Tag: social media

Social Media and Snickers

Bruce McColl isn’t an engineer, and his responsibilities have a lot more to do with building brands than building bridges. But the much-celebrated global chief marketing officer for Mars nonetheless believes that the spectacular failure in 1940 of the original Tacoma Narrows Bridge – a suspension bridge in Washington state –offers valuable lessons for brand managers as they attempt to navigate the fractured, difficult, fast-shifting marketing landscape of the 21st century.

“The real insight [from the collapse] is that the engineers on that project jumped in too eagerly with new technologies and new methods,” said McColl, who spoke during Wharton’s recent Future of Advertising Conference. “There were new variables and new techniques, and they weren’t yet tried and tested. They used them on a scale that they weren’t ready for.”

As McColl noted, while other, apparently more daring designs had preceded the Tacoma span — the groundbreaking Brooklyn Bridge in 1883, the even more enormous George Washington Bridge in 1931 and the stunning Golden Gate Bridge in 1938 — and while the Tacoma bridge basically followed the same blueprint as those spans, it failed anyway. It failed not necessarily because of its basic layout, or because of the inadequacy of its designer (indeed, the Tacoma project was headed up by Leon Moisseiff, who also designed the Golden Gate Bridge), but rather because the technologies and innovations used there — specifically, its elegant but narrow girders — simply pushed the envelope too far, too soon. Moisseiff’s design may have been a good fit elsewhere, but it wasn’t a good fit for blustery Puget Sound.

Construction workers became familiar with the bridge’s flaws early on, so that when the bridge collapsed into Puget Sound just four months after its opening (no injuries were reported), hardly anyone was surprised.

The lesson — not just for engineers, but for marketers — is clear, McColl said: Technology and innovation in and of themselves are not necessarily the answer to any single problem or challenge. Employ new technologies incorrectly, or put too much faith in innovations that aren’t yet fully understood, and failure — even catastrophic failure — is possible.

“In my job, I’m concerned with big, valuable brands,” McColl said. “I don’t want to see them destroyed because I jumped in too quickly with technologies that weren’t proven…. You look at the things that have been built, from the great pyramids to the wonderful Sydney Opera House, and there’s a massive difference in technology. But the laws of physics have not changed. Engineers and architects still contend with the same laws of nature, and we as marketers need to understand [this] as we apply technology to the laws of marketing.”

Of course, there’s a catch in that statement, McColl says: In marketing, there are no hard-and-fast laws of physics, especially now, as social media opens up vast new possibilities and poses enormously difficult new challenges. There is only the bottom line, which is what marketers must constantly keep in mind as they work to craft smart, modern marketing campaigns that may or may not rely heavily on social media or other new technologies to meet their sales targets.

While McColl joked that he has not always enjoyed success during his long and accomplished career — “It’s unlikely that any marketer can destroy a brand like those engineers destroyed that bridge, but Lord knows I’ve tried” – recently his Mars team hit a marketing home run. The successful campaign they launched in conjunction with the 2010 Super Bowl was a smart mix of new-age social media savvy and tried-and-true marketing methods, all powered by the company’s risky decision to use an elderly actress, long out of the public eye, to form the center of their campaign.

In the Super Bowl ad that kick-started what would prove to be a long-running profitable campaign, actress Betty White was shown playing football with a bunch of young men. White goes out for a pass, drops the ball and gets knocked flat. She returns to the huddle and is told by her teammate that she was playing like, well, Betty White.

Then White eats a Snickers bar, transforms back into who she actually is — a young man who just happened to be suffering form a lack of energy — and returns to the field, rejuvenated. The ad was funny, smart and modern. By the time the Super Bowl ad reviews were in the next morning, the Snickers ad was seen by many as the single most popular of the evening. Viewers loved the concept, the offbeat approach and, perhaps above all, White’s willingness to play along with the joke.

But McColl and his team never intended the Super Bowl ad to be a standalone piece, but rather the first step of a three-month campaign — one that would help them reach the 270 million people worldwide who have eaten a Snickers bar at least once in their life, as well as the 70 million who do so regularly, in order to keep their brand prominent and “top of mind.”

