The Business Technology blog over at WSJ reports on a recent study of more than 100 corporate social networks. Ed Moran, a Deloitte consultant, found that:

Thirty-five percent of the online communities studied have less than 100 members; less than 25% have more than 1,000 members – despite the fact that close to 60% of these businesses have spent over $1 million on their community projects.

Moran’s conclusion is that companies get seduced by the technologies involved without understanding the terrain. These sites fail, he believes, because companies don’t invest enough money or manpower in supporting them, and because the things the companies measure don’t really align with their professed business goals.

The title of the article - “Why Most Online Communities Fail” - is misleading, since Moran is talking specifically about corporate social networks, and the very premise of these sites is flawed if you ask me. I haven’t seen the list of companies he looked at, but I would guess that most of them actually have thriving online “communities” whose activities just happen to be distributed across the Internet. People are twittering. They’re posting about those 100 companies on their blogs and MySpace pages.

I understand the urge that companies have to contain this activity, but it’s a pipe dream. You can build the snazziest playground in the world, and most of your community still won’t show up. If you want to connect with them, you have to do it on their turf. If you want to quantify their effect on your brand perception or your sales numbers, you have to find tools that can do that.

That’s what we’re aiming to provide of course, and that’s why I believe in this product. Companies are willing to spend millions on the fantasy that they can bring their communities to them because they don’t have very good ways of tuning in to the communities that are already out there.

But that’s changing.

Photo by rantfoil.

Hello, it’s Mathieu here, from France. I’ve been doing an internship with Scout Labs since January, and it’s exciting to be contributing to this very cool application. I’ve taken advantage of my time here by attending all sorts of hi-tech and entrepreneurship events happening here in sunny California.

I attended Startup School 2008 at Stanford University this past weekend. Startup school is an annual free conference organized by Y Combinator and BASES for hackers interested in creating their own startups. One of the most interesting and entertaining talks of the day was from David Heinemeier Hansson, creator of Ruby On Rails and founder of 37signals.

The most interesting advice he gave us was about how to make money online: Have a great product and define the right price for it. It’s interesting because it can be very hard to define the price of your great product, especially when it is sold as a service like a lot of software now (and like Scout Labs). You can fail at pricing your product correctly, and this is what happened to 37signals.

David told us that Backpack, one their applications, has been really successful (they doubled their revenues) in the last 2 months after they re-launched the application. They basically raised the price and changed their marketing message to target the long tail of businesses, what he calls the Fortune 5,000,000. You don’t have to aim at the Fortune 500, you don’t have to aim at the general consumer. There is a large and profitable market in the often-neglected long-tail, and software-as-a-service companies like Scout Labs are poised to capitalize on that opportunity.

You can find David’s talk below. All the videos from Startup School 08 are available on Omnisio.

In this week’s installment of his ‘Circuits’ column, David Pogue asks, “Are you taking advantage of Web 2.0?” By ‘you’ he means your company, and he describes the response this question got from the attendees at a recent PR conference:

“…within seconds, there were 132 responses on the screen in a huge, scrolling list. ‘Not enough money.’ ‘Don’t understand it.’ ‘No technical resources.’ ‘Not enough manpower.’ ‘No visible return on investment.’ ‘Fear of ridicule.’ ‘Fear of slander.’ ‘Fear of permanence.’ ‘Fear of the public running amok.’”

There are lots of common fears in there, and they’re all reasonable at first glance. Companies are understandably afraid of opening themselves up to ridicule and slander from a public running amok, knowing that all the messy results will live forever, just a Google search away. And they’ve seen some embarrassing failures from companies who’ve tried to embrace the new paradigm - like the Chevy Tahoe debacle, and Wal-Mart’s fake blog (or flog) scandal, to name just two incidents. So the safest bet is to simply stay away from all things Web 2.0.

The problem with this approach, obviously, is that the public is already running amok. That’s what the public does. If they want to slander you, they have YouTube and MySpace and a million other places to do it. Sticking your head in the sand doesn’t make all this stuff go away. It just makes your company look silly - or worse, aloof, uncaring and behind the times - and ultimately more vulnerable to whatever mud they might be slinging.

