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February 06, 2008

Why Social Applications Will Thrive In A Recession

by Josh Bernoff

Is a recession coming? Don't ask me -- I'm not an economist, and even the economists don't really know. But if it's anything like the last recession, advertising will plummet and experimental media will crater. (In the 2001 recession, US advertising dropped 9% and Internet advertising plummeted 27%, according to Veronis Suhler Stevenson.)

But do not panic. Things are different this time.

Here's what smart marketers should know:

  • It's not a tech bubble. The last recession was caused by the dot-com bubble and the terrorist attacks. There was a lot of ignorant money out there chasing illusory opportunity, and companies had overinvested in technology. This time, the precipitating event is a housing bubble, and technology spending is not irrational.
  • Awareness ads will lose effectiveness. Advertising (or as we often call it, "shouting") is mostly about generating awareness and reinforcing brands. In a recession, ordinary consumers like you and me aren't as willing to spend. Sure, we'll be aware of the product, but that doesn't make so much difference when you're worried about your future. Advertising is expensive and is a lot easier to cut than headcount. Many are predicting ad spending will hold up; I'm not so sure.
  • But social applications are about consideration, not awareness. Blogs, word of mouth, social networks . . . they're about people connecting with other people. You may resist advertising if your finances are tight, but if your bud tells you that new movie is really worth seeing or that the Gap has the cutest new tops, that's more persuasive than advertising. Basically, in a recession, the consideration phase is more important than awareness -- and that's where advertising flops and social applications succeed.
  • It's cheap. Social applications can be nearly free (think blogs, Ning.com, facebook pages) and even more sophisticated communities are typically $30K to $200K -- a lot cheaper than a significant sized ad campaign. After our last post, all the responses were positive. One interactive marketer from a highly cyclical company told us this:

"Budgets are tight in light of the economic conditions as you surmise, but [the budget for social applications] has not been impacted. We are still keen to move forward with our trial and have support….at this point anyway.  Interactive in general has been more protected than other comms areas and saw an increase."

  • It's measurable. If your social application doesn't have a measurable output, you'd better get one. But if it does -- if it generates leads, or conversions, or buzz, or something useful -- then you can prove it's working. beinggirl.com is four times as effective as TV ads, Procter & Gamble told us. That won't get cut in a recession.

These same arguments apply to some other forms of online marketing, including search ads and email marketing. Those are going to be good investments in a recession. If you're smart, you'll position yourself now with proof your apps are working. Then when the ad dollars get tight, you'll be in good shape.

Click here to see what we wrote for our clients (we've made this piece of research free for everyone).

Also on this topic, see also David Armano's post on 10 ways digital can help you thrive in a recession. And an earlier Paul LaMonica post (CNN Money) featuring my old colleague Jim Nail.

Finally: I'm anticipating this topic might get some currency around the blogosphere and the mediasphere . . . if you want to follow the reactions, tune in to my twitter feed at twitter.com/jbernoff

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» Don't Panic - Social Media is recession proof, sez Forrester ! from broadstuff
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Comments

bizwriter

Informative post. But don't you think that in order for social apps to "thrive in a recession" the numbers must be there? But it seems that they are not.

http://creativecapital.wordpress.com/2008/01/29/its-official-us-social-networking-sites-see-slow-down/

Josh Bernoff

@bizwriter Your "numbers" refer to participation in big social networking sites like Facebook and MySpace.

We are seeing participation increase across the board. Whether the big sites continue to grow, and how fast, we'll have to see, but the phenomenon is growing anyway.

/josh

Glenn Gow

Josh, yes many things are different this time, I agree.

I agree that awareness ads will lose their effectiveness and companies should avoid them. However, I think “consideration” ads, or ads aimed at your current customers will work. And, social platforms certainly can help you focus that effort (whether via ads or other forms of communication to your current customers).

This is similar to the point I make in “Five Tips for Marketing in a Recession” http://www.achievemarketleadership.com/?p=204
where I talk about doubling down on your current customers.

To your point about it being cheap, and measurable (although I am much more skeptical about measurement than you are) I like that because it fits in with my argument about “spending smarter” and “fighting for your resources” in a recession. You can keep key marketing programs going if you invest wisely and social apps fit into that category.

Srini Kumar

You forgot two things:

1) they're GLOBAL - everyone worldwide is welcome on our platform; they all click on ads, and while US online advertising spending is still tops, eventually the rest of the world is going to catch on to online advertising too, which means that our context value will stabilize as global advertisers catch on, which means that our margin on advertising will remain intact, and this margin will be earned in the currency that is denominated in the ad buy, which secures a globally-distributed firm against drops in the dollar. Unfortunately marketing worldwide becomes more expensive, but if the product is good enough the world can be the target market today.

2) Cheap laptops are coming. You better believe it. And these cheap laptops CAN'T run microsoft office. Finally they WILL cross the chasm - a $200 laptop that has wifi and a touchscreen and integrated skype and such isn't very far off. And Web 2.0/3.0 apps are what they will run. There is no running away from the tsunami of demand for Web services this impending product category will create - it will engulf the current PC market. Our service is intended to serve as a desktop for users of such laptops among other things.

