The Latest in Fast Company Leadership

Clayton Christensen's Personal Quest To Help You Measure Your Life

Since graduating from Harvard Business School in 1979, Clayton M. Christensen has observed personal tragedies in the lives of his fellow MBAs, from a string of unhappy marriages, estranged children, and messy divorces, to enormous scandal--classmate Jeffrey Skilling was CEO of Enron. He knew that none had a deliberate strategy for broken homes or jail time--yet that was what they implemented. Christensen is interested in why.

An HBS professor since 1992, he has dedicated himself to understanding cause and effect: His best-selling and influential book The Innovator’s Dilemma investigated business disruption, and his newest, How Will You Measure Your Life?, examines the mechanisms behind the decisions that lead a person to a fulfilling existence--or a jail cell.

Fast Company recently talked to Christensen about feeling a need for achievement, how an interview with God might go, and how management is a noble profession. This interview has been condensed and edited.

FAST COMPANY: In How Will You Measure Your Life?, you talk about attending Harvard Business School reunions and seeing classmates who were clearly unhappy despite their professional accomplishments. Is this book in response to that?

CLAYTON M. CHRISTENSEN: That's a good way to put it. It’s one thing to say that life happens to you, and so some people will end up unhappy and some will be happy and it's just the luck of the draw. I actually don't think that that's true. Things happen to us in unpredictable ways, but the effect that that has on the kind of people who we become actually is not only open to chance--we can influence it in pretty profound ways.

How can people do that?

I believe that we can, in a deliberate way, articulate the kind of people we want to become. We can articulate the culture that we would want to exist in our family, and you can then, as the rest of life happens to you, you can utilize those things to help you become the kind of person you want to be.

You draw strong parallels in the book between growing a career, a company, cultivating one's personal or interior life, and building a family life. What is consistent across these four spheres?

The world is a nested space, and so we have our brain as a person, and people are members of teams, and teams are part of business units, and business units are parts of corporations, and corporations are part of industries, which are part of economies. And what we've been trying to figure out is, are there fundamental statements of causality that are the same across all of these units? And we really have concluded that there are. They each have their own vocabulary, but the fundamental causal mechanism is very much the same. I would say that one of those is the resource-allocation process.

Can you describe how that process works?

You have businesses, just like IBM has a bunch of different businesses that they're engaged in. Through a resource-allocation process, you decide how much goes to this business, how much goes to that business. You have businesses in your life: family, relationships, career. And you have to decide how do you allocate your resources. If you decide, "I'm going stay at work another hour," you allocate energy and time and talent to your career that you won't spend with your kids; that's a resource-allocation process. That criteria that we employ is scarily, frightfully consistent up and down. That is--in all these businesses, the one that will get prioritized is the one that pays off the fastest.

We decry how businesses always are short-term oriented, and we know that they should invest for the long term, but man, none of them are able to do that on a consistent basis. And the reason is that they're run by people like you and me, and almost all of us have this need of achievement. And so when you have an extra ounce of time, an ounce of energy, if you spend that time on your career--you finish an article, you ship a product, you close a deal, you finish a presentation, you get promoted, you get paid. Our careers provide immediate evidence that you've achieved something.

But the kids, they misbehave every day. It’s not until much later when you can say, “Spence, [my son], is 24. And boy, he’s a good man.” But on a day-to-day basis, it's a long-term investment that you have to make.

So how do we correct that blind spot?

The most important answer is just to understand how this works inside of ourselves--whether we're looking at managing our careers or managing our family or managing our company. Understanding how things work and why they work the way they work allows you then to make conscious decisions about this. If you don't understand this, then you just do what makes sense at the time and that causes you to end up in a different place than you want.

How do you measure your life?

Now, to me, this was a religious process. But I really believe a lot more people could use this process than who do. We tried to describe other ways to get there, which were, in the end, I think a little convoluted. But they come out in a very similar space.

What the purpose of my life is about is I want to become the kind of person that God wants me to become, and through my study of the scriptures I can articulate the kind of person that God would be happy if I become. People that take another route to that very same thing if they list the kind of person they want to become, in order to influence other people for the good.

You do that, and then you have to figure out: “How do I measure my life, if this is what I want to be?”

When I have my interview with God, he's not even going to point out that I was professor at Harvard Business School. He's just going to say, “Clay, I stuck you in this situation, let's talk about the individual people you helped to become better people. You had one unanticipated interaction with this guy, let's talk about what you did”--that's the way he'll measure it.

How would you secularize that?

Maybe I would say that everyone would be judged at the end. People might not believe that there's a God that will assess what we did, but certainly everybody who knows you will assess what you did. The fact that you are no longer here may just be a fleeting thought because you didn't make an impact on them for the good. Or it may be that you affected them for ill; then they could actually be quite happy that you're…you know.

Or it may be that you affected them in profound ways, so that they remember you long after you're gone, because of the impact that you had on them. And I think that everybody cares about how they will be judged.

One thing you're trying to do is help people find work that is fulfilling, and you’ve said that management is a noble profession. Can you expand on that?

It bothers me that so many of our students believe that management is the buying and selling of companies, and acquisitions, and mergers, and divestitures.

There are other words for that, but that's not management. Management is getting people together to figure out how to transform inputs into outputs. In the process of figuring out the process of how people work together, you've got to figure out who's got what responsibilities and how do they work together. You can either do it in a way minimizes or demeans people who work in this enterprise that you've created, or you can make them feel noble, like they've achieved something, like they've learned something every day, and that they really are important to the enterprise.

And I really believe that being able to put your hands on your hips every day and declare, "I accomplished something that was important, I was recognized for it, I was a critical part of a team that's moving together,” there is no other profession in the world that gives you so many levers to help people feel that way about themselves.

A teacher can't do it, a psychologist or a sociologist can't do it, a writer can't do it--and that's why I call it a noble profession if practiced well.

[Image: Flickr user Gato Gato Gato]

GameStop At A Crossroads

The game industry is entering a digital future. To maintain a place in it, retail chain GameStop has scaled the used game buy-back model that first made it a success--now it's buying used companies, too.

Odds are, when you think of GameStop, you picture yourself trading in a handful of old titles to buy a new release or one of the retailers "pre-owned" games. You imagine yourself in that physical store. Now GameStop is relying that reputation as a gamers' hub in a rapidly evolving era of gaming.

In 2004, when it spun off of Barnes & Noble, GameStop had already opened up a world of play by buying old titles in exchange for credit. The used business is still huge for the retailer--it reported $1.2 Billion in trade-in credit last year. It even owns a 200,000 square-foot facility in Dallas, Texas, that refurbished 17 million discs and 1 million consoles in 2011. Ninety percent of trade-ins come from members in GameStop's loyalty program, PowerUp Rewards, which allows the company to track consumer trends. In 2011, the 17 million PowerUp members accounted for 59% of the retailer's total sales.

But the market for used physical games could be changing soon. Nintendo announced that this year physical games for it's handheld Nintendo 3DS and for the upcoming Wii U console will also come as digital versions. Sony had already gone this way with most of its games for its new PS Vita handheld. And rumors abound that the next consoles from Sony and Microsoft, likely coming in 2013, will have additional measures to counter used games in the form of linking purchases to a player account, ala iPhone apps.

So GameStop is scalling its breakthrough strategy--buying gently used products--and preparing for a new era of digital gaming by buying gently used companies, too. The GