Social media and networking ushering in a 'third wave' of capitalism

Pepsi gets it, so does Coke. But social media and networking are not just about selling soda. They represent a 'third wave of capitalism,' one guru says. Ignore it at your peril.

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Whether you are part of the Joy of Pepsi generation, or you'd like to buy the world a Coke, the two soft drinks are indistinguishable in one respect: Their parent companies are convinced that social media and networking are good business.

Instead of spending $20 million on Super Bowl ads in 2010, PepsiCo Inc. launched the Pepsi Refresh Project, a social media site that is doling out $20 million in grants this year to projects submitted by and voted on by the public. The Coca-Cola Co. had already sunk its usual millions into Super Bowl advertising when Pepsi made its big announcement, but Coca-Cola went one better. It launched a social media and networking promotion that called attention to its philanthropic arm, Live Positively.com. Coca-Cola fans could preview the company's Super Bowl commercials in exchange for sending their friends on Facebook a "virtual gift" of a Coke bottle logo and news feed. For every brand-boosting gift, Coca-Cola donated $1 to the Boys & Girls Clubs of America.

Social media, in the small sense, is about marketing and recruiting talent. In the large sense, it represents the transformation of capitalism as we know it.
John Svioklavice chairman, Diamond Management & Technology Consultants Inc.

Just a lot of fizz? Don't tell that to United Airlines Inc., which learned the hard way how effective a corporate social media campaign can be when singer Dave Carroll's musical complaint about the airline's baggage handlers, United Breaks Guitars, went viral on YouTube. The ditty racked up more than a half million hits three days after it was posted, and by some accounts caused the airline's shares to drop 10%. More than 9 million people have viewed the spot.

"Social media, in the small sense, is about marketing and recruiting talent. In the large sense, it represents the transformation of capitalism as we know it," said John Sviokla, vice chairman at Chicago-based Diamond Management & Technology Consultants Inc. A former Harvard Business School professor, Sviokla was addressing a group of CIOs at a recent Boston Society for Information Management (SIM) meeting.

The challenge for CIOs is akin to the one they faced when personal computers were introduced and corporate IT departments were forced to react to a new wave of consumer electronics, Sviokla said. Since then, corporations have enjoyed a long period when technology inside the organization was better than technology outside. "We are on the other side of that cycle," he said. CIOs who ignore this "third wave of capitalism," as Sviokla calls it, do so at their peril. (Financier John Jacob Astor's use of the shared stock company epitomized the first wave; automotive industry pioneer William Crapo Durant's use of the capital markets, the second, he said.)

For the most part, Sviokla's message fell on receptive ears among the SIM audience of CIOs. One audience member said it made her nervous that corporate reputations can be held hostage by a single online review; that led to a discussion of how the law has not caught up yet with online reputation and about what recourse individuals and corporations have. The consensus was that law is sure to come because reputation is so critical to business.

For your amusement: Social media horrors and the wonders of an iPad

United Breaks Guitars (More than 9 million views)

A Comcast technician sleeping on my couch (More than 1 million views)

IPad + Velcro = ♥

When audience members were asked if their organizations block social media and networking by employees, however, only one hand went up.

Policies for social media and networking appear to be more stringent among the national membership of SIM, Kevin M. More, Boston SIM's vice president and incoming president, said in a follow-up phone call. Around 30% of the 450 respondents to a recent survey of the organization's national membership, said their organizations blocked social media use, he said, a strategy he rejects: "Employees can use handhelds instead of using a computer." Clear policies for social media and networking are more effective than blocking these sites. Besides, allowing social media and networking "makes employees feel better," he added.

More, who is vice president of information systems at the Randolph, Mass.-based May Institute, a major provider of autism and other brain injury services, got interested in the potential value of social media and networking when he opened a Twitter account a few years ago. The May Institute is refining its social media policy, taking "bits and pieces" from the various social media guidelines available on the Web, he said. The nonprofit also is designing a Facebook page, but with deliberation. "We don't want to just throw something up," he said, before the organization has a clear idea of exactly how it wants to engage its large community of patients, families and providers: "We understand that Facebook has a lot of potential. But for every success, there are probably 30 to 40 failures."

And it is easy to get it wrong. Pepsi's Refresh Project, for example, drew a negative reaction from frustrated online participants until the company worked the kinks out of its security settings. Coca-Cola's Facebook initiative began when the company discovered that an out-of-work actor and a writer in Los Angeles had appropriated the Coca-Cola brand and built a Coke Facebook page that had some 300,000 followers. "Coke had to decide whether to go out and punish these guys for taking their brand and using it, or to work with them," Sviokla said. The beverage behemoth chose to work with them, even featuring Dusty and Michael prominently on the page.

Growing pains notwithstanding, companies will have to work with social media and networking, Sviokla said, because the third wave is all about the collective: collective consumption, collective absorption of risk, collective financing.

The numbers are compelling. In his "small sense," organizations that block social media and networking deselect a large population of employees, Sviokla said. With 500 million users, Facebook would rank as the third-largest country in the world, after China and India and ahead of the United States. The amount of time users spend on Facebook has just eclipsed the amount of time spent on Google, he said.

In addition, the threat or promise of social media marketing and networking will grow, fueled by mobile technology and the use of the Internet. In 2007, a Kaiser Family Foundation study found the average time that eight- to 18-year-olds spent consuming media (cell phones, YouTube, computers) was nine hours and 33 minutes per day. In a 2009 follow-up study, the average time had increased to 10 hours and 45 minutes per day -- and to more than 11 hours per day for a 12-and-up subgroup. In and around media all day long, the Kaiser study demographic "eats by Yelp," Sviokla noted, and shops by peer review. "Insurance firms don't have Yelp ratings, but when they do, the world is going to change," he said.

Indeed, social media and networking in Sviokla's "large sense" is already changing the industries that employ CIOs. Online retail shopping sites now include customer reviews of products as a matter of course. Best Buy is putting customer reviews right at the point of sale. Other industries are being transformed by the purchasing power of the crowd -- or the selling power of the individual. Fast-growing Groupon Inc., for example, is reinventing the coupon business by offering "deal of the day" discounts in every city where it has sites that depend on a certain number of people buying into the deal. AirBed & Breakfast Inc.'s Airbnb.com website -- whose tagline is "travel like a human" -- hooks up frugal travelers with local residents eager to rent a room (or a bed).

In an illustration of just how much the world has changed, Sviokla's mention of Airbnb.com drew a comment from Jim Whalen, senior vice president and CIO of Boston Properties Inc., one of the world's largest property managers: "I used it in Munich for an apartment last week, and it was great," he called out.

Let us know what you think about the story; email Linda Tucci, executive editor.

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