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Does Social Media Have A Return On Investment?

Do "likes" and retweets add up to sales? Who knows? And who really cares? We're in the I Love Lucy era of social-media marketing, a golden age of unaccountability.

THIS YEAR, AUDI RAN the first-ever Super Bowl commercial to feature a Twitter hashtag. Did you miss that watershed moment? Don't feel too bad: The hashtag — #ProgressIs, a take on the carmaker's line "Luxury has progressed" — flashed on the screen for just a second, near the end of a surreal and entertaining ad that featured millionaires trying to escape from a minimum-security prison, and a cameo by, who else, sax man and Lite-FM staple Kenny G.

In addition to pushing the hashtag on TV, Audi purchased a Promoted Trend ad from Twitter, and it hired Klout, a startup firm that combs through Twitter and Facebook in search of the most "influential" people online. Klout helped Audi find more than 1,100 people to reach out to about the campaign — 200 of them received an Audi travel mug and flashlight. Klout's Audiphiles tweeted more than 12,000 times about the hashtag, creating a viral chain of Audi-related chatter online. The company then chose the best tweets containing #ProgressIs; the winner, @jetsetbrunette, won a trip to California to test-drive some Audis, and she also got to choose a charity to which Audi donated $25,000.

But what did Audi get out of all these influencers' tweets? Did the Twitter campaign prompt anyone to consider buying an A8, say, or to go into a dealership to test-drive one? Did seeing the #ProgressIs tweets at least inspire an outpouring of positive brand feelings toward Audi?

The company doesn't know. "Today the equation to measure that doesn't exist," says Doug Clark, Audi of America's general manager for social media and customer engagement. Audi has a full-time team monitoring its presence on social-media sites, it's constantly posting new content, and it has even held special events for the most devoted members of the online Audisphere. The best Clark can do to suggest that all this work has paid off is offer a study by Visibli, a social-marketing analytics company, which recently found that Audi has the most "engaged" fans of any entity on Facebook. Audi's more than 3 million obsessives apparently outshine even Justin Bieber's minions in their willingness to click the like button.

Clark concedes that, so far, he doesn't have any numbers to prove that all this engagement has resulted in, you know, selling more cars. Amazingly, the company isn't too interested in finding out, either. For Audi, Facebook and Twitter "are places where we know tech-minded consumers are active, where they're seeking to engage with the brand," Clark says. "But can I say that a fan is more likely to buy an Audi? No."

Audi, like almost every major brand in the world, is jumping onto Twitter and Facebook in a big way. EMarketer estimates that 80% of companies will participate in social-media marketing this year, nearly double the number of just three years ago. All of them are feverishly working to get consumers to "engage" — to "like," to tweet, to comment, to share. And they're spending a tidy sum to do so. According to BIA/Kelsey, a media consulting firm, companies spent about $2.1 billion on social-media advertising in 2010; the number is projected to grow to nearly $8 billion in 2015.

The gold rush has inspired a wave of tech startups, like Klout, that are looking to help firms navigate the tricky social-ad scene. These companies promise to monitor and measure the impact of Facebook and Twitter campaigns, and to find the best ways to boost those efforts. Despite this technology, though, social-media marketing often feels like a throwback to the golden age of TV: At least so far, marketers can't predict or measure the impact of their campaigns with anything near the precision they're used to elsewhere online.

What's more interesting is that brands truly don't seem bothered by this. Being on the leading front of marketing while not having to account for their efforts liberates them. "We're trying different ways to help us better understand the 'value' of a Facebook like," says Brad Shaw, Home Depot's VP for corporate communications and external affairs, echoing several other social-media marketers. "But at this point, revenue is not the intent." Applied to social media, William Goldman's famous line about Hollywood would go something like this: Nobody knows anything, and they don't care. You're forgiven for wondering: #ProgressIs? #Really?

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LATE IN 2007, JOE FERNANDEZ, a young tech-obsessed guy, had to get his jaw wired shut for three months while recovering from surgery. The only way he could communicate with his friends and family, he says, was through Twitter and Facebook. But he found his medically imposed silence to be a revelation, rather than an ordeal. "I could tell people my opinion on anything instantly, and the people who trusted me were acting on what I said," Fernandez says. "It hit me that for the first time, word of mouth was becoming scalable and — even more important — the data about all of these interactions were available."

Fernandez quickly began working on a way to tie all these data into a comprehensive picture of each of our online lives. What he came up with was Klout's signature product, the Klout Score, an integer from 1 to 100 that summarizes every person's influence online. The score is determined by a number of factors — including how influential your followers are and how many people retweet or respond to things you say online. It has become, in some circles, an important measure of influence. People are reputedly putting Klout Scores on their résumés, and a few brands, such as Las Vegas's Palms Hotel, are using Klout to identify potential online VIPs for preferential treatment. Justin Bieber, of course, is the king of Klout: He has a perfect 100. Everyone else is second fiddle. Barack Obama gets an 87, the Dalai Lama gets an 86, and Jay-Z struggles with a mere 67. (For the record, I earn a 64 — good enough for "thought leader" status and probably the only time I'll be this close to Jay-Z in any public ranking.)

Klout has now amassed enough data to measure the influence of 75 million people online, and it can slice and dice these numbers. For instance, Fernandez says Klout can identify the most influential people who talk about sneakers in Seattle, or the most-listened-to tweeters on skin-care products in San Francisco. When companies come to Klout looking to target those influencers, the company can track how their messages echo across the social-media landscape. How many extra tweets did Nike get by focusing on those Seattleites?

