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Social Networking and the Future of Business

23/05/2012 na edição 695

 

Facebook’s initial public offering has all the hallmarks of becoming a milestone in financial history. Depending on current estimates, it could well become the technology IPO of the decade.

In its eight years of existence, the company founded in a Harvard dormitory room by Mark Zuckerberg has managed to connect people virtually in a way no one had thought was possible. Facebook has been associated with revolutions: the events that led to Hosni Mubarak’s fall started in Egypt with a Facebook page by Wael Ghonim. And it was used successfully by US President Barack Obama’s campaign to get him elected in 2008. Four years later, both President Obama and his opponent Mitt Romney now run important parts of their campaigns on Facebook.

Estimates say that Americans spend, on average, up to 20 per cent of their online time on Facebook. Some 300m photos and videos are uploaded onto it daily. With such a wealth of data waiting to be mined, advertisers and marketers have become some of the most ardent fans of Facebook, for it allows them to reach audiences, understand trends and changing customer needs. It also allows them to customise offerings on an unprecedented scale.

Imagine the power of social networks once they will be part of daily business and not mainly being used by consumers only. In spite of Facebook’s remarkable success so far, the truth is that we have thus far witnessed just the earliest beginnings of social networking’s power to fuel the real economy. Social networking will revolutionise business interactions, just as the Internet revolutionised retailing more than a decade ago. And the result will be a game-changing surge in innovation and productivity and a big leap forward in job creation and new growth opportunities.

Consider for a moment what social networks do: they bring together the traditional features of a person’s personal life – friends, family, events, memories, conversations, fun and games – and centralises them in a convenient dashboard that enables us to interact with anyone we know, at any time, from almost anywhere on the planet. The efficiency of these tools allows people to maintain broader networks of friends with less time and effort than was ever before possible.

Today, many of us have adjusted our social lives to make the best use of the online networking tools that have been made available to us. Businesses will soon undergo that same process. And the inevitable result will be more business.

A fully networked business environment means better access to customer profiles and preferences, resulting in a stronger ability to deliver individualised products that consumers want. Broader knowledge of health data and energy consumption patterns will lead directly to more efficient use of scarce resources. Direct access to all of the suppliers in a product category will lead to stronger supply chain and supplier relationship management. That in turn will result in more competitive pricing, greater flexibility and less capital tied up in inventory.

When data generated at the level of an individual – whether they are shopping preferences, energy consumption patterns, social relationships or health data – can be captured and analysed along with other relevant datasets in real-time, existing value chains are turned on their head. It benefits the consumer, because the consumer gets more directed, more personal, more economical offerings.

On an everyday basis, we envision an intelligent network of businesses – what I like to call the ‘Intelligent Business Web’. The Intelligent Business Web will be most important to small and medium sized businesses because it allows them to tap into the collective knowledge of their cohorts. These businesses are very important to the health of economies, particularly in challenging economic times. Studies have shown that time and again, they are the ones that are responsible for creating jobs coming out of recessions.

Like Facebook’s social networking the key value of the business web will be the network effect for all businesses. It will allow them to increase the speed of innovation and productivity like never before. With the Intelligent Business Web boundaries between individual businesses and even entire industries as we know them today will blur.

Telecom providers could offer banking products on SIM-cards and automotive companies could offer financing and insurance or even rental cars. But the telecom provider does not have to become a bank – they can consume the service from a bank through the business web. Manufacturing companies can manufacture products for many different companies – like we see in high tech and automotive already today. They do this by forming networks that combine various services and capabilities from different companies.

Secondly the business web will offer real-time intelligence like never before. We have been working with a large distribution company in China to help them optimise their ocean transportation. In a world of increasing oil prices and new objectives like reduction of carbon dioxide emission, this company wanted to connect the demand, the ships, the oil prices and the CO2 emissions to optimise their logistics business. Today we can optimise entire value chains for minimum cost and consumption of scarce resources and in the future this will be common.

The latest generation of sales tools for businesses, such as SAP’s Sales OnDemand, and new environments for collaborative decision making, such as SAP StreamWork already make use of social networking. Our customer relationship management software offerings already monitor online sentiment. Similar business applications will soon be everywhere, changing the way business is conducted on every continent and in every industry.

The business networks of the future will be not just comprehensive, but mobile, reaching out to all of the world’s six billion mobile devices. Mobile has become an integral part of our lives, and is rapidly transforming the way we work. The marriage of mobile technology and social networking will only hasten further change in business.