While the initial buzz about the ad kept Snickers in the news for a few days, the full impact of the campaign would be revealed in the months to come. A few weeks after Super Bowl Sunday, White ended up on Saturday Night Live, followed by appearances on Larry King Live and Oprah. Because of a 30-second ad and a good sense of humor, White was back. But Snickers — and Mars — may have been the bigger winner.

In total, McColl said, the White campaign generated a stunning 350 million media impressions. More importantly, those hits actually translated into sales: Revenues in the wake of the campaign shot up by double digits. “We found a way to do a campaign that could get amplified by the mass media,” McColl said. “It was a very interesting year.”

Even in the wake of that success, however, and even though he and his Mars colleagues know that social media did play a massive role in the campaign’s meteoric rise, McColl admits that it’s been difficult to figure out exactly how Facebook and Twitter influenced the sales jump, and why this campaign, unlike others, lit such a fire under social media users.

It’s easy enough to stand back and say that social media helped, McColl concluded. It’s not so easy, however, to figure out why it helped — and what lessons can be gleaned from a campaign that seemed to surprise even McColl with its results.

In other words, the laws of physics in social media marketing remain unknown, and likely will for some time to come.

“When you try to connect social media to all of this, unfortunately it’s like lightning in a bottle,” he said. “And these are just some of the factors we have to run through when we look at these new technologies. As mass marketers, we need to go out there and reach hundreds of millions of people, but we need to understand how these new technologies can help us achieve that. That’s the core that we’re talking about as we transform our growth agenda.”

Posted in Knowledge@Wharton Today | Also tagged , , , , , | Leave a comment

Mastering ‘Social Media Etiquette’

Thanks to social media, companies are able to forge a new, and often more intimate, relationship with their customers — and even with their own employees. But in an ever-changing medium, how can marketers and community managers figure out the best way to respond to queries or complaints, and also disseminate information about their goods and services?

At a panel discussion on social media held last week as part of a conference organized by Wharton’s Baker Retailing Center, participants from the retail industry discussed some of the ways their companies are mastering “social media etiquette.”

Saying ‘thank you’: Staff from online eyeglasses retailer Warby Parker send thank you notes to bloggers who write about the company, said Tim Riley, director of online experience for the firm. “It doesn’t matter if they have one or one million followers. We try to treat each blogger exactly the same,” he noted. “That helps us establish a relationship from the start. Hopefully people will then be more inclined to write about us on an ongoing basis.”

Getting personal: Panel moderator Kartik Hosanagar, a Wharton operations and information management professor, told a story about the personalized service that Zappos offered a customer who was going through a rough patch. A member of Zappos’ social media team read a blog post in which a consumer wrote about the recent death of her mother and mentioned that she didn’t have time to return a pair of shoes to the retailer. “Zappos had a truck sent to her place to pick up the shoes,” Hosanagar said. In addition, the company sent the woman a bouquet of flowers. “Customer interaction with retailers is ultimately transactional on the one hand, but with social media,you can create a one-on-one relationship.” Hosanagar noted, however, that the situation can also become challenging for retailers because they must extend the intimate relationship offline, when shoppers come to their bricks-and-mortar locations.

Targeted training: Dennis McEniry, president of Estee Lauder’s online business, said that the company provides targeted training and advice for employees interacting with consumers via social media. “Rather than trying to train our customer service people to speak online, we took makeup artists and beauty advisors and taught them” to give followers on Twitter, for example, suggestions and tips for using various products, McEniry said. The second group of people who speak online on behalf of Estee Lauder includes community managers who are in charge of social media for particular brands. “The third group is general employees. While we encourage them to speak on behalf of the brand they work for, we train them about what to say and what not to say,” and other do’s and don’ts during a two-day course, he adds. “We are more worried about what they say, or how they say it, than their active participation [in social media.] We also have a rule that any employees using these tools have to reveal that they work for a particular brand.”

For more insights on social media from the Baker conference, check out our previous post, “Making Social Media ‘One Giant Hangout.”

Featured Professors:
Posted in Knowledge@Wharton Today, Marketing | Also tagged , , , | Leave a comment

Making Social Media ‘One Giant Hangout’

On a recent weekend afternoon, dozens of people showed up at the New York offices of Warby Parker, an online eyeglasses retailer. They were there to participate in a “photo walk” organized by the company. Every participant got a pair of novelty glasses to use in photos taken across the city. The company awarded prizes to images that received the most “likes” after being uploaded to Instagram, an online photo editing and sharing application.

