Mc Kinsey's report FAILS to show ROI of social media

The prize for 2011's most misleading headline so far goes to Marketing magazine: "Proving social media's ROI - McKinsey's report may hit home at board level". Dig into the Mc Kinsey report and you see it does nothing of the sort. There is NO evidence that use of social media boosts ROI.

I'm still left feeling that social media is a fad and that most brands using it are wasting money.

The McKinsey survey asked over 3,000 executives about their use of web 2.0 stuff (blogs, Twitter, Facebook et al). It then asked the same execs to say whether these tools had produced business benefits.

Internal benefits are strongest, with 77% claiming an improvement in knowledge sharing. In terms of external benefits, 63% claimed some positive results, spread across a bit each for awareness, consideration and loyalty. A much lower 24% claimed an actual increase in revenue. However, these benefits are merely claimed. And given all the money people are spending on their shiny new social media toys, its not surprising they claim they work.

The Marketing article goes on to say that "Dell is one company to have proved social media can make money". This is based on sales of $6.5million through Twitter. Mmmmm. To put this in perspective, Dell's annual revenue is $50billion. So that's a 0.00000001% increase.

But the worst bit of analysis is saved till the end of the report. The authors trumpet a correlation between market share gains and being "fully networked organisation"). First, this correlation is not that strong ( .344). But the bigger point is that we don't know which way the correlation works. Its quite possible that successful, growing companies can afford to experiment with social media as its the latest fad.

Net, the McKinsey report sheds no more light on the bottom-line benefits of social media. It still feels like the new fad in marketing that brands are rushing to use. It does make sense for a handful of brands, especially those with lifestyle appeal such as Red Bull and Nike, as covered in an earlier post "What the hell is Facebook for?" But most brands should think long and hard before committing valuable time and money to social media.

 

Comments

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[Byron Sharp]

Actually it is an 0.013% increase in revenue, but yes that is still very small.

Maybe a decent profit %, but shareholders care about $ returns not %.
Concentrating on ROI can send you broke.

Professor Byron Sharp

[David]

Chris,
Thanks for commenting.
Fair point. Looked at that way $6.5mill aint bad.
BUT, its still totally irrelevant in terms if impact on Dell's sales, right?

David

[Chrisfalconer]

Good article but I feel the need to comment upon this line:

"This is based on sales of $6.5million through Twitter. Mmmmm. To put this in perspective, Dell's annual revenue is $50billion. So that's a 0.00000001% increase."

ROI is return on investment. Considering the cost of the Twitter account to the business will be minimal (merely someone's time to update it), then I would say that $6.5million is a fairly decent return on investment, regardless of their turnover.