Risk 2.0 - Social media and user generated risk

Emerging Risks Dossier

Risk 2.0 - Social media and user generated risk
The communication standard has changed radically in recent years with the increasing relevance and buzz surrounding social media. As a solid foundation of Web 2.0, social media is a mix between technology and sociology and a powerful relationship enhancer, having placed the publisher (either on its personal or institutional level) on the center of the communication flow.

This new age of communication is about supersonic social interaction and people engagement, immediate feedback of ideas and build-up of reputation, in a very challenging environment, with a web-based technology! The information we are currently sharing on our personal (and, most probably, professional) day-to-day life is not coming from limited sources, as before.

Communication channels like newspapers, television, outdoor advertisement, radios and magazines are losing grip and momentum every day, as they now face the ferocious competition of a communication plateau that receives whoever wants to join, that gathers a myriad set of opinions, ideas, reflections and, most important, that is interactive: where user can comment, answer, question, disagree or support!

This new flow of communication is taking place, repeatedly, simultaneously and almost on unquantifiable basis, on internet based platforms. More than that: social media has assaulted all internet rankings and assumed a dominant position on the preferences of internet users.

When comparing the 2010’ top most visited websites on the Internet with the same top 10 position considered in 2005, 4 new social media platforms have made it to the ranks, while once strong and top performers on the web – ebay.com, amazon.com, Microsoft.com, aol.com and go.com - left the charts. All user based social media platforms are now of massive usage and, as such, represent an exponential market for users (once again, either on their personal or professional suit) ideas, opinions, thoughts, trends but also products and services.

The assessment of the market potential of social media platforms, can have Facebook1 as proxy:
• 500 million active users (more than the entire population of the United States of America).
• 700 billion minutes / months of usage.
• Average user creates 90 pieces of content each month.
• 30 billion pieces of content shared each month and English.

With this massive impact, social networks are on the gravitational point of several discussions and controversies taking place today: either by privacy issues, security concerns, misleading or manipulation of behaviors and opinions.

However, the several fails and malfunctionings that are being highlighted haven’t been powerful enough to stop what seems to be an irreversible tool for self-expression. The main feature of this new phenomenon is the complete, non-hurdled and uncontrolled self expression of individuals and companies. Gladly, self-expression in itself is not a novelty: but the size of the audience for sure is!

As a place for exchange of information, social media revealed a previously hidden and now accessible playground for business agents. When one considers a platform that can bridge a company immediately with thousands of potential consumers, clients, competitors, suppliers and almost all stakeholders that its activity implies, the impact is easily realizable.

But social media is not only about bridging people or institutions! Probably, the triad of the most appealing factors that are leading millions of companies to social media is i) instant feedback to ideas, concepts, products and disruptions; ii) direct selling channel to customers and iii) almost instantaneous reputation building. And we consider it appealing for companies because it has increased the velocity and reduced the cost of these objectives, in significant amounts (at least on a tangible analysis).

We can call social media the interpretation of a evolution theory for this competition pattern: before2 companies reputation and performance – thus, the most considered factors of competitive advantage in the business environment – were based on the sum of a successful business model and on their capacity to sustain such model and reputation trough marketing expertise and R&D and on the quality, reliability or distinctiveness of its products or services, as consumers or clients perceived it.

Consequently, the companies that could invest more on marketing and R&D, would be capable of attract more clients, more transactions and, as a result, more bottom line to re-invest in those same competitive factors. This cycle led to a longer life cycle of industry leaders3. However, leadership and success cycles of companies are getting shorter! With social media, every single company is now capable of reaching and targeting almost infinitude of customers and potential customers, without increasing its marketing expenses line.

If a company can prove to have a product or service that has actual demand in the market, is by far more reachable to match supply with demand, and marketing can be implemented without the bearing of traditional infrastructural fi x costs. This possibility and easy to reach customers is opening a door for one-shot competition: companies don’t need to have sustainable business plans or integrated strategies: they might have one product that works, and that might be enough4!

Social Media is a business tool and, due to the opportunities it opens, a company must consider this battlefield for business! Companies will get more buzz around their brands, products and services. Companies will get deeper knowledge about market trends and preferences! The impact of the company features in the potential customers’ audience can be measured. However, as we will try to explain, considering it shall not be taken as playing the game!

By André P. Rocha MDS - International Business

2 - The concept before is used herein with a very strict span. More than referring the traditional competitive environment of several industries, we are referring to the recent patterns of competitive advantage, where companies leveraged their performance on optimized channels with customers (marketing) and where business performance is built on innovation.
3 - Apple and Dell can be pointed as examples of this leadership stability, since an appropriate business model was strategically implemented and was able to build the firms reputation as innovators. This brand premium benefited several products that, even not being considered best-sellers maintained the hype around the reputation of the companies to have breakthrough products and thinking.
4 - A good example for one shot peak performers is Zynga. As developer of the major Facebook hit Farmville, the company landed in the charts and captured the attention of several sets of investors, like Google. 
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