“Up to that point, we had 700 photos on Instagram tagged with Warby Parker,” said Tim Riley, the company’s director of online experience. “Then the day of the photo walk, we had about 750 additional pictures tagged with our name. We also had 120 people in our offices and got to talk to all of them. It was a giant friendly hangout.”

As social media becomes an increasingly important part of retailers’ marketing and customer service efforts, it’s not just a matter of having the largest number of fans on Facebook or Twitter. Retailers also have to know how to engage users and how to turn those online conversations into positive offline interactions.

At a panel discussion on social media held this week as part of a conference organized by Wharton’s Baker Retailing Center, Riley and others from the industry discussed efforts to unlock the value in their online followings.

“‘Why don’t you have as many fans as Starbucks?’ is obviously a metric, but it isn’t the most important metric,” noted Chuck Hansen, vice president for media strategy at Macy’s. “We want to look at engagement level: When we create a post and look at similar posts across our competition, are we seeing a higher engagement level? And is it a positive engagement level?”

A key way to grow engagement is to figure out how consumers want to interact with the brand in question. For example, when Macy’s initially started its Facebook page, the company made the decision to focus on fashion rather than promotions. “But when we asked [our followers] what they wanted to talk about, they said promotions,” Hansen said. The retailer is now testing a beta program that allows coupons to be delivered via customers’ Facebook feeds.

Dennis McEniry, president of online efforts at Estee Lauder, noted that cosmetics brands can spend as much as $1 million to produce “how to” videos for different beauty products. But those videos typically get a fraction of the viewership on YouTube that amateur videos — those uploaded by individual consumers — do. “We’ve tried to switch to thinking about how to move the conversation to consumers doing videos, rather than necessarily having all of our brands make videos.”

Customers also want to feel empowered, panelists said and one way to do that is to get their input at the product level. Estee Lauder, for example, has solicited feedback about names for lipstick shades. Meanwhile, Macy’s ran a promotion asking followers to design a balloon for its annual Thanksgiving Day parade, and is running a different campaign allowing people to vote on songs that will be used for the mixtape that accompanies its July 4 fireworks display.

“Done well, social can be predictive,” noted Dan Clifford, vice president of marketing for Victoria’s Secret. “There’s a fine line between letting the customer drive the product too much, but there are definitely moments where we have sought feedback, whether it’s about names or certain functions built into a product. When done well, [the feedback] has matched the real-time testing we’re doing in stores. But it’s also a matter of getting the merchant comfortable [with] hearing from the world at large.”

In some cases, consumers also have to get comfortable with that kind of mass feedback. Warby Parker allows customers to have a selection of frames sent to their homes so they can try them on and pick the one they like best. The company started encouraging people to post pictures of themselves wearing each pair of glasses so staff from the company could weigh in. “The customer becomes empowered, and when someone else posts a picture and asks, ‘Hey, what do you think about these glasses?’, the person we helped before will start answering on our behalf,” Riley said.

Posted in Marketing | Also tagged , , , | Leave a comment

Facebook Shunners: Is Resistance Futile?

Shortly before Christmas, The New York Times became the latest media outlet to write about “Facebook resisters” — people who have never set up an account with the increasingly ubiquitous social network or those who started a profile, but later shut it down after they grew dissatisfied with the site.

As Facebook, its competitors and partner companies amp up the social aspects of their sites, and encourage consumers to share more of their activities and preferences online, it’s natural that some people are growing uncomfortable with the amount of information about their lives that is becoming publicly available, Wharton legal studies and business ethics professor Andrea Matwyshyn says. But that heightened level of sharing also makes it that much harder for consumers to completely break away from sites like Facebook, she notes, because they have become inextricably linked with how people live and work.

“There’s a growing concern among people about losing control of their own information, in particular the prospect of employers using social media as a filtering device” for prospective applicants, Matwyshyn says. She knows several law and MBA students who have opted to shut down their Facebook accounts because they were concerned about the reach of the information they were posting. “Depending on your privacy settings and the privacy settings your friends have on their own Facebook pages, you’re not just governed by your own conduct, but by the conduct of every one of your friends to the extent that they share data with third-party applications.”

Situations like this are also causing users to set up multiple personalities on Facebook, with one account for private use and another to use professionally. But bifurcated profiles and the use of pseudonyms creates other complications, Matwyshyn says, because they raise further questions about what is considered fair and legal conduct on social networking sites. “Third parties watching our conduct, or friends giving access to our information to third party vendors, are very messy spaces that will continue to flourish as the social reader phenomenon continues to expand,” she notes. “There’s a push toward having all of us increase the sharing of our information; to avoid sharing information, you have to adopt an increasingly aggressive, defensive posture.”

But given how pervasive Facebook has become, is it really possible to be truly disconnected? “The joy and pain of Facebook is that once you begin participating in the community, disconnecting means, in essence, that you lose a major source of information about people,” Matwyshyn notes. And social networking has also become an important aspect of the way many people do their jobs. “It may not be integral to the career prospects of an art framer, but for someone like me who works in a research field related to technology, it would not be possible for me to opt out of Facebook,” she points out.  “In fact, it would be, in my opinion, almost a credibility-diminishing choice.”

Featured Professors:
Posted in Law and Public Policy, Managing Technology | Also tagged , | 4 Comments

Yahoo: Let’s Make a Deal

As Google, Microsoft and other potential suitors continue to explore the idea of buying Yahoo, the question remains: Who would benefit most from such a purchase, and why? 

According to Wharton marketing professor Eric T. Bradlow, co-director of the Wharton Customer Analytics Initiative (WCAI), Google, with its prior acquisition of DoubleClick, “would have a unique opportunity to utilize its in-house technology to monetize Yahoo’s installed base. Revenue on the Internet is still driven by traffic, which is a function of having unique and important content.” DoubleClick, purchased in March 2008, provides ad management and related services for buyers and sellers of digital media advertising.

Google could also bring its recently launched social networking Google+ to Yahoo’s audience of nearly 700 million unique visitors, according to a report in the Wall Street Journal. In addition, Google would benefit from Yahoo’s relationships with content publishers like ABC News.

Kevin Werbach, Wharton professor of legal studies and business ethics, states that while Yahoo’s massive user base makes it valuable as a whole to acquirers, “the user benefits really come from the individual Yahoo offerings that are differentiated or have well-developed communities.”

Google is in talks with private equity investors to buy Yahoo’s core business, while Microsoft plans to invest “several billions of dollars” in loans to potential bid partners and preferred equity in Yahoo, the Journal report says. Yahoo and Microsoft already have a 10-year search partnership signed in 2009, a year after U.S. antitrust regulators frowned on a proposed Google-Yahoo partnership for web search advertising. Chinese Internet firm Alibaba Group Holdings, in which Yahoo has a 40% equity stake, has also shown interest in buying Yahoo, but has not yet made a formal offer.

If Microsoft’s strategy is successful, it may also push to integrate Skype, the Internet communications service it recently bought, into Yahoo, says a New York Times report. Already, Microsoft’s Bing search engine allows Yahoo to sell ads against responses to user queries.

The “basic question,” says Werbach, is whether Yahoo today is more valuable as a whole or in parts. “Any new owner of Yahoo must choose whether to extract as much revenue as it can from the existing platform, or to re-energize Yahoo as a distinct competitor. The second option would be better for Yahoo’s users, but it’s riskier for potential investors.”

Bradlow notes that while Yahoo has struggled in some ways, it has continued to provide content that attracts millions of unique visitors on a daily basis, especially “a very monetizable set of customers.” Yahoo’s visitors “tend to be heavier-than-average buyers of products and services, and provide a valuable audience for targeted advertiser content,” he adds. Yahoo’s news arm reported 81.2 million unique visitors in August, making it the biggest online news site, the Times report said.

Yahoo reportedly sought out potential investors after firing its chief executive, Carol Bartz, in September. Bartz made way for Yahoo CFO Tim Morse to become interim CEO after a study of Yahoo’s assets and performance by independent directors concluded that the company was not performing as well as it could. Yahoo is “still basically playing out the Internet portal model that it pioneered in the 1990s,” Werbach told Knowledge@Wharton Today at the time, adding then that “Morse, or whoever takes over as the permanent CEO, needs to make a major strategic decision: Sell the company or bet big on a big idea.”

