Getting Social: The Impact of Social Networking on Shareholder Value

Exploring how Social Networking can impact shareholder value and the organizational skills needed to make it happen in 2011 and beyond.

By Daniel Carp, Advantexe Summer Business Associate / Duke Class 2015, and Robert S. Brodo, Executive Vice President of Advantexe Learning Solutions.

July, 2011

On March 13, 2008 – the day that Starbucks launched its facebook page – the stock price was about $17 per share.  Today, they have more than 24 million “likes” and their stock price is more than $40 per share.  Coincidence or new shareholder valuation methodology?  Recently a Pace University Doctoral Student by the name of Arthur O’Connor compared the popularity of three major brands — Nike, Starbucks, and Coca-Cola — on social media Websites to their stock-price movement over a 10-month period.  What he discovered was an "extremely high correlation" between the data using models-based statistical regression analysis.  O'Connor believes that his tests show that some companies could use their “fan base” as an indicator of how their stock will perform.  The theory worked even though the companies received varied returns during the time under review; Starbucks's and Nike's stock both increased, by 29% and 14%, respectively, and Coke's declined by nearly 6%.  This month’s edition of the AdvantEdge will explore the potential impact of Social Networking on shareholder value and the skills needed by organizations to optimize both.

Every generation develops certain habits, and habits - good or bad - are hard to break. For my parents’ generation, these habits are as simple as checking their watch (seriously, who wears a watch anymore?) or waiting around all afternoon for the mail to arrive (everybody knows the only things that still come in the mail are things you don’t want like junk advertisements, bills, jury duty, etc.).  As I continue to grow and become less oblivious to the world around me, I see my generation developing similar habitual behaviors that they participate in almost on a daily basis.  The only difference is, unlike my parents’ habits, I don’t foresee my children viewing them as antiquated when I am older. Unlike my parents’ habits, the whole world is catching on. 

It’s become almost second nature to me, and it’s becoming second nature to just about everybody these days.  I sit at my desk to work and open up my computer, and what is the first thing I do regardless of what task needs to be completed? I launch the Internet and check my Facebook, check my Twitter, and update them both if necessary.

Origins of Social Networking

From the start of the last decade, social networking has taken the world by storm.  All disputed Hollywood antics aside, what started as the simple idea of a Harvard student with too much time on his hands has now become a way of life.  When you think social networking, the first site that inevitably comes to your mind is Facebook.  An estimate in April 2010 by Social Media Today reported that 41.6% of the U.S. population had a Facebook account.  That’s 125 million Americans on Facebook every day.  Following Facebook’s initial launch in February 2004, it took only four years for its following to grow to 100 million members.  It then only took three more years for Facebook to reach 600 million members in January 2011.  Financial growth has accompanied Facebook’s physical growth; once valued at $52 million in 2006, the company is now valued at over $2 billion, a growth of over 3800% in five years.  And although it started out as just a fad for the kids, Facebook is starting to bridge the age gap.  Facebook reported last March that 35% of users in the United States were between the ages of 35 and 65.  In fact, there were nearly as many people between the ages of 54 and 65 (7% of US users) on Facebook as between the ages of 13 and 17 (10% of the US users).  Also keep in mind that in a world where business is becoming more globalized by the second, Facebook is hardly an American phenomenon.  80% of the world’s 630 million Facebook users come from outside of the United States.  And don’t let these large numbers fool you – despite this large volume, Facebook is definitely not a spectator sport.  Facebook reports that the average user visits Facebook 40 times per month.  That’s at least once per day.  And it’s not just one of those “let’s see if I got any notifications and sign off” checks either; the same report listed the average length of a visit at just over 23 minutes.  That amounts to an average of 15 and a half hours per month spent on Facebook by each user.  

