What Is The Value Of A Facebook Fan? Part 2

The other day I authored a blog post many found interesting, infuriating or both:  What Is The Value Of A Facebook Fan? Zero!  I appreciate the great dialogue from the folks who offered feedback in blog comments and on Twitter.  Because this is such a hot topic and because the feedback was so thoughtful, this seemed worth further exploration.

In that blog post, I suggested that marketers approach the question of how much a Facebook fan is worth as if the answer is zero.  I said, “It is what companies do with fans that creates value, not merely that a brand has fans.”  I went on to suggest that marketers should recognize a difference between potential value and real value.  Like a coil that is compressed to store energy (an apt metaphor from my Twitter friend, Blair Goldberg), Facebook fans have little actual value until they are activated by the brand, just like releasing a compressed coil. 

But a compressed coil still has energy, just like a Facebook fan has some value, no matter what my attention-grabbing blog headline said.  (I was accused -- quite accurately -- of being sensationalist by Robin Moss and Brian Carter.)  After all, if I were to take a brand marketing job in the future, would I want to work at a place with no Facebook friends or 500,000 friends?  All things being equal, I’d take the latter job, which means those fans have value.  But a marketing asset is different than a financial asset, and that’s why I’m concerned with those who would answer the question “What is the value of a Facebook Fan?” with a dollar amount. 

Over at Waxing UnLyrical, Shonali Burke turned to the dictionary to look up the word “value,” and I think it’s a fine idea to explore the concept of value more deeply.  Financial value is created in one of two ways -- either an asset produces income or it increases in value; for example, if I buy land, I can see financial value by renting it out or by having it increase in market value.  So what is the financial value of a Facebook fan?  I’d still argue it’s zero; Facebook fans have no market value since they cannot be sold (thank heaven!) and they cannot produce a stream of revenue in a vacuum.  It is only when a brand activates those fans -- with offers, content, promotions, apps, etc. -- that value is created.

In the comments to my blog bost, Brian Hayashi stated that, “Social media is an extension of Six Sigma” and could produce “recurring, predictable value either in the form of increased spend or decreased operating costs.”  I am in complete agreement with Brian, but only in as much as that social media -- not Facebook fans -- can produce demonstrable financial value.  Brian cited Scott Monty’s great work at Ford that proved "valuation based on the percentage of contacts that shifted away from more expensive call centers toward Twitter.”  That’s a great example, but had no one answered the Twitter follower’s question there would have been no value created, hence Ford derived value not by having followers but by listening and responding to those followers.

Just to demonstrate how varied the opinions are on this matter, Kevin McLean and others suggested that the value of a Facebook fan could be negative.  He cited Nestle’s recent difficulties with critics on their Facebook fan page as an example.  Nestle is far better off for having engaged both fans and critics rather than ignoring them, but Kevin’s point is well taken -- some of the folks who clicked Nestle’s “Like” button don’t like Nestle at all.  The varied reasons for “liking” a brand -- from expressing genuine affinity to wanting discounts to wishing to complain -- demonstrate the meaninglessness of placing a dollar value on each fan.  As Kathy O’Reilly suggested, when it comes to Facebook fans, there is a difference between “quality versus quantity.”

It’s been an interesting dialogue, and in the end I remain convinced that Facebook fans don’t have value -- at least not in the financial sense. There is no dollar-per-head valuation that can account for the variety of reasons people “like” a brand, the various means brands use to acquire their fans, or the tremendous disparity in how brands engage and activate their fans.  This means no one can say to their boss, “We invested $150,000 and acquired $250,000 worth of Facebook fans.”  All they can say is, “We invested $150,000 and acquired 250,000 new Facebook fans -- and in the next year here is our social media marketing plan that will generate value from these fans . . ..”

It would certainly be welcome if we could put a dollar value on each fan.  Doing so would make marketers’ jobs much easier -- we could simply amass a large Facebook fan base and call it a day.  Unfortunately (or fortunately, depending on your point of view), marketing is hard work and a fan base is the start and not the end of that work. 

Comments

Facebook fans as a representation of potential value

First, have to say I still agree with the premise that a Facebook fan has no intrinsic value on it's own. However, we may eventually be able to determine a coefficient of community quality. With that coefficient we would be able to contrast against other relevant customer acquisition/retention cost metrics. In this way, each facebook fan in the community could represent a calculable expected value.

The Value of Social

Thanks for a no-nonsense, sensible, and real-world perspective on the social hype!
I have expressed similar views in relationsship to business use for some time, as much as I see social networking as people empowerment in a global sense.