Price could be a major sticking point as Yahoo’s suitors cobble together a deal, according to the Times. “Private equity firms have indicated they are unwilling to pay much more than Yahoo’s current market value of $20 billion, arguing that the stock price already includes the expectation of a sale,” the article says.

Putting the right price tag on Yahoo may be a tough call, but the space it operates in offers advertisers a value they cannot ignore. “What social media has allowed companies to do is listen to customers in real time,” said Bradlow in a recent Knowledge@Wharton interview. “You think about the biggest problem companies have: What is it? It’s customer defection and churn. You know why? Because you spend a huge amount of money on acquisition costs, [but] many customers don’t stay around long enough” to justify that expense.

 

 

Featured Professors: ,
Posted in Knowledge@Wharton Today | Also tagged , , , , , , , , , , , , , | Leave a comment

Gibson Strums a Twitter Chord to Empower Small Business

Gibson Guitar, the maker of the iconic Les Paul and Firebird guitars, is using social media to build support from around the world as it battles the U.S. government over allegations of illegal wood imports. A Twitter campaign launched by Gibson CEO Henry Juszkiewicz (hash tag “#ThisWillNotStand”) has rallied thousands of Gibson Guitar fans, with nearly 4,400 tweets at last count. Wharton experts say Gibson may be tapping into social media’s true power, regardless of the outcome of the allegations.

 On August 24, armed agents of the U.S. Fish and Wildlife Service raided two Gibson manufacturing facilities in Tennessee along with the company’s Nashville, Tenn., headquarters, and confiscated $1 million worth of rare Indian ebony, finished guitars and electronic data. The federal agency hasn’t yet filed any charges, but the Justice Department alleges the wood was imported illegally from India, which bans the export of most types of unfinished wood. The Lacey Act of 1900 requires American companies to observe the laws of foreign countries in the trade of animal products, plants and wood, among items. Gibson faced similar trouble in 2009, when federal agents raided the company and seized wood they say was illegally imported from Madagascar. The Justice Department last June sued Gibson in the Madagascar case. Juszkiewicz maintains Gibson is innocent in both cases and just today posted an online petition urging the President to resolve the inquiry against it and “make the Lacey Act fair.”

Meanwhile, Juszkiewicz’s current Twitter pitch has David vs. Goliath undertones. “Each step in the democratization of access to these communications tools has been empowering to some — typically the less powerful — and threatening to others, typically those who hold the traditional reins of power,” says Kendall Whitehouse, Wharton director of new media. Wharton marketing professor Jonah Berger describes social media as “a new engine for social movements,” citing its role in the uprisings in Egypt and elsewhere. “It allows people to garner support for issues where public participation may not be safe until enough of a movement has formed,” he says. “It also allows companies and groups to build momentum and advocacy quickly and effectively, even over vast geographic distances.”

 The rise of instantaneous, global communications has changed much of the way the world works, Whitehouse notes. “In particular, the lowering of the barriers of access to these tools is having a profound effect — not only on government and small businesses, but on everything from political movements to major corporations.”

Social media is only the most recent link in a long chain that extends back to at least the rise of the Internet, Whitehouse adds. “The students during the uprising in Tiananmen Square got much of their message out — and learned of the reaction of the world — through fax machines. It’s the communication of the message rather than the mechanism that’s important. Social media further allows people and enterprises to connect and collaborate online.”

Gibson may have enlarged its fan base with its Twitter campaign, but its reputation has not been spotless. In 2009, Gibson was voted the “worst place to work” by its own employees, according to a Reuters report, which cited an analysis by jobs website Glassdoor.com. How successfully Gibson can defend itself in court, if and when federal charges are filed, is also an open question. It isn’t clear if this is the first time a company has used social media to fight a legal case. “But I agree it could lead to under-informed supporters backing a cause that ends up to have no merit,” says Berger. “As with many situations, consumers may be showing their advocacy even if they don’t have the right information.”

