The High Cost of Social-Media Monitoring
The firms that provide these services have become a tempting target for two different types of buyers, both looking to maximize margins at the expense of advertisers' return on investment.
The first group splashing the cash: companies already established in consumer relationships and engagement services. These companies need social-media listening to provide the full range of services that brands would like. In 2009, Alterian bought Techrigy; last year, Marketwire acquired Sysomos; and earlier this year, Salesforce bought Radian6.
Also spending in this market are the investment funds. Taking their cue from the gold rush, specialist tech investors are looking at the picks and shovels of the social media boom as a prime opportunity.
Social media management systems provider Spredfast has just secured $12 million in venture capital funding. Mayfield Fund led the latest $4.25 million funding round for social media analytics and intelligence company Viralheat, while earlier this year, JPMorgan raised $1.2 billion to invest in companies across the social media space.
The effect is two fold: Companies buying-up social media monitoring providers reduce supply, while the funds investing in these firms want to see a big return. Frankly, the only way that can happen is if clients pay more for the same services, or get less for the same price.
In fact, we are already seeing the impact. Corporate savings where providers have been taken over -- needing less data storage (their biggest cost) and a single development team -- are certainly not being passed on.
Where social media monitoring has been combined into another offering, such as social CRM, it's also being sold on to clients at an incredible mark up. Low-level services are being added to an existing package at a premium, when that kind of price should buy a much better level of technology and service support.
These firms are also targeting direct sales to clients, often looking for five times the revenue they might get from an agency for a similar service.
Because clients don't deal with social media monitoring every day, they don't always know how to specify a brief or what they should be demanding in terms of technology: tool set-up, data crawling requirements, sentiment optimization, data validation, historical data, dashboard requirements and real-time analysis, for example. This makes it easy for social media monitoring firms to provide less for more.
This isn't simply a plea for clients to make sure they work with their agencies on such projects -- although obviously I'd like that -- but also a desire to ensure that clients make the most of the huge potential offered by social media monitoring.
If clients pay more for less, they may not get as much out of social media. That means the return on investment will be lower. The value they gain from listening and engaging with consumers will be inferior to what was previously expected.
Ultimately, this could mean they also find it harder to justify the crucial investment in internal expertise that will enable them to transform their companies into listening brands.
And that's bad news for everyone in social media.