Nilofer Merchant has, in a series of five posts for the Harvard Business Review blog, examined what she terms the “Social Era” and what it can teach large organizations.
The five separate posts are these: Rules for the Social Era; Social Means Freedom, for Better or Worse; Why Porter’s Model no Longer Works; Why Social Marketing is So Hard and Stop Talking About Social and Do It.
Although it is not clearly defined in her work, the purpose of her treatise seems to be to demonstrate that big companies can learn how to increase their enterprise value by incorporating into their business models some of the principles of the Social Era. Ms. Merchant runs through a range of different features of the social era and talks about how each of these can be used by the “800 pound gorillas” to improve their nimbleness and overall performance.
Some powerful insights
Amongst the many thought-provoking points made in her work, here are some of the more helpful:
1. When it comes to organizational size and structure, lean is better than big. Ms. Merchant makes the point that the traditional requirement for large amounts of operating capital and a cumbersome organizational framework have fallen away in the Social Era. It’s now possible to start a company much easier and cheaper than ever before using the vast range of digital efficiency tools now available (such as collaboration, billing and project management tools). She goes on, appropriately, to herald the rise of the freelance economy and how it can promote organizational nimbleness, using Singularity University as an example of how the “concentric circles” of collaborators, thought leaders and contributors is preferred to the older, more static, model of “getting the right people on the bus.”
2. In terms of customer and stakeholder interaction, sharing, not telling and conversations not chains identify the direction companies should be taking, in Ms. Merchant’s view.
In these assertions, Ms. Merchant is highlighting an important foundation principle of contemporary business-to-consumer activity. The linear view of business models has now been replaced by a more iterative arrangement in which responses to changing environments and customer feedback need to be much faster and more fluid. As Ms. Merchant points out, the notion of speaking with a single voice to mass markets has now been replaced by two-way niche communication with customers who prefer to be consulted, rather than dictated to. True enough. Netflix learnt this the hard way with its failed brand and pricing pivot in 2011.
Less powerful, although still worthy of consideration, is the suggestion that “sharing and not telling” fosters a shared purpose between an organization and all its stakeholders – particularly its customers. Ms. Merchant suggests that this fosters a “co-creative relationship” which leads to a sense of affinity with a company and ultimately to more business for that company. Whether, and how, this registers in revenue terms is a more challenging question, however.
3. And there is a very interesting argument in the fourth post Why Porter’s Model No Longer Works on the supply chain model and why it needs to change. Using the funding platform Kickstarter to illustrate the point, Ms. Merchant highlights the market’s role in determining what products and services will be offered to it before they are built or offered – the perceived opposite to Porter’s model. In other words, “When no one funds you, you know there’s no market for your idea.” Ms. Merchant advocates an approach in which the customer is the first element in the value chain, and thus able to more powerfully influence the corporations producing the products or services they consume. She contrasts this favorably with Porter’s Value Chain model, which is “well-suited for this mass market, cost-driven approach, where customers remain at the end of the value chain.”
But let’s pause
The many positive and worthy elements of these blog posts, however, fall under the wheels of a bus that is being driven too erratically and carelessly through the jumbled new media terrain, and without adequate definition of its scope. Much of the narrative in these five pieces has the woolly texture of a crusade, reminiscent of The Cluetrain Manifesto – which, by no coincidence, Ms. Merchant mentions in her work. In both substance and form, Ms. Merchant’s thinking in these posts echoes that work and is burdened by its limitations.
Many definitional elements are lacking in these posts. Even in using the title “The Social Era” Ms. Merchant makes a disturbing leap of faith. Ms. Merchant claims (in part four) that it’s “well over 15 years since the social era started.” We have to assume that this time frame is anchored to the emergence of the Internet in the mid-1990s. Yet how that resembles “social”, or how it relates to current social media, remains unexplained. The Internet began in a fumbling kind of way. It initially destroyed more viable businesses than it created. It wasn’t a particularly social thing in the early days, and it took a long time for “killer” apps like email, Google, Facebook and free apps themselves to gain traction. So we are not clear from the outset what is, and is not, within the Social Era. It’s easy and seductive to equate the social media tools that are available now – and the prevailing attitude to them – with how the world looked in 1995. But this approach is wrong-headed. And yet Ms. Merchant blithely advocates that companies “let it [“social”] become the backbone of our business models” without really saying what “social” is. If “social” is just the Internet, then this is so obvious it needn’t be said. If “social” is a specific set of social media tools, then much more elaboration and proof is required for the claim to be acceptable.