In an unwitting twist, Juszkiewicz’s campaign has also become a platform for Tea Party enthusiasts targeting President Barack Obama over unemployment. Accusing “big government [of] spending our money to harm ordinary citizens and small businesses,” Juszkiewicz has warned that if the raids lead to the closure of Gibson’s Tennessee factories, 700 jobs would be lost. At Obama’s jobs address last Thursday, Juszkiewicz was the special guest of Marsha Blackburn, Republican congresswoman from Tennessee. Says Andy Meek in The Daily Beast: “The invite was a definite nose-thumbing at the President, whose administration inadvertently helped turn Gibson … into a rabble-rousing battle cry for the Tea Party and conservative media establishment.”

Others point to some bizarre situations that could result from the Lacey Act, such as requiring guitar owners to prove their instrument was not made out of illegal wood. As The Economist writes in its September 3 edition: “Guitarists now worry that every time they cross a state border with their instrument, they will have to carry sheaves of documents proving that every part of it was legally sourced.”

Featured Professors:
Posted in Knowledge@Wharton Today | Also tagged , , , , , , | 2 Comments

Will Google+ Help the Search Giant Succeed at Social Networking?

With this week’s “invitation-only” launch of Google+, the search giant unleashed its latest attempt to stake a claim in the social networking space. But can Google successfully take on Facebook?

Critics point to Google’s underwhelming experiences with previous social networking applications, including Buzz and Orkut, as examples of the company’s inability to accurately assess market needs and respond effectively. But others point to Google’s deep pockets, previous successes in search and strengthening Android mobile platform as reason to believe the company can make an impact in the social media sector as well. Google+ also has the advantage of learning from Facebook’s shortcomings — for example, the new service allows users to be selective about which information is shared with different groups of followers.

“Just because it is Google doesn’t mean that [Google+] will have instantaneous success,” says Wharton marketing professor David Reibstein. He points to some of Google’s previous failures, including Google Wave, which was intended to take on Microsoft Outlook and instant messaging services by offering a mix between chat and email. Then there was Google Buzz, which was seen as an attempt to go after Twitter and Facebook. Reibstein says those misses came because Google did not fully understand “what all is involved in those businesses … basically, not understanding the customer well enough.”

Kartik Hosanagar, a Wharton professor of operations and information management feels differently. ”Google’s advantage is that it has a lot of cash and it can afford to build, learn, fail and restart,” he notes. “Clearly, Orkut and Buzz have not worked out as well as planned. But Google can afford to restart. More importantly, as a late entrant, Google+ has the advantage of learning from Facebook’s mistakes and delivering a product without those deficiencies.” Hosanagar says that the biggest user frustrations with Facebook have revolved around privacy concerns and contacts management. “Google+ is specifically focused on fixing these issues.”

Features of Google+ include the ability to create groups or “circles” of contacts, such as circles for friends, family and acquaintances; users can choose what  information and updates they share with each circle. In addition, Google+ offers video chat and group-texting applications, and allows users to instantly upload photos and videos from Android smartphones. The service also has a “+1” button that is similar to Facebook’s “Like” feature. (For more, CBS has compiled a roundup of Google+ reviews from across the web.)

But Google is moving forward cautiously with its latest effort. Vic Gundotra, a Google senior vice president, told the Wall Street Journal that “fundamentally we believe online sharing is broken.” He continued, “We’re not going to nail it on our first attempt, but we’ll work as long as it takes.”

Google, of course, seems to have a penchant for launching beta products. Soon after opening the invitational rollout for Google+, it temporarily discontinued new registrations, citing “insane demand.”

According to Reibstein, Facebook “ought to be able to very easily respond” to the Google+ “circle” feature, if not others. “The question is how sustainable is any advantage coming out of Google+, which means something not easily replicable.” He adds that with its video chat capabilities, Google+ may deliver a strong challenge to Internet phone service Skype, a possibility also noted by Om Malik, founder and senior writer for technology trends site GigaOm.

“Google has to play to its strengths — that is, tap into its DNA of being an engineering-driven culture that can leverage its immense infrastructure,” Malik wrote. “It needs to look at Android and see if it can build a layer of services that get to the very essence of social experience: communication.” He predicts that Facebook is safe for now, arguing that “the only way to beat Facebook is through a thousand cuts.”