So if it’s unwise - or unrealistic - to stay out of the fray, then what’s the best strategy for jumping in? The other questions from the PR conference attendees fall into this category. More and more companies have recognized the need to participate, but they don’t know where to focus or how much to invest.

There are lots of success stories. Big companies like Dell and Mariott have generated good will and good press through their forays into Web 2.0, and this has surely translated into dollars. But it still comes down to the question of ROI. If one of the ultimate goals of embracing Web 2.0 is to engender good will, then how do you quantify it? How do you measure success?

Does anyone out there have a story that starts to quantify the actual value of good will?

When we talk about positioning, we often think about competitive matrices and comparison tables. But wait—there’s a way to have even more fun!

A few weeks ago, Information Architects Japan released the 2008 version of their Web Trend Map (still in beta, of course). They’ve taken almost 300 of the most influential and successful websites and pinned them down to the greater Tokyo-area train map. Yeah, a train map! There are not less than 21 lines: from the Technology Line to the Social Networks Line to the Politics Line.

Scout Labs is not yet on the map, but we’ve been thinking about our position on it. Obviously, we have to be on the Technology line, but we’re building something extremely complex. Our use of cutting-edge and advanced technologies such as Natural Language Processing, for instance should put us near the Innovation line. We think the best position for Scout Labs will be around Technorati, Snapshot and MyBlogLog. Nice neighborhood!

You can have a closer look to the Web Trend Map 2008 by downloading it in PDF on their website, and you can even order a printed copy.

The February issue of FastCompany magazine includes an article provocatively-titled, Is the Tipping Point Toast? about the work Duncan Watts has done researching influence. The article doesn’t exactly torpedo Gladwell’s hypotheses, as the title suggests, but it does argue that influence is a much more random phenomenon than Gladwell and a string of high-profile marketing gurus - not to mention our own intuition - would have us believe:

[Watts] has written computer models of rumor spreading and found that your average slob is just as likely as a well-connected person to start a huge new trend. And last year, Watts demonstrated that even the breakout success of a hot new pop band might be nearly random. Any attempt to engineer success through Influentials, he argues, is almost certainly doomed to failure.

Strong words, and not ones that marketing folks want to hear. But let’s back up and look at the two schools of thought at odds in this debate.

The Gladwell school (previously put forward by Ed Keller and Jon Berry in their book, The Influentials) holds that a relatively small number of elite and well-connected tastemakers is responsible for igniting the first small flames of buying or behaving that eventually spread like wildfire to become mainstream trends. Marketers like this model partly because it makes sense intuitively. We can all think of people in our lives who are consistently ahead of the curve with things, or whom we depend on as consistently reliable sources of information. It’s nice to think that if you can, as a marketer, put your message or product in the hands of these elite few, then they will do the rest of the work for you.

Watts, however, isn’t buying it. His research - a variety of computer models as well as social experiments using real people - doesn’t support the existence of this special class of powerful people. As far as he can tell, a trend can start anywhere and with anyone, as long as the marketplace is primed for it. This is borne out in a well-known experiment he conducted by building two identical online music communities where users could rate unknown songs from unknown artists. In one community, the users couldn’t see anyone else’s rankings. In the other, people could see how everyone else rated each song. He wanted to see whether word of mouth would affect the rankings in this second community, and whether any of the participants would emerge as the tastemakers.

In the first community, people rated the songs fairly evenly. But in the second community, as one would expect, favorite songs did emerge, as word of mouth took hold. Even more interestingly, in eight repeats of the experiment, different songs emerged as the favorites each time. For the most part, it wasn’t even close. The #1 song in one community, for example, was ranked #40 out of 48 in another. And there was no evidence to suggest that any participant in any community was significantly more influential than anyone else.

Watts’ experiment confirmed that word of mouth is powerful but, to the chagrin of marketers, it also seemed to show that it’s completely unpredictable.

So is the Tipping Point toast, like the article says? The most likely answer of course is no, and that both arguments are correct. There certainly are people who are influential by virtue of a large audience or expertise with regard to a particular subject. On the other hand, there are certainly many trends that started with seemingly random people.