Now once you’re finally finished with your 23 minutes (or few hours) perusing Facebook, consider this scenario: you can tell everybody you know anything at all that is happening in your life at that very moment whenever you desire, but with a catch – the message has to be 140 characters or less.  Sounds a bit pointless, right? Most would agree that it is, but why don’t you ask the 200 million users that generate 190 million tweets on Twitter each day what they think of it.  Since the July 2006 founding of Twitter, the way we mull about our daily existence has taken on a completely different meaning.  Does anybody really care what we put on our eggs for breakfast this morning? Probably not. Does that mean it’s going to stop you from tweeting about it, and possibly post a picture of the delicious start to your day?  Of course it won’t.  Twitter exploded in the latter part of the 2000’s, growing from 400,000 tweets per quarter in 2007 to 50 million per day by the beginning of 2010.  Twitter is a much more sporadic social network than Facebook, with information coming in short spurts rather than long streams, but it is popular because it’s incredibly quick and easy to use and it gives you access to information that cuts straight to the punch line.

A corporation with a twitter account doesn’t have time to dance in circles around you advertising its products anymore.  They have 140 characters to get the message across.

A Leap into the Business World

It’s no longer just your friends, family, and co-workers on Facebook and Twitter.  Businesses are breaking into social networking like never before. Whether it’s large consumer brands like Coca Cola (a record 31.1 million Facebook followers according to famecount.com) or Starbucks (reported 23.3 million Facebook followers), corporations like Whole Foods (with a record 1.96 million Twitter followers), airlines like JetBlue Airways (1.63 million Twitter followers), or credit card companies like American Express (154,000 Twitter followers), one thing is certain: this is not your son or daughter’s social network anymore.

Now of course, every corporation is different, so businesses are able to use social networking in a myriad of ways.  For organizations that are looking to market a particular product, social networking is a perfect tool to use. Companies can give people that like or follow their Facebook page or Twitter account access to offers that the general public might not enjoy, or simply use it as an outlet for extra advertising.  For example, anyone on Facebook or Twitter that follows Starbucks’s page can see whenever they post about the new seasonal latte they’ve just added to their menu. When it’s Shamrock Shake or McRib season, you know what’s going to be lighting up the McDonald’s page. But it doesn’t stop there.  Airlines can post to their Twitter followers when they’ve added flights to a new domestic or international city or if they’ve recently discounted flights to a particular location.  Even large technology-based corporations like Intel or Microsoft can display all of their newest products on their pages.  Whether or not they’re at any better prices than on their actual website, it provides access to their products unlike any other form of marketing today.

So why are businesses utilizing social networks now more than ever?  It all comes down to the first rule of marketing: the larger your marketable audience, the greater potential for success.  The New York Times only issues about 875,000 copies daily.  The Wall Street Journal issues just over 2 million copies per day, and USA Today just over 1.8 million.  The highest-rated episode of the past decade’s highest-rated television program, American Idol, only attracted about 31 million viewers, not all of whom would have been present or attentive during commercial spots. Facebook and Twitter have a combined 830 million accounts; that’s an audience nearly 1,000 times larger than the daily circulation of The New York Times.  Even if you’re only being viewed by 1% of Facebook and Twitter users, that would be 8.3 million people, a larger audience than if you took out advertisements in the nation’s three largest newspapers.  Also keep in mind that while newspaper and television advertising costs have skyrocketed in recent years, social networks like Facebook and Twitter are absolutely free.  Consider now, you are an emerging business. You can pay truckloads of money to get a thirty second spot during ABC’s hit prime-time drama, or you can tap into an exponentially larger network of people for zero cost whatsoever. Which makes more sense?

For all businesses, the greatest benefit of social networking is the fact that it is a network. Facebook reports that the average user has 130 friends.  If one of your friends (let’s call him Jack Flay) decides to follow your company’s Facebook page, that decision will be broadcast across cyberspace on each of his friends’ news feeds, telling them that “Jack Flay likes Restylyne” and providing a link to the page.  This means each of Jack’s friends now has access to your page and the option to follow it as well, and you’d be surprised how much attention people pay to the miscellanea that pop up on their news feeds (the gateway to the art of Facebook stalking).  In addition, it also creates the concept of Social Media Thought Leadership, which I define as a member of the network providing a respected opinion on a product or service.  “Oh, if Jack uses Restylyne, then it must be good.”  This gives, on average, another 130 people or so the ability to see a page, and with each additional follower the audience grows exponentially!  When you do the math, the potential exposure that a business can receive by being mentioned at the right time and place is powerful and financially efficient.

