exactly how Facebook Studio will achieve this is unclear as yet. What is known, however, is that it is designed to replace the kinds of conventional media advertising which are currently placed on TV, radio, or in the press.

It is also significant that Facebook is using conventional channels to market its new product, rather than engaging directly with businesses themselves. Its direct approach to marketing companies suggests that its strategy for Facebook is as follows. Businesses with a product or service to sell will still outsource their promotion to marketing professionals, but the latter will abandon conventional media campaigns for viral marketing via social networking. Through this means, a compromise will be achieved between corporate and consumer control. Furthermore, the new service will offer a viable online portal to brands which are not necessarily sold online. As the Financial Times explains, ‘…The power of online to build brands is clearly reflected in the spectacular growth of display…social media remains small at just 5 per cent of total advertising spend. But, Facebook has gone from nothing a couple of years ago to 10 per cent of display spend…Usage is beginning to translate into ad revenue. Facebook will be number one for online display in 2011.’ (Bradshaw 29.3.11).

There are a number of considerations arising out of the Facebook Studio strategy. In the first instance, the placing of promotional budgets occurs within a highly competitive market. If the conventional media outlets are faced with losing massive advertising revenues to social networking sites, they will presumably respond with their own competitive strategy. As Kerrigan and Graham and point out, conventional media outlets are already finding themselves vulnerable to the power of social networking; ‘…Regional news media organisations are finding themselves less relevant as consumers turn to other, non-corporate digital sources for news. Furthermore, the consumer now assumes that non-specialist regional news content is free when supplied online.’ This has led to ‘…falling advertising revenues, a reduced market share, the removal of entry barriers, and the marginalising of previous sources of competitive advantage.’ (Kerrigan and Graham 2010: 315-6).

Secondly, it seems unlikely that a major shift to social network marketing could proceed on anything except a highly segmented basis. Considerable amounts of consumers, representing important market shares, are not yet engaged with social networking at all, let alone its marketing element. They will presumably still be reached through conventional promotional channels, suggesting that a balance between old and new media will endure for some time to come. As Kimmel points out, if target audiences are unlikely to go online or use a mobile device, a social media campaign will be irrelevant. Even if consumers are active users of real technologies, ‘…it must be determined whether they engage in social networking, the amount of time they hang out in networks online, and whether their networks are large and public or rather self-contained product or brand communities.’ (Kimmel 2010: 217). It therefore remains to be seen how far businesses could obtain competitive advantage through social networking alone, although this will obviously depend on their customer base. At a superficial level, a youth orientated consumer facing company could be the ideal client for Facebook Studio or a similar channel, whilst a business-to-business firm could struggle to see

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its relevance. As Kimmel again points out, if the focal industry is a conservative one, ‘…a decision must be made as to whether engaging in a nontraditional marketing campaign would damage the firm’s positioning or reputation or else provide an opportunity to distinguish the company from the competition as a pioneer.’ (Kimmel 2010: 217).

There is also the question of exactly how marketing agencies will translate their big-screen expertise onto the small Facebook format. As Jennifer Kattula, the company’s head of agency marketing concedes, ‘…One of the biggest challenges that people talk to us about is that Facebook is not a place to be creative because the ad unit size is so small, and there’s no sight, sound and motion…The idea is that social is creative. It’s more than just ads.’ (Dembosky 27.3.11). At an interactive level, products such as Facebook Studio could begin to close the gap between the capture and interpretation of consumer data. As the Financial Times has observed, businesses have been slow to realize that it is easier to buy information than it is to use it to create competitive advantage. (Unattributed Financial Times 24.7.10). Facebook and other social networking sites have been the beneficiaries of this situation to date, but corporations are increasingly wary of attaching a financial value to a Facebook fan or similar. As Bradshaw points out, there can be huge contrasts in the return on viral marketing, depending on exactly what product or service the company is selling. (Bradshaw 2011)

Facebook’s other current initiative lays in its localized micro-marketing service, which will allow businesses in defined geographical locations to target potential consumers in their area. So far this has been trialed only in US cities such as San Francisco, San Diego, Atlanta, Dallas, and Austin, where it allows businesses to capitalise on the social connections of Facebook members. (Dembosky 2011). Companies such as Plum District, Zozi and Open Table can send simultaneous messages to affiliated groups of members, informing them of promotions at restaurants, concerts, and leisure outlets. (Dembosky 2011). The extent to which this is a genuinely new departure is debatable. If the local element of the scheme is stripped out, it looks remarkably similar to the ill-fated Beacon project which Facebook was forced to abandon in 2009. Beacon highlighted two problems inherent in attempting to use social networking data for commercial purposes, i.e. trust and ownership. Facebook members objected to their preferences being aggregated for marketing purposes, seeing this as an abuse of trust. Furthermore, they could not opt out of the scheme, since Facebook retained their personal data even after they left the site. This prompted 70,000 subscribers to join the MoveOn.org campaign, and eventually Zuckerberg had to concede defeat. (Fraser and Dutta 2008: 74).

A more immediate source of feedback lays in the use of social networking sites to garner influencer and advocacy support amongst existing customers. The consumer electrical multiple Best Buy has launched its Twelpforce customer service team, linked to Twitter in order to respond to problems notified by the site. Similar innovations have been launched by Comcast, the US cable company, and Whirlpool, the domestic appliance manufacturer. These developments are being overseen by consultancies such as Get Satisfaction, which advises companies on how to optimise the marketing opportunities within social networking feedback. As the founder of Get Satisfaction points out, ‘…companies were largely ignoring social media.there has been something of an arms race to embrace social media as an opportunity….They now see it not just as low-cost marketing opportunity through word-of-mouth, but also as a way to demonstrate their customer centricity, putting customers first.’

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(Birchall 2010). Positive strategies also include the use of Ice Cards, created by the Dutch marketing company Icemedia. Consumers are invited to participate in the scheme through social networking sites; if they agree to do so, they are sent personalized contact cards with branded artwork on one side. (Kimmel 2010: 222). The customer therefore becomes a physical as well as virtual advocate for a particular brand or service.

In some instances, this kind of viral advocacy has already taken a more positive direction. As the Wall Street Journal reports, younger investors have been leaving their financial advisers in favour of the peer-based viral advice on Facebook. Research has revealed that fifty percent use social networking for pointers on investment, whilst two thirds have actively joined in online investor communities…’ (Frank 2011). This behavior suggests that the ability to create trust networks may be a key marketing advantage for social networking communities. As Thwaites has indicated, banks and financial service businesses often employ ‘follow-on’ marketing campaigns to allay ‘post-purchase anxiety’ amongst customers. The logic of this is that, lacking a tangible or immediate outcome for what might be a long-term purchase, consumers need reassurance that their purchase decision was the correct one. (Thwaites 1995: 125).

5. Conclusions and Recommendations.

When these factors are viewed collectively, the idea of direct marketing through social networking sites becomes far more complex. A two-way traffic of information between consumers and businesses becomes far less attractive if there is a danger that the former will see the latter as an intrusive third party. Moreover, both business and marketing management are only just beginning to adapt to this new networked co-production of marketing messages. Even now, such adaptation is highly sector-specific, and restricted to managers in the industries most affected, such as music production, advertising, , and newspaper publishing. Kozinets points out that , ‘….as it becomes increasingly recognized that few industries will remain untouched, we will increasingly understand how to supplement broadcasting of hypercommercial messages with the careful cultivation of consumer’s narrative networks.’ (Kozinets 2010: 87).

There are also clearly issues involved in the commercial ethics of social network marketing. Episodes such as the Facebook Beacon affair demonstrate that subscribers can be sensitive to the blatant hijacking of their online opinions for marketing purposes. This trend may increase during periods of economic uncertainty, especially where consumers are faced with diminishing spending power, whilst businesses are marketing more aggressively to maintain margins. As Ekstrom, and Hjort point out, ‘…in a society with growing inequalities, marketers need to consider that traditional tools such as segmentation can contribute to reinforcing new inequalities.’ (Ekstrom, and Hjort 2009: 707). The tendency of social networking sites to promote radical protest movements has already been noted; the other side of this coin is the reluctance of corporations to entrust their value proposition to a media which they cannot fully control.

This lack of control can also be compounded by a lack of understanding. Social networking is a comparatively new sector of the media, and like any new business, it carries conventional commercial risks. When Rupert Murdoch’s News Corp bought MySpace for $580, the media entrepreneur predicted that its revenue would rise to $1 billion per year. However, in 2010 its revenues were $347 million, down from $470 in 2009. As the Financial Times points out,