Watts’ solution is to forget about trying to identify or engage with any supposed influencers and to focus instead on the masses. To this end he has developed a form of advertising with built-in sharing (and tracking) mechanisms designed to facilitate their spread.

Perhaps he’s onto something, but I think that developing a good mechanism for sharing is much less important than developing a good message that people will want to share. The “why” is more important than the “how.”

The currency, so to speak, of influence is the message. There is a science to crafting a good message, or meme. I like the formula offered by Chip and Dan Heath in their recent book, Made to Stick, which states that a good message is:

• Simple
• Unexpected
• Concrete
• Credible
• Emotional, and
• a Story

If marketers follow this formula, the chances that their messages will go “viral” are much greater, whether influencers are specific and identifiable elites or just random folks on the street.

The last piece of the puzzle is the marketplace, and this is something we’re trying hard to make more predictable too. Or, if not predictable, then transparent. Understanding what makes an effective meme is key to spotting them as they develop, but it’s still very difficult without reliable visibility into the marketplace. We’re aiming to provide this with some of the tools we’re developing, because this is at least as essential to the influence problem as attempting to identify some elusive special people at the top of the chain.

I had the good fortune to hear Malcolm Gladwell speak at The Conference on Marketing held in Naples, FL earlier this week. His talk (refreshingly delivered entirely without slides) explored the concept of two distinct types of creative innovation: Conceptual and experimental.

Conceptual innovation, he argues are those bold, breakthrough ideas that are well articulated quickly and delivered into the world. Experimental innovation is the slow, iterative process of exploration that may happen over a lifetime before it’s gotten right.

Examples of conceptual innovators include Orson Wells, Picasso and Herman Melville. Conceptual innovators tend to peak early—often the value of their output decreasing over time. The highest price Picasso ever fetched for a single painting occurred at the age of 26. Work done in his 60s is valued roughly at ¼ of his peak prices. And we all know what happened to Orson Wells after Citizen Kane. Not much.

Cezanne, on the other hand, was an experimental innovator. He painstakingly painted the same scenes over and over again, evolving his genius in slow, iterative, baby steps. Cezanne peaked in his 60s, his later work valued at roughly 15 times work done in his 40s. Another experimental innovator, Alfred Hitchcock, explored the thriller genre again and again over a lifetime delivering perhaps his best picture, Vertigo, at the age of 59.

Gladwell argues that much to its detriment, today’s culture has lost patience with the experimental innovators. Musicians are now routinely dropped from the roster if their first single isn’t a blockbuster. Yet the traditional music industry is now in complete free fall according to Gladwell, because “you cannot run a creative business unless you have a combination of Picassos and Cezannes to create lasting value.” Long term, lasting value comes from a portfolio of ideas that include both the bold and groundbreaking as well as those that need iterative experimentation in order to mature.

Moreover, consumers form a very different bond with Picasso and Cezanne ideas. Picasso ideas get a lot of attention, but don’t develop lasting loyalty or significant influence (Friendster who?). Cezanne ideas may take a while to mature, but have much greater impact and create more lasting value over time.

The Sopranos, we are reminded, didn’t have much of an audience in season one or even season two. But with a little patience, HBO allowed the writing, the characters and even the audience to mature and the series has now arguably changed the face of in-home entertainment for a long time to come.

Last week, I heard Charlene Li speak at a business marketer’s luncheon where she gave a comprehensive overview of how social technologies are transforming business. Charlene laid out a framework for how businesses should be approaching the emerging (and at times daunting) consumer-controlled marketplace that nicely dovetailed with Jennifer’s recent post about the Scout Labs Hierarchy of Needs. The basic premise: There are low-level, but critical business needs (like crisis management) that social technologies can and do address readily, and that higher level business needs (like becoming a customer-centric organization) are also very well served by getting across CGM.

When asked about the biggest hurdle companies face when seeking to become more tuned in to CGM, Charlene responded that executive buy in was still a big hurdle for some marketers and by far the single largest factor that contributes to success when adopting a social media strategy.

I caught this piece in the New York Times yesterday that gave a nice list of healthy examples of top executives that have actively embraced the new world of social media. I thought it excellent ammunition for marketers who are looking for convincing arguments to the powers that be that it’s not only time to start listening, but to invest in tools and best-practices for keeping up with consumer-controlled conversations.

If that doesn’t do the trick, keep your eye out for Charlene’s soon to be released book, Groundswell: Winning in a World of Social Technologies, in which I’m sure the case for a well-supported social media strategy at will be aptly made.

Remember the game “Telephone”? You sit in a circle and one person whispers a phrase or sentence into the ear of the person next to her. That person repeats the message to the person next to him and so on. When the circle is complete, the originator speaks aloud his original message and the last receiver repeats what he heard. Uproarious laughter usually abounds (depending on how much beer is involved). What began as “faster than a heard of turtles” becomes “master of the nerdy girdles”.

The rumor mill is alive and well and operating at lightening speed online as Ford Motor Company found out today. It’s still a bit murky, but it looks as if Ford had an issue with the use of the Ford logo on the Black Mustang Club’s annual calendar and in no time rumors were flying across the BMC community that they were liable to be sued by Ford for taking pictures of the cars that they own.

It looks like Ford, in fact, did “wake up and smell the CGM” and dialed right into the conversation with a spring in their step. With impressive responsiveness, Ford dispelled the unfounded rumors and made clear their policies of trademark protection. Whether founded or unfounded, Bravo to the BMC members for ranting online about their perception of Ford and double Bravo to Ford for listening.

I’ve been a marketer for some time, but the first half of my career was spent mostly in direct sales. Don’t miss the quota, but definitely do miss being in the trenches.

Talking to real customers about their real business issues every day was for me the best part of selling.  I loved the authentic nature of it. It sure beat the canned role-playing that often goes on in corporate sales training. Real customers never bring up the objections you overcome expertly in training sessions, but they keep you on your toes and teach you how to continue to get better if you know how to listen. I always loved the listening part of selling, which is perhaps why I eventually morphed into a marketer.

Having recently joined Scout Labs in that capacity, I’m now delightfully back in the trenches gathering my own market intelligence around how people find and use consumer-generated media to become better marketers. Recently, I had the pleasure of talking to several real customers about their real issues in this emerging discipline and it was just as I remembered the trenches to be—totally fun and very inspiring.

Here are a couple of points that I have recently been rightly reminded of about life in the customer trenches:

You still don’t know what you don’t know. No matter how well you approach, define and vet the dozens of brilliant ideas you may have, you still don’t know a thing about the hundreds of other ideas that might be better. Until a real customer tells you about his.

There’s no arrival. Customer research is an ongoing, ever-evolving journey. More than ever as the rate of innovation takes a sharp northward turn, keeping your finger on the pulse of your customers’ wants, needs and wishes should be baked into your work week, if not your daily routine.

The market wants you to succeed.  Despite their well-vocalized frustration with intrusive, one-way marketing messages, consumers consistently surprise me with their willingness to talk to marketers who are willing to listen. More often than not, they are honest, gracious, generous with their time and sincerely interested in doing what they can to help companies to deliver better products.

My conversation this morning with John Jantsch about Scout Labs was especially interesting because we chatted about the application through the lens of his readership—small business marketers.

After he got the elevator pitch, he pointed out that while the analysis and insight we offer might be groundbreaking for the big brands, “the rest of what you describe sounds like what people can already cobble together with free tools ala Google, etc.”

It was nice to have spoken to enough real people who are really sick of their cobbled solutions around CGM to know that there is a very real demand for something cohesive. He did agree that the application sounds like it delivers a lot more than what people can get for free, but that he wasn’t sure that all that extra market intelligence would be valuable to small business marketers.

He thought the idea of a configurable dashboard of ‘insight modules’ - blog volume, sentiment detection, key influencers, etc. was pretty interesting, however, and when we talked more explicitly about the functionality and the specific nuggets of insight delivered, he definitely saw how small businesses would find many of the analysis modules plenty useful.

I think the mention of jump-in functionality piqued his interest the most. He was expressly keen on seeing a tool that could help enable, manage and organize conversation threads and couldn’t believe this wasn’t the first thing out of my mouth in the elevator pitch. (I love finding out what matters to people!)

The fact that users can scout pretty much anything within the same tool for the same price was also a base hit. In any case, he enthusiastically awaits his beta invitation!