But what Fernandez can't track is what happens when people read all those comments or tweets: Does the marketing change anyone's feelings about Nike? "I think we'll get there eventually," he says, musing that over time, brands will give Klout — and other social-data-analysis companies — sales information to correlate with online chatter. Still, the problem won't be easy to solve. For one thing, social-media marketing, unlike search ads, catches most customers when they're far away from making a purchase decision. This makes it menacingly difficult for firms to determine what ultimately led to a purchase. Was it something you saw on Twitter or Facebook three weeks ago, or was it the drive-time radio spot you heard this morning?

Wildfire CEO Victoria Ransom is bringing corporate Facebook fan pages to life via contests and sweepstakes. | Photograph by Robyn Twomey
Wildfire CEO Victoria Ransom is bringing corporate Facebook fan pages to life via contests and sweepstakes. | Photograph by Robyn Twomey

That gets to the second reason that social-media marketing hasn't yet proved itself: So far, advertisers aren't asking for any proof, and that limits the ability of firms like Klout to figure out if what they're doing really works. "My life becomes a million times easier if I can show that if you spend $1 with us, you get $1.10 out," Fernandez says. But for many big brands, the amount of money being dedicated to marketing on Facebook and Twitter is small compared with the rest of their advertising expenses. "For a lot of our clients, what they're spending with us is coming out of their 'experimental' marketing budgets," he says. In other words, they don't feel much pressure to account for their efforts. "No brand is challenging us on this. We challenge ourselves way harder than any brand does."

One current alternative is to embrace less sexy, but more Internet-friendly, direct-response advertising models. "Sweepstakes, contests, and coupons have always been popular, long before the Internet was around," says Victoria Ransom, CEO of Wildfire Interactive, another Silicon Valley advertising startup. Like Klout, the three-year-old firm was founded by accident. Ransom and Alain Chuard came upon the idea while running their previous company, a global adventure-travel firm. They wanted to expand their firm's Facebook presence, "but we realized pretty quickly that we were going to have to give people a reason to become fans of our page," Ransom says. The company had run sweepstakes on its site before, but it found that translating those to Facebook wasn't very easy. "We figured we weren't the only ones facing that challenge," she says. The company created a way for all kinds of businesses to create their own promotional applications on Facebook. "Within a few weeks, we'd received calls from both Kayak and Zappos," Ransom says. "We went, 'Oh, maybe this will be bigger than we thought it would be!' "

Wildfire's twist is making sweepstakes and contests social. They're built as Facebook apps, and they're promoted widely on Twitter. Ransom says that Wildfire can often track the success of its campaigns by integrating with its customers' transaction databases. For instance, the firm recently ran a promotion for Jamba Juice that allowed people to collect a "lucky" coupon from Jamba's Facebook page. You'd only find out the value of the coupon if you took it to a Jamba Juice store, and some of the coupons would pay out cash prizes of up to $10,000. The campaign drove tens of thousands of people to Jamba Juice locations; every time someone used one of Wildfire's coupons to make a purchase, the smoothie chain could credit that customer to the promotion.

Still, Wildfire's campaigns suffer from a problem that's common with social-media marketing: Because they're so new, and because they often depend on catching uncertain viral cascades, their performance is difficult to predict. "If we put a dollar in the Google machine, we know exactly what's going to come out," says David Sobie, VP of business development at HauteLook, a Nordstrom subsidiary that runs a members-only, daily-discount fashion site. Sobie has run many campaigns with Wildfire, and he says, "We're often surprised — things that we didn't think were going to take off have been incredibly successful. And others, where all the metrics suggested that something should have been successful, have turned out not to be."

Klout CEO Joe Fernandez, right, is creating an
Klout CEO Joe Fernandez, right, is creating an "influence graph" for social media and then adding brands to the mix. | Photograph by Robyn Twomey

NOT LONG AGO, I was offered a tour of the customer-service department of the future. It's a bright, gleaming space; costs almost nothing to operate; and boasts the friendliest, most knowledgeable representatives in all of American commerce. Where is this call center? And who runs it?

It's online. And it's run by you. Lithium, a 10-year-old company based in Emeryville, California, builds and hosts online discussion forums for companies to let their customers help themselves, and it's one example where social media already seems to be helping companies pay the bills. For companies like Comcast, which have high-profile rapid-response complaint centers, Lithium's technology has revolutionized customer-service operations, usually an expensive part of the business. CEO Lyle Fong estimates that Lithium's work revamping AT&T's online community resulted in AT&T saving 16% on telephone customer support in January 2011 compared with 2010.

We're a long way from Bieberville, but this being social media, no one wants to talk just about minimizing call volume. At Home Depot, Lithium powers a vibrant discussion site where customers discuss home-improvement projects and the products and instructions to use them. "We can look at how your users interact with each other on your site," Fong says, "and we can tell you, 'Hey, here are your community members who are going to be your most passionate fans, and if you treat them right, they're really going to give back.' " At Sephora, another Lithium client, the discussion site has become a place where some of the company's most feverish fans — women who spend 10 times more than the typical customer — log many hours offering advice to everyone who comes along.

Sephora hasn't calculated all the additional sales that this system has generated, nor the labor it might be saving now that its best customers, rather than employees, are answering people's beauty dilemmas. Bridget Dolan, Sephora's VP of interactive media, says that at some point, the company may decide to do just that. Right now, though, "we aren't saying, 'Does every dollar we spend turn into revenue?' " she admits. "No one here is hounding me for the ROI."

Image: Robyn Twomey

A version of this article appeared in the July/August 2011 issue of Fast Company magazine.