The world will not get more productive because we can watch videos on Facebook, chat with friends and family or upload personal content – but if we leverage social networking for business processes and real-time information flow, we can change the world.

The Arab Spring was an example of the latter. I believe that the excitement over Facebook is a harbinger of the evolution we will see in business becoming social and traditional value chains becoming social value networks. The impact of these changes will extend well beyond Facebook’s remarkable achievements. And in the very near future they will generate innovation, growth and jobs on an unprecedented scale.

Jim Hagemann Snabe is co-CEO of business software maker SAP

 

***

GM to pull back on Facebook advertising

Informações de Shannon Bond, Andrew Edgecliffe-Johnson e April Dembosky [Financial Times, 16/5/12]

General Motors plans to stop paying for ads on Facebook in a move that raises questions about the social network’s business model ahead of its highly anticipated initial public offering.

“We currently do not plan to continue with advertising but we remain committed to an aggressive content strategy,” a person at GM familiar with the situation said, confirming a report by The Wall Street Journal.

GM said it would continue to expand its use of Facebook pages for its brands, which companies can set up for free.

The carmaker spent $1.83bn in advertising in the US last year, according to Kantar Media, the ad-tracking group, putting it in third place behind Procter & Gamble and AT&T.

Earlier this year, it said it would review its advertising strategy in an effort to save $2bn over the next five years. According to some estimates, GM spends about $40m on its Facebook presence, of which $10m goes on advertising. GM would not confirm those figures.

The move underscores a potential problem for Facebook, which has been facing an increasingly loud chorus of critics over its advertising offerings.

Even as companies have developed their free presences on the site, some have been reluctant to commit advertising dollars and ad growth has slowed.

Nigel Morris, chief executive for Aegis Media Americas, which holds GM’s $3bn global media buying and planning account, declined to comment on the carmaker’s decision. But he said: “Most advertisers are increasing their spending [with Facebook]. The big issue is, are they increasing it at the rate Facebook would like?”

One person familiar with GM’s move said Facebook had not done a convincing job of demonstrating what returns the new forms of advertising for its brands would generate.

“There’s mixed sentiment” about Facebook among advertisers, one media buyer said, noting that he had not seen other clients halt spending as GM planned to.

“Facebook hasn’t stumbled yet upon a truly scaleable revenue generator,” he said. “What Google had was an unbelievable revenue engine, which said that if you put this amount of money in, you’ll get this much out.”

Offering an alternative view, Dean Evans, chief marketing officer for Subaru of America, said the car company was spending more than $5m a year on Facebook advertising and intended to increase that in the next year. “We like what we’re seeing,” he said.

Facebook is preparing for its stock market debut, which is expected to be the largest technology initial public offering in history

Subaru uses Facebook primarily as a public relations channel as opposed to a sales channel, using a mix of its paid and unpaid advertising formats.

“We know that over time more happy customers that spread the word about your brand will equal sales,” Mr Evans said. “Do we know how to measure that accurately today? We’re getting closer. And we’re confident that sales are in there. But exact dollar spent matched to a sale, we haven’t mapped that fully yet.”

Analysts at Forrester Research penned a scathing blog on Monday, accusing Facebook of not taking marketing seriously, making only “tiny” advancements in its ad model and standing in the way of marketers who wanted to measure the performance of their campaigns.

Other analysts suggested it was too soon to judge Facebook as the company was still maturing and weaving together the different paid and unpaid parts of its total social advertising concept.

“This is the next phase of marketing and advertising and I don’t think GM, Facebook or any other company is quite there yet because it’s still emerging,” said Rebecca Lieb, an analyst with the Altimeter Group. Facebook declined to comment.

Also on Tuesday, regulatory filings after markets closed showed that Berkshire Hathaway, the conglomerate run by investor Warren Buffett, had taken a $200m stake in GM.

Such small investments by the company are now overseen by Todd Combs and Ted Weschler, the two former hedge fund managers Mr Buffett has chosen to eventually take over his investment role at the company. Berkshire reported holding securities worth $98bn at the end of March.

The two men are now responsible for investing $2.75bn each, Mr Buffett said at the company’s annual meeting this month. They are each paid $1m a year, plus a 10 per cent bonus of their investment gains over and above the performance of the S&P 500. To encourage cooperation they get 80 per cent of their own bonus and 20 per cent of their partner’s.

Additional reporting by Dan McCrum in New York

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