Networking to the Extreme

For many businesses, the most important facet of social networking is more than merely the fact that you are networking, it’s the fact that you are getting your name out to the rest of the world for all to see instantly and over and over.  For individuals and businesses who might prefer to not get caught up in the distractions of Facebook (although the marketing opportunities arguably outweigh the distractions) or simply expand their networking further into different groups of people, there is another alternative; LinkedIn.  Launched in May of 2003 and now with over 100 million users, LinkedIn has many similarities to Facebook but has enhanced privacy settings; it requires you to actually know someone before you add them as a contact.  However, as LinkedIn primarily serves businesses and corporations, the possibilities are endless.  By narrowing down the field to strictly professionals (as opposed to the entire world), you are increasing the chances that the people you are connecting with might actually require the service you provide.  Take for example the situation of Melissa Bay, a recent college graduate working for one of our clients.  She agreed to let me interview her for this article.  Her LinkedIn page is light but growing.  As part of her six-month performance review, her manager suggested that she do some more networking and they decided that she should build her network to 500 contacts in the next 24 months.  Yes, building a LinkedIn network was part of her performance development plan! 

Social Networking Impacts on Shareholder Value

Good use of social networking does provide benefits where it truly counts, on the bottom line.  As mentioned earlier, a recent post-doctoral study at Pace University in New York City measured three major consumer brands’ increases in stock value from April 2010 to February 2011 while also examining the increase in volume in their Facebook “likes”, Twitter followers, and Youtube views. During this ten-month period, Starbucks stock climbed 29% and Nike stock increased by 14%; both companies exhibited significant growth in their social networking followings as well. Starbucks, in fact, has been reaping the benefits of social networking ever since the inception of their page. Since they created their page on March 13, 2008 (a week after their stock price had hit an all time low over the past five years), Starbucks stock began to climb back up, and eventually surpass its previous levels before the last recession. A stock price of $10.56 grew to what is today $36.74, an increase of 348%. Keep in mind that Starbucks does have one of the largest social networking followings on the Internet, so typical results will not necessarily be quite as drastic, but it’s clear that results will follow from a good social networking strategy. After watching its stock price fall to a 5-year low of $15.83 in March 2009, Disney made a concerted social networking effort following the launch of its page on May 19, 2009. From that day they were able to amass over 26 million Facebook followers and their stock price grew from a modest $23.70 to its current price of $37.58, a 59% increase in just two years. BMW, a company that trades on the German stock exchange, launched its Facebook page in November 2009, just weeks after its stock prices had dipped to a five year low of $17.94. Over the next two and a half years, while amassing over 6 million Facebook followers, BMW stock price grew to $62.34, an increase of 347%.

Whether you are looking to make a resurgence following the recent economic turbulence, launch a new product, or give your company a fresh image, social networking seems to be the best way. It’s all reward, and limited risk; the only investment a person can make into social networking is time and effort. Social networking strategies come in all shapes and sizes for companies that could handle anything from software imaging to the most popular cheesesteak places in the greater Philadelphia area. The possibilities are limitless, the benefits are boundless, and the effects on shareholder value are clear. There are infinite ways to go about it, but one thing is certain: it’s not all business anymore, because businesses are getting social.

Building Social Networking and Social Marketing Skills

So are you convinced yet that developing a social networking strategy will build shareholder value?  If you are, then the next question you should be asking is, “How do I build the skills to be able to reap the rewards of an effective social networking strategy?”

Advantexe Learning Solutions is a world leader in the design, development, and delivery of Business Acumen and Business Leadership skills that support strategic change initiatives.  Over the past few months, we have developed several learning solutions to address this new developmental challenge.  Best Practice learning includes content on:

• Strategic Thinking
• Strategic Marketing
• Messaging
• Positioning
• Search Engine Optimization (SEO)