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attempts to blame this on the global economic slowdown were unconvincing, since Facebook revenues rose in the same period. (Waters 2010). By 2010, its income from global advertising had reached $1.28 billion, exceeding that which Murdoch had predicted for MySpace. (Kiss 2010). There may also be dangers inherent in the claims of businesses like Facebook that they can augment or even supplant the expertise of conventional marketing agencies through services such as Facebook Studio. As Jarrat and Katsikeas point out, managers need to reflect on the business expansion opportunities ‘….that can accrue from relationship management infrastructure investment with leading client organisations. The embeddedness [sic] of relationship ties supported through client investment can stimulate new ways of thinking about the client’s business that offer new streams of revenue.’ (Jarrat and Katsikeas 2009: 67). This, it would appear, is exactly what Facebook is in the process of doing; once involved in the Facebook Studio venture, clients will be heavily reliant on Zuckerberg’s company for the creative and innovative input which might give them a competitive edge. However, there must be question marks over whether the youthful board of a business such as Facebook has sufficient depth or breadth of expertise to advise a potentially diverse range of businesses. Moreover, as Shen et al. point out, organisations tend to renew themselves in the image of their founders or dominant figures; ‘…Human resource managers usually tend to bring people into the organization and promote employees who fit or have values similar to the decision makers or gatekeepers.’ (Shen et al. 2009: p.243) If this remains the case at social networking companies, their skills base could remain narrow. Experience shows that, as yet, social networking sites have most experience in dealing with companies from the music, media, gaming, and social entertainment sectors. When MySpace revenues went into terminal decline, it was to these businesses which it turned in a failed attempt at reversing this trend. (Garrahan 2011). Owen Van Natta, then chief executive of MySpace, stated at the time that that the company did not intend on competing directly with Facebook, ‘…in effect conceding defeat in the race to become the largest online social network.’ (Waters 2010).

What is not known is how such a decline effects the businesses who had placed their advertising campaigns with MySpace. As the Financial Times points out, ‘…the enterprise social networking industry is currently enjoying a boom similar to that experienced by consumer social networking pioneers five years earlier. A shake-out for these business-focused sites may be further out, but business decision-makers need to be aware today of the consequences of backing the wrong social networking horse.’ (Nairn 2011). To ensure that they can achieve competitive advantage though social networking, companies will therefore have to develop a much more acute understanding of how it functions in business terms.

Meanwhile social networking businesses themselves face conventional commercial problems in achieving growth. The fact that Facebook now has over 500 million subscribers indicates that that its potential in developed markets has already been exploited; it must now turn increasingly to developing and emerging markets to reach future targets. To do so, it must negotiate a number of hurdles. In Africa, for example, desktop computer use remains minimal, so the site has been adapted within a reduced mobile phone format, Facebook Zero. The same product has been adapted for the Turkish market, where high mobile data costs have forced Facebook into deals with over three hundred mobile operators. (Kiss 2010). The important point here is that multi-national companies will have to take great care to ensure that their market positioning can be transferred successfully across both cultural and technological barriers such as these. Significantly, Facebook is still a very small organisation by corporate standards, employing approximately 3,000 staff to run its $1.28 billion annual business. (Kiss 2010). This suggests that much of its global business is outsourced to intermediaries, which may dilute its culture and brand equity.

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Companies may perceive that they can gain competitive advantage by being the first in their sector to use social networking. Innovation can be a key source of such advantage, especially when, as Stopford and Baden-Fuller point out, a business succeeds in changing the fundamental ‘rules of competition’ for a whole industry. (Stopford and Baden-Fuller 1994: p.521) The likelihood of a structural shift in marketing from established media to social network sites has to be assessed in the same terms as any other strategic change; as Goffee and Jones point out, this will depend on each organisation’s culture of corporate venturing and risk management. (Goffee and Jones 1996: 146). Larger firms may have the liquidity to absorb the risk of failure, but their governance, culture, and structure may make them less likely to do so. (Barker and Duhaime 1997: 20). Meanwhile, comparatively little is known about how small and medium sized businesses are using social networking. As Barry and Topa point out, new infrastructures can be instrumental in supporting the SME sector. (Barry and Topa 2008: p.34) Much will depend here on the kind of cost structures which are put in place by social network providers, and their compatibility with overall business conditions. It they offer companies the opportunity for real asset reconfiguration and lower costs, there could be real opportunities on both sides. (Pearce and Robbins 1994: 412). Conversely, if entrepreneurial companies are asked for a long term commitment, this may not be compatible with the kinds of pro-active and flexible approach they need. (Barringer and Bluedorn 1999: 425).

The key recommendations arising out of this research are…

More research needs to be done on how specific organisations have gained competitive advantage through social networking sites.

This could be accomplished though studies of either single firms or groups of firms in specific sectors of the economy.

The failures as well as successes of social network marketing need to taken into account. This could be accomplished through further study of the decline of businesses such as MySpace, Friendster etc. For example, what informed the decisions of specific companies to spend less of their promotional budgets with these organisations.

What will be the impact on social network businesses if the ethical standards of the corporate community and consumers become increasingly polarized?

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