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© Copyright
A
W
LaW
Contact I2825 East C
Salt Lake Ci
P (801) 990
socialcomm
t by Whitehall V
A Strate
White Paper
add E. ChrisWhitehall Ventu
Information
Cottonwood Pkw
ty, UT 84121
-3222
merce@whiteha
Ventures 2011 ●
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| June 2011
stensen ures, Inc.
wy, Suite 517
llventures.com
All Rights Reser
pproach
1
rved
h to Soccial Commercce
Ver. 6
© Copyright by Whitehall Ventures 2011 ● All Rights Reserved Ver. 7 i | P a g e
Contents
Preface ............................................................................................................................................ 1
Jaws ................................................................................................................................................. 2
Waves of Innovation ....................................................................................................................... 3
Wave Intersections ..................................................................................................................... 3
Netflix vs. Blockbuster ................................................................................................................ 5
Social Commerce Wave .................................................................................................................. 6
Size—It’s Big ............................................................................................................................ 6
Nature –It’s Personal .............................................................................................................. 7
Focus—It’s Concentrated on Customer Interests ................................................................... 8
Harness The Wave .......................................................................................................................... 9
Opportunity ................................................................................................................................. 9
Typical Company ..................................................................................................................... 9
Better Company .................................................................................................................... 11
Ideal Company—the Social Commerce Power ..................................................................... 15
Threat ........................................................................................................................................ 16
Options to Embrace the Wave ...................................................................................................... 18
Go At It Alone ............................................................................................................................ 18
Flaws ..................................................................................................................................... 19
Quantifying Expensive .......................................................................................................... 20
Go At It Together ...................................................................................................................... 20
Conclusion ..................................................................................................................................... 22
Whitehall Ventures, Inc. ............................................................................................................... 23
© Copyright by Whitehall Ventures 2011 ● All Rights Reserved Ver. 7 1 | P a g e
Preface The power of social media is undeniable. Its ability to connect communities and enact change is unprecedented. And, the natural extension of social media is Social Commerce. Social Commerce has been defined as:
• “An appropriate term for the strategy of connecting customer to customers online and leveraging those connections for commercial purposes.” —Sam Decker
• Social Commerce is the use of social technologies to connect, listen, understand, and engage to improve the shopping experience.” —Lora Cecere
• Helping people buy where they connect and connect where they buy.” –Paul Marsden At Whitehall Ventures, we think of Social Commerce as businesses establishing enduring online relationships with customers by serving mutually reinforcing needs. In essence, we believe that the online world, especially its social aspects, allow enterprises to truly understand and serve their customers’ interests. This service will translate into increased sales and better products and services at lower costs. We believe this is why a prominent venture capitalist stated, “Social will be built into everything—just like the Web got built into everything”.1 We have taken enough steps in the Social Commerce arena to know that it is something that all of our businesses must incorporate. Thus, the purpose of this paper is to:
1. Introduce the next economic wave—Social Commerce;
2. Demonstrate the need for business enterprises to harness this wave; and,
3. Share our strategy to adapt our companies to the new wave and excel as Social Commerce companies.
1fastcompany.com. E.B. Boyd. 2011. http://www.fastcompany.com/1731789/baked‐in‐the‐vc‐who‐discovered‐facebook‐talks‐about‐why‐all‐businesses‐will‐become‐social
© Copyright
Jaws The formufew placeshore. Hebreak. Thterrifying Surfers hasurfable”.Hamilton combinaton a Jet S Figure 1:
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Ventures 2011 ●
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© Copyright by Whitehall Ventures 2011 ● All Rights Reserved Ver. 7 5 | P a g e
Netflixvs.BlockbusterAs a compelling recent example of failure to adapt to change, we look at Blockbuster. Only twelve years ago, Blockbuster was the king of the movie rental industry with the most customers, cash flow and brand awareness. However, it failed to change within the adoption window as the information technology wave swept through their industry. In contrast, Netflix, a startup, recognized the impact of innovation on the movie rental industry. Specifically, it recognized the potential of streaming in‐home delivery through internet ready devices. Netflix created strategies to compete as an “information wave enterprise”. As a result, it grew revenues from approximately $600,000 in 1998 to over $2.1 billion in 20102. Netflix currently enjoys a market value of over 12 billion dollars. Conversely, Blockbuster’s market value fell 7 billion dollars and in September 2010, it filed for bankruptcy3. As is evidenced by this example, even the biggest companies are vulnerable when they ignore innovation waves. They get crushed by them.
2 netflix.com, 2011. <http://ir.netflix.com/sec.cfm> 3 usatoday.com. 2011. <http://www.usatoday.com/money/media/2010‐09‐23‐blockbuster23_ST_N.htm>
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Socialnomics. He says, “The [Return on Investment] of social media is that your business will still exist in 5 years17.” We agree—the wave’s adoption window is too short and its rate of innovation is too steep for any late movers to long survive its impact. The old business methods—the expensive, interruptive, one‐way, top‐down approaches are too slow, costly and untrackable. They are being wiped out by the new Social Commerce methods—social media, blogs, streams, deals, events and forums being just a few. As the Social Commerce Wave continues to break, it will become less about strategic advantage and more about business survival.