The many points made within the theme of empowering customers and corporate nimbleness lead Ms. Merchant to some disturbing conclusions. She talks, for example, about “customer service outside the perimeter” – the situation in which customers are relieved of having to deal with a company’s in-house customer service team and instead go to unpaid peer support groups to get answers to complex customer service problems. Ms. Merchant uses McAfee as an example, and talks in glowing terms of “McAfee Maniacs” – hundreds of unpaid technical experts in the market place with whom McAfee had connected “on a deeper level” – as an instance of using “social” to change business models.
Anyone who has tried to battle their way through threads of text in support forums to find an answer to their technical difficulties with a piece of equipment (hardware or software) will not need to be helped to the conclusion that this sort of approach alienates customers and says unflattering things about the organization that institutes it. Even if I have formed a “passionate brand bond” with a company, I will still draw negative conclusions about a company that will not stand behind its own product. And, in spite of what Ms. Merchant asserts, steps like this are just another way to cut costs. They may be dressed differently, but that is their superordinate purpose.
But it is the brand connection element is where this work misses its mark by the widest margin.
Ms. Merchant makes the claim, both implicitly and explicitly, that consumers will be drawn to the brands that wrap them in the arms of a “social” embrace. A sense of community, a shared purpose, commitment-focus instead of transaction-focus and a transparent egalitarianism between brand and consumer will serve companies in the long term, she asserts.
Beyond the merest morsel of obvious accuracy, this argument deteriorates, especially when it leads to the conclusion that the “pay if you love it” model should be applied by companies – apparently in the hope that sympathetic customers will cut them a break and it will all square up in a way that pleases shareholders as well. Ms. Merchant uses MySQL as the pin-up for this idea – describing how that company became a “dominant enterprise software company” by giving away usage of its product and asking only for payment from those who needed product support and maintenance.
The positive output of this strategy is real up to a point – the point where the company has to recover its investment and make a profit. The stories are fun to read, but almost all of them have a nasty ending. Companies that hope to rely on the magnanimity of customers usually end up resorting to advertising, having to charge for the service after all or selling themselves to a larger company who then figures it out, or closes it all down. This evidence is all overlooked by Ms. Merchant. For every success story, there are dozens of failures – a company who gave it away for free then wondered why they went broke. For example, with much fanfare, the band Radiohead (seeking to change the record label business model they had been subject to for so long) took the “pay for it if you love it” approach to their album In Rainbows in October 2007. The next album they released, in 2011, did not follow the same pricing approach.
So where are we now?
Let’s first of all draw a definition. If there is a “Social Era,” (likely there is) it did not begin in the mid-1990s. The tools of Web 1.0, the way they were used and the penetration they achieved are so markedly different from what’s available now that the two eras are more noticeable for their differences than their similarities. The Social Era can properly be described to have begun some time in the five years preceding 2010, when pioneering user-generated services like YouTube, MySpace, Facebook and Twitter began to gain traction. These things provided extremely different options and fed different desires than did, say, early Internet businesses like Yahoo! and Amazon.
And what has this social era brought us? A lot of new ways to interact with each other and a lot of new ways to share information – amongst individuals and corporations. It’s created a number of new businesses and provided new marketing channels. It’s empowered users to wield rich media content any way they wish. And it has hastened the rise of the freelance economy, which had already begun to pull at the well-woven fabric of organizational design.
And what has it not done? It has not yet proven itself worthy of a paradigm shift in business models, particularly for companies who operate in the business-to-business realm. Many of these companies (such as movie production companies) don’t really interact with individual consumers, and those consumers don’t buy their products because they feel connected to a brand. Therefore, it’s not particularly effective to use social media tools. But more fundamentally, social media hasn’t significantly changed the cost structure, nor transformed the marketing paradigms, of the most influential companies around today. Although it’s excited lot of people to this conclusion and it’s created a number of new and different businesses, social media hasn’t yet really changed the way business gets done. The 800-pound gorillas can learn from it, but, in spite of what commentators such as Ms. Merchant say, the “Social Era” does not yet rule them.