During a discussion on social media at last week’s Wharton Global Alumni Forum in San Francisco, panelists were asked why Google has had such difficulty in developing a social networking application with staying power. Panelist Ethan Beard, Facebook’s director of platform partnerships and former director of social media and head of new business development at Google, noted that the companies have two distinct cultures.

“There’s a fundamental difference [between Google and Facebook] in how the products are designed and in how the design process takes place,” Beard said. “Google is very academic…. Some of the greatest thinkers in computer science now work at Google. The design process … is focused on building a really cool back end that sifts through the data and pops out the result.”

On the other hand, Beard described Facebook as having more of a “hacker culture,” in the sense that “instead of working on the back end and throwing up any front end, we start with the designers and say, ‘What if a user saw this [on the front end]?’ and then ‘OK, that’s good, now go build the back end as fast as you can so we can start to play with it.’”

Cultural challenges aside, Hosanagar is optimistic about the prospects of Google+. “There’s nothing in Google’s DNA that prevents it from building a good social product,” says Hosanagar. “Given how big the social space is, and how much bigger it will be, Google is doing the right thing by trying for a third time.”

In the end, much depends on how many “+1s” Google+ gets from users. “Whether Google+ will stick will depend to some extent on the whims and fancies of unpredictable consumers,” Hosanagar notes. But Reibstein says the imponderables lie elsewhere: “I am not at all confident [Google] has a real feel for understanding what the marketplace needs.”

Featured Professors: ,
Posted in Knowledge@Wharton Today, Managing Technology | Also tagged , , , , , , , , | 3 Comments

All About LinkedIn

LinkedIn, the social networking site for professionals, made a stunning debut on the stock market on Thursday, when its shares more than doubled in price — from an initial public offering of $45 to a closing price of $94.25. It was the largest U.S. Internet IPO since Google debuted in 2004, when the company raised $1.67 billion.

According to the Wall Street Journal, LinkedIn’s valuation by the end of Thursday was $8.9 billion — a figure that some analysts believe is far too inflated for a company that made $243 million in revenues last year. Forbes columnist Eric Savitz points out that at one point during its opening day, LinkedIn’s shares were trading at 41 times the firm’s 2010 revenues. If Apple’s shares were trading at the same level, for example, it would be valued at $2.7 trillion, Savitz notes.

What’s behind LinkedIn’s skyrocketing value? According to Wharton management professor David Hsu, the run-up reflects “optimism about the scalability and value of the company’s business model,” but also the “scarce public access to investing in this category.” He adds that “this is great news” for Facebook, Twitter and others, “from the standpoint of understanding demand for these elite social media companies and associated valuations.”

Wharton finance professor Luke Taylor agrees. “For a long time, no one has really known how much these social media companies are really worth. The secondary markets have given us some noisy signals, but they’re just that. The market has finally told us how much LinkedIn is worth, which tells us something about how much similar companies like Facebook and Twitter are worth…. I’ll speculate that this news will make their IPOs happen sooner and happen bigger.”

In fact, Taylor notes, LinkedIn’s IPO must have surprised even its underwriters, who likely didn’t foresee the level of investor interest and therefore didn’t price the IPO as aggressively as they could have. By not pricing the stock at, say, $85 a share, instead of $45, “the underwriters ended up leaving roughly $300 million on the table during the IPO. Is that a lot of money for LinkedIn? Well, it’s more than LinkedIn’s revenue last year. However, if the company is currently worth $10 billion, then $300 million is just 3% of the company’s value.” One overriding benefit of the IPO, he adds “is that it brought LinkedIn lots of media hype, which may help them win more customers.”

Many analysts fear that LinkedIn’s current valuation is a sure sign that a second tech bubble is emerging, but Taylor doubts that is true. “It’s hard to know whether there is a bubble, even after the fact. I’m still not convinced there was a bubble in 2000.” According to Hsu, however, “a lot hinges on whether these [numbers] truly reflect the value that these companies have or will create. In the case of LinkedIn, for example, will labor and employment markets become more efficient in ways which would not otherwise take place in the absence of the company? And is the company well positioned to capture that value it has created? Time will tell.”

Posted in Knowledge@Wharton Today | Also tagged , , , , , | 2 Comments