The Social Commerce Wave is more than an opportunity for increased sales and brand awareness—it will become essential to business survival.
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17 socialnomics.com. Erik Qualman. 2011. <http://www.socialnomics.net/2010/05/05/social‐media‐revolution‐2‐refresh/>
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ResearchandDevelopmentSocial Commerce research involves gathering, organizing and evaluating information from books, blogs, articles, videos, seminars, statistics, consultants and other industry experts. It also involves finding, vetting and engaging potential third party vendors. Finally, fusing careful research with clear and creative thinking will lead to innovative and effective strategies. Effective strategy maximizes both the potential of individual Social Commerce tools and their collective synergistic possibilities. Research is also constantly adapting to the evolving competitive landscape. It’s important to note that the research and development phase is never static. The wave’s rate of innovation requires constant research, vigilance, and stamina.
PlanningTranslating Social Commerce strategies into comprehensive plans is essential to efficiently lead an organization onto the Social Commerce stage. These strategies must involve more than superficial fans, followers, and subscribers. A good plan involves a series of staged, interactive and coordinated moves resulting in genuine loyal customers, improved products and services and lower operational costs.
ExecutionCareful execution involves a combination of internal and outsourced projects. In‐house projects demand staffing attention, organizational changes, and resource allocation decisions. Outsourced projects require clear objectives, precise controls and proactive communication. It is essential that in‐house and outsourced projects employ careful project management including project tracking, analysis, and reporting.
FlawsOur analysis of this “go at it alone” method suggests that its probability of success is limited due to the following flaws:
• It is time‐consuming; • It is risky; and, • It is expensive.
Each of these shortcomings is discussed in more detail below.
Time‐ConsumingFirst, because the wave is new and moves so quickly, careful research into the wave requires a large time investment. This investment has the potential to delay strategic deployment leading to competitive disadvantages.
RiskySecond, while all strategies have inherent risk, Social Commerce strategy risks are magnified by the size, speed, and nature of the Social Commerce Wave. A wave this big and fast and so interconnected is incredibly intolerant of poorly conceived strategies. And, poor social commerce strategy can result in brand catastrophe as evidenced by the following companies’ social commerce mis‐steps: United Airlines18, Honda19, Belkin20 and Kenneth Cole21.
18 economist.com. Did Dave Carrol lose United Airlines $180m?” 2009. http://www.economist.com/blogs/ gulliver/2009/07/ did_dave_carroll_cost_united_1 19 penn‐olson.com. Sebastian Barros. 2009. < http://www.penn‐olson.com/2009/09/21/5‐social‐media‐disasters/>
© Copyright by Whitehall Ventures 2011 ● All Rights Reserved Ver. 7 20 | P a g e
ExpensiveFinally, Social Commerce projects carry high costs. These costs include:
• Research costs; • Development and organizational costs; • Core operation dilution costs; • Failed strategy costs; and, • Vendor selection misfire costs.
QuantifyingExpensiveIt is important to take an even closer look at how much it would cost to execute a modest Social Commerce plan focused on one Social Commerce function (crowdsourced design) and a single Social Commerce application (a niche network micro‐site). This analysis includes costs for consultants, Social Commerce manager, micro‐application and social media monitoring:
• Social Commerce Consultant: 20 hours @ $100/hour = $ 2000 • Social Commerce Manager: 20 hours per week @ $25/hour = $26,000 • Micro‐site Build = $10,000 • Mobile Application= $10,000 • Social Media Monitoring: $2000/month = $24,000 • Total Annual Cost22 = $72,000
This is a very conservative estimate. Similar plans have been estimated closer to $200,000 a year. While this remains a more cost‐effective solution than a traditional media solution, Social Commerce strategies still require significant capital allocations. Also, this example represents only one single facet of the Social Commerce Wave. That cost becomes exponentially greater when it is translated across all Social Commerce categories (social networks, business networks, multimedia, streams, blogs, events, etc.) and their related technologies (LinkedIn, Yelp, wikis, Groupon, etc.) and when applied to all organizational functions of a business.
GoAtItTogetherSocial Commerce strategy can constitute a significant investment with significant risks. However, we still maintain that it is absolutely essential for business survival in the new world. Recognizing the flaws inherent with the “go at it alone” approach, we believe that cost and risk can be significantly mitigated through a “go at it together” approach.
20 gizmodo.com. Dan Nosowitz. 2009. < http://gizmodo.com/5133627/belkin‐rep‐pays‐for‐positive‐reviews‐of‐belkin‐products‐on‐amazon> 21 latimesblogs.latimes.com. Lindsay Barnett. < http://latimesblogs.latimes.com/chatter/2011/02/kenneth‐cole‐twitter‐egypt‐cairo.html> 22stackoverflow.com. 2010. <http://stackoverflow.com/questions/209170/how‐much‐does‐it‐cost‐to‐develop‐an‐iphone‐application>
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