Does Social Media Engagement Link to Financial Performance?

Charlene Li of Altimeter Group and co-author of social media book Groundswell, released research that appeared to show a correlation between engagement with social media and a company’s financial performance.  “The study looked at how the 100 most valuable brands — as identified by the 2008 BusinessWeek/Interbrand Best Global Brands ranking — engaged in 11 different online social media channels,” Li’s blog read yesterday.

The research said that the companies most engaged, dubbed Mavens, “on average grew 18% in revenues over the last 12 months, compared to the least engaged companies who on average saw a decline of 6% in revenue during the same period. The same holds true for two other financial metrics, gross margin and net profit.”

Sounds great! Wow!

Only, there are a few folks who aren’t wholly convinced.

Larry Dignan, writing on the Between the Lines blog on Znet, isn’t convinced at all. In fact, he says “Color Me Skeptical,” pointing out that the companies listed as Mavens “haven’t exhibited stellar financial performance in the last 12 months. Starbucks, a maven, has had its margins blown apart by McDonald’s, a wallflower. Dell is quite social, but needs to transform itself in a company that looks more like butterfly HP. eBay? Investors aren’t exactly stoked about the auction site’s growth social media aside. In fact, a lot of the revenue growth is challenged among the mavens.”

Li’s post makes it clear that they’re not claiming the research is causal — but how many people understand the difference? Additionally, I looked for but could not find the R-Squared value for the correlations, which would have given a better indication of the strength of correlation. The report says “statistically significant,” and the chart of the three financial metrics certainly implies strong correlation, at least with the Maven group. The charts on engagement are scatterplots with regression lines in place, but the financial charts are simple bar charts…

And, what of other factors contributing to the higher revenue and gross and net margin figures? The assumption is that social media engagement is responsible for the increase — what if it’s the other way around?  It’s possible that with higher revenue and margin, the companies dedicated more resources (either human or financial) to the engagement effort. The report notes that the higher-engagement groups tended to feature robust teams. Chicken or egg?

Aside from the geeky caviling, I’m by nature quite skeptical of reports such as this (with deep respect, please). Those conducting the research have a vested interest in these conclusions — it really wouldn’t do to show research that says social media has no financial impact when your business depends on the reverse! This area desperately needs additional, scholarly research — using advanced stats to look at as many factors as practical would yield better insights.

For now, I’d pull out the salt shaker before taking this to much to heart.

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2 Responses to “Does Social Media Engagement Link to Financial Performance?”

  1. Thanks for pointing this article out to me. It sounds as though we have basically reached the same conclusions.

  2. Jim Savage says:

    Good reality check, Sean….Yeah, this sort of thing reminds me of the kinds of stats one sees on TV sports – “well, John, no quarterback with three vowels in his middle name has scored a second TD in the third quarter since the Jets did in back in ’72, so I’d say the Cowboys have an uphill battle”….that sort of thing…