Max J. Pucher, Chief Architect ISIS Papyrus Software
my blog - http://www.adaptive-process.com

I'm tickled that you

I'm tickled that you referenced my post, Augie - thank you.

I remain in violent agreement with you. A phrase I've adopted after learning it from Katie Paine, the queen of measurement.

I was looking at my own "likes" on Facebook. Most of them I have no quibble with; after all, I did choose to click the button. But I "liked" a few company pages simply because people I know asked me to, and I didn't want to be rude. After all, I'm grateful when they "like" my own business page, and as you say, anyone will take having 200 likers over 20.

But as a liker, ok, fan, I'm of absolutely no value to these companies. I don't visit their websites, I don't read their blogs - heck, I don't even know if they have blogs - and I'm hardly likely to purchase their products or recommend their services - because I don't know them. They have done nothing to engage with me or bring me over from the dark side - so, as a result, I sit at the bottom of their basket of fans doing nothing, saying nothing, and paying no attention them. Other than an ego boost, I'm of no value to them whatsoever.

Like I said before, I'm in violent agreement with you.

Hierarchy of Effects and Facebook

Augie,

Well said. I certainly believe in the value of customer engagement, relationship development, and retention via social media, but I find most of the current "experts" in social media can't deliver value past a fan count. The number of fans, subscribers, or followers is only a leading indicator if the relationship is actually going to go somewhere in a somewhat predictable manner. If you can't create a relationship that provides value to the fan, subscriber, or follower and to your company...you just wasted a lot of effort. It will be interesting to see if a number of the offline models that evaluate things like interest, liking, and preference can provide value for social media return measurement. I am thinking specifically of the Hierarchy of Effects model. Look forward to your next post.

Cheers,

Frank Dale
VP Operations, Compendium Blogware

Leading Indicators

Thanks for introducing the idea of "leading indicators" into the discussion. I think this is an excellent way to approach the idea of Facebook Fans.

It can be tempting to only think of measurement in terms of dollars and cents, but leading indicators and potential value are real benefits to marketers. In the same way a great employee or new prospect may not be measurable on the balance sheet or income statement, a Facebook fan is a leading indicator that creates potential value. It is up to the marketer to turn that leading indicator into a coincident indicator!

Thanks for the input.

Real Estate is a good example

Your mention of real estate is a good example. You buy some land as an investment and it increases in market value (at least we hope so). But until you sell it, it has not increased at all. As a matter of fact, one could say it decreases because you've had to pay taxes on it.

If increasing market value really was an increase in real value, the IRS would be knocking at your door every year looking for their share.

Social Media Real Estate

Nancy,

That analogy has stuck with me, as well. If you buy real estate as an investment, it can be assessed every year and you can know it's increasing in value, but by GAAP principles those increases are not reflected on the balance sheet nor is income recorded because the market value has increased. It is only when the real estate is sold that dollars and cents are recorded.

In business, we do a lot that cannot be evaluated in purely financial terms. The challenge of social media marketing measurement isn't merely to do a better job of connecting the dots between investment and sales but also to evaluate a broad set of metrics, both financial and not.

Glad you found the analogy worthwhile, and thanks for the comment!

Marketing is a verb

Excellent summary of the conversation. I agree that Facebook fans have near-zero value as static assets for the reasons that you state.

The value-per-fan is not set by some consensus on the internet, benchmarking studies, or marketplace price-finding mechanisms. The ultimate per-fan accumulated cashflows and profits are so sensitive to the ongoing activities within the fan-company relationship, that it is the company and the fans that co-create that value (defined as profits to the company and great product/service experiences for the customer). That implies highly contextual activity, not static storage of fan counts.

Getting a fan is a mere first step and companies that only focus on fan-count accumulation really miss the point of social networks. Marketing should be a verb, not a noun and that means that marketing contacts such a Facebook fans really only generate value (or generate the most value) to the extent that those fans do something. That, in turn, implies ongoing activity.

Quick thought

Augie,

Thanks for the follow up post. I think that I have read all of the posts and if this has already been addressed then I apologize.

You say, "Facebook fans have little actual value until they are activated by the brand". Is it not the actual process of becoming a "Fan/Friend/Like" that begins the actual activation process? Once a person takes that step, the activation process has already begun and the conversion process begins - meaning how can I communicate with them and convert them into purchasing additional product from me. They are likely already "valuable" and have already purchased some product from you, but the key is how to "up-sell" them and convert them into additional or incremental sales activity, no?
I just think that a "friend/fan" already has value, as they would not become one if they have not already used your product or had a prior relationship with you. Right?

Mike Pascucci, Social Strategist, Ektron

Where a fan is in the funnel

Mike,

You are correct--a person who clicks the "Like" button has *potentially* started the conversion process. As in any marketing funnel, someone who is deeper in the funnel has more potential value than a prospect who is shallower in the funnel, so we're in agreement there.

But would you put a dollar value on a customer who has picked up a brochure compared to one who hasn't? Or put a dollar value on someone who's visited a brand site? I don't know a marketer who would do so, which is why I get frustrated at efforts to comput that a fan is worth, say, $3.60.

You and I agree that a fan who "likes" a brand creates potential value, but it still is up to the brand to convert them. The true financial value of a fan will depend entirely on whether a brand does nothing, something, or something effective with their fans.

Thanks for the input! I appreciate you introducing the "conversion process" into the discussion. I think that framing this as a journey through a brand funnel is a good way to consider potential value (a fan) from real value (a paying customer.)

brochure.....

i think that you and I will both agree that there is a big difference between a brochure and a "like"....brochures do not keep on giving, they are a 1 time affair, unlike the "Like" on Facebook. That is a neverending communication channel (unless they "unlike" you of course). I would compare it to signing up for newsletters or email marking campaigns.

I think that it all really breaks down to how you track your campaigns. Establishing Facebook and Twitter only campaigns with special codes will assist in the measurement. If people share these codes with their newtworks (regardless if they are current fans or not) then you can assign a figure to it. Then you can establish numbers that would be reflective to your audience and your network. I don't think that you can establish an individual # to all networks, as they are all very different.

Thanks for keeping this conversation going!

Mike Pascucci, Social Strategist, Ektron

The Sky is Falling! Actually it's Snow

I've read both blog posts and a lot of the content of both can be summed up by the concept that Social Media requires real people working hard toward a goal to have the potential to succeed. This is true, of course, and it's equally true that many people don't realize that Social Media is more than just creating a profile. Point made, however tying in valuation of an actual fan at zero does come across more entertaining (a la Seth Godin) than rational. With modern day analytics it's much easier to approach a rough estimate of the $ value of a Facebook fan. If the value of a fan is truly ZERO ($0.00) then the numbers would show that and there'd be far fewer advertisers on the platform. Separate the concept of working hard in Social Media & web analytics tracking of Facebook fans to make a truly powerful post. I'd be happy to chat about the latter with you.

Chick and egg

Casey, I agree that there is clearly potential value in followers, but I still don't think there is a relevant way to value them in terms of dollars and cents. As you said, "If the value of a fan is truly ZERO ($0.00) then the numbers would show that and there'd be far fewer advertisers on the platform." But if no brands advertised on the platform, then those fans would have no value (at least in the financial sense), would they? It's a check and egg scenario--you need fans to create value, but if you fail to activate those fans appropriately, then having fans doesn't produce value.

In the end, I agree there is value in having fans, but I don't see value in making up a financial figure for that value. Whether a fan is worth three cents or $130 is entirely dependent on what brands do with their fans.

Thanks for the input. The sky isn't falling--but be sure to have your snow shovel at the ready! :)

Feed the Funnel, Seymore!

Augie,

I get the feeling we're basically agreeing with each other and just approaching the issue from different perspectives.

The value of a Facebook Fan could be approached by comparing the increase in FB-side fan signups & engagement with an increase in FB referral clicks to a brand's website. This traffic can be tracked just like any other and have any resulting leads/sales attributed back to Facebook.

If increased engagement lead to more converting traffic then it's certainly possible to establish a conversion rate. It may prove profitable to pay for more fans to increase the base number of people fed into this conversion 'funnel.'

I think the key concept we can agree on is that when a value IS established for a Facebook Fan it is a value derived almost completely from the Social Media engagement/marketing effort done by the brand.

_Casey

offline/online

I've been an off-line fan of Apple for years.

I buy their products in store, I talk about the brand to friends, I use them everyday, I watch their adverts on TV, ......all these off-line behaviours are driven by my feelings and attitudes towards the brand.

I don't see how anyone could put a value on me, for all of the above? If anyone can, let me know! (or Steve perhaps).

Just because Facebook fans are in the same 'space' as one another and that there's a potentially more accountable framework doesn't mean that you can put a value on them. The social media space is merely an exaggeration of fundamental human behaviours we've been using since the dawn of time; the elegant but intricate connection people have with brands is no more accountable in an online space than it is in an off-line space, essentially.

So yeah, I whole heartedly agree with you. :0)