Overall a fantastic article ! :)

-s

Toby

Josh - Thanks for the excellent insights. Comparing social media to traditional media in terms of measurement can be tricky. Can you provide some details on what P&G used to conclude that beinggirl.com was four times as effective as TV ads?

Hagrin

Considering Google's recent earnings report already stated that social networks aren't converting like they thought they would, I'm not exactly sure how you see these same networks bucking a worldwide economic downturn. You stated that tech spending wasn't irrational, yet the MySpace/Google deal is not paying off and that's from the horse's mouth.

This isn't to say that there won't be growth, but there's little to no evidence backing any of your claims that it can move inversely to larger, battle tested, older economic markets.

Trevor Speirs

Nice post Josh. I agree that internet advertising will less affected by the upcoming (possible) recession, but I am not so sure consideration is more important than awareness in a recession.
In a recession, people are less prone to spend discretionary income, therefore advertising targeted to generate sales can be less effective (I am not saying ineffective). Since Ad rates drop in a recession, the recommended strategy is to build brand awareness, so that when the economy picks up your brand is top of the consumers mind. Dell did this to great effect in the last recession.

Alan Wilensky

"...and technology spending is not irrational"

How do you explain the redundant capital pouring in YAVSS and YASN. There is no mission critical use beyond the entertainment value of these social sites, and the top two or three are likely to predominate over all others in the long run.

These are cloned business models that simply cannot, in any sane world, all survive in a normal economy, let alone a dip.

There are however, many verticals that could make use of social interaction models for the 'hard trades', such as technical product services.

** Yet Another Video Sharing Site
Yet Another Social Network

Steve Poppe

I agree Josh. Free passtimes always make sense for people during recessions; camping is big, for instance. And since there will always be advertising, the question is where will that advertising reside. It will be where the people are. My bet is the people will be using social media.

vahe

As we shift from awareness/shouting to the new conversion/conversation, is quiet the new loud?

Chi-chi Ekweozor

Spot on, Josh.

I suspect that social media will become the barometer for the effectiveness of other forms of marketing during a recession because it is so easily measured.

Max Kalehoff

Josh,
Overall good points. However, to say social media is cheap -- at face value -- is a bit naive. If you ever put together a real, live robust social media program that compares in scale to many advertising programs (as you so compare), it's actually not so cheap. Sure, the computing platforms are cheap, but the investment in planning, building, managing and measuring is massive. Also add in there the hidden costs to assimilate any program within an organization -- such as different organizational contributions, legal, etc.

Finally, is social media really a replacement for advertising? I don't think so. They're different things, albeit inextricably linked.

I agree with you in spirit, but feel "cheapness" is an important clarification.

Regards,
Max

Matteo Fabiano

It is great to see beinggirl.com as a success story. I started working on that project circa 2001, back when I was at P&G. At the time interactive budgets were taking a hit, but there was widespread awareness within the company that Pampers.com was important NOT because of the products it showcased, but because of the quarter of a million fathers and mothers it attracted every month. Even back then, a good share of P&G's 300+ brand sites were meant to shape and engage communities.

gregory

no, you are trying to INDUCE me to consideration, and i am not going to consider you unless you replace my inner absorbtion with something higher

advertising is going to fail as a revenue source

my attention is worth more to me than your making money is worth to me

you are going to have to think more deeply\

friarminor

Not just social apps, Josh. I'd like to think all service web apps will likely stay afloat as this will be the anchors that most companies will rely upon since they are relatively cheap but very business valuable.

Best.

Joshua Feinberg

Hi Josh,

Regarding "It's not a tech bubble...This time, the precipitating event is a housing bubble, and technology spending is not irrational."

You really got me thinking about a few big issues.

1) Would the more cushioning/self-correcting nature of online advertising being global change the dynamics of this?

Or will the housing bubble just cascade through Europe's and Asia's online advertising spending? (similar to how subprime worries seem to already be impacting the major financial markets)

2) Also, what do you think these changes will do to those that are on the other side of dominant online forces like Google AdWords and Craigs List?

3) And what part of the online advertising cuts might end up being self-fulfilling prophecies?

bee

You provided no reason to why we should not run from social networking.

Awareness, consideration, identity ect. it really not the point. Objectives served is the point. Sweeping statements suggests advocacy not understanding.

Please think more deeply and feel less intently and you will learn more

Eric Schurr

I agree with Josh's comments, with one exception: i do think social media applications provide "awareness," but it's perhaps a different type of "awareness" than the type Josh refers to.

I explained my thoughts in this post http://www.awarenessnetworks.com/default.asp?item=1042169

Zak

Hi Josh,
I'm a bit late to the debate, but agree with your points - and am even more optimistic about social media in a recession. Most periods of uncertainty - economic or otherwise - sharpen our creative instincts. They also drive our need for authenticity. I'm interested in identifying where innovation will be born during this recession and am convinced that social media is a prime candidate for increased investment of time and money. Of course it's cheap (for the smart practitioner) and it has the capacity to be more authentic. And authenticity and value are two of the greatest needs for recessionary mindsets. If you've got any ideas for great things that could come out off this recession - i'd welcome them on the above URL. Thanks.

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