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Social is a Business Model


July 29, 2011

Doug Hadden, VP Products

Christoph Schmaltz of the Dachis Group (@christoph) has described what I’ve been trying to get at with some recent blog entries. His July 28 post From traditional business to social business is essential reading for anyone to understand the business transformation enabled by social media.

My sense is that many business people view social media as another channel. They expect to see traditional metrics to justify social media cost. My view is that social is really a different business model so the old metrics won’t work.

Christoph provides effective contrasts between traditional and social businesses. (And good graphics too.) These contrasts are:

  1. From transaction to interaction
  2. From B2B/B2C to P2P
  3. From gatekeeper to platform provider
  4. From hierarchy to network

Technology and Change

Many observers believe that technology does not fundamentally change society. I’m more in the McLuhan school. For one thing, the four characteristics of the social business where virtually impossible to support in the pre-Internet age and not on a global basis until quite recently.

  1. Multiple interactions between company and customers were at a high cost to both company and customers – the “your call is important to us” phenomena
  2. P2P support and influence networks were difficult to organize in the era of controlled collaborative tools where security, control and compliance restricted flexibility. Also, there was little ability to create self-organized networks of like-minded people outside who were not physically in the same geography.
  3. Supply and information chains required economies of scale because of the cost of information dissemination. Acting as a platform provider gained momentum through the open source movement and the development of social development tools.
  4. Command and control was the most effective means of managing large organizations in the industrial age. Specialization was key. Now, social networking tools enable the network of communications within organizations and supports freer flows.

Big Deal, so you think FreeBalance is a Social Business?

I believe that FreeBalance is one of the new breed of social business as a for profit social enterprise. Don’t get me wrong, I’m not saying that we’ve got this all figured out. Here’s how we are approach the four characteristics:

  1. Engaging customers and domain experts using social media. Yes, we tweet our press releases. More importantly, we interact. My analysis a few months ago is that we tweet more than the combination of the official tweets from the top 6 ERP vendors. (If you imagine the ratio of tweet per $ of revenue, you will see how FreeBalance is a bit of an outlier.) We see these activities as part of our non-virtual activities at public financial management conferences, academic presentations and transparency unconferences.
  2. Extending our learning to social media. We share what we have learned. (As we are doing now.) We listen more than we talk. We also see this as an extension of our non-virtual activities as we produce case studies and articles of how countries have effectively reformed public financial management. Where the use of FreeBalance software might only be incidental to the whole story.
  3. Becoming a platform is more challenging. We’ve leveraged Ning for a Customer Exchange which has had limited impact to date in getting the critical mass we’d hoped for. But, that’s the reality of social networking – it enables change as you learn good practices. We also see this as extending our non-virtual activities, particularly in the FreeBalance International Steering Committee (FISC) where our customers gather to share good practices, brainstorm about PFM trends and revise our product roadmap. We bring in experts in the PFM domain and futurists.
  4. We re-organized in a matrix-network approach that results in more FreeBalance staff exposed directly to customers. We’ve sent product developers to client sites to fix problems. We use collaboration and content management tools in-house and with customers. We’ve got global development integrating product management and product development using mostly open source tools.

How do you justify the ROI of Social Media?

We don’t. Why not? Because we’re a social business. Any tool that enables us to interact better with the PFM domain is worth considering. It is almost impossible to calculate the value of the insight I’ve received from tweets and blog entries that has led to an improved product vision. I’ve engaged people who have explained the why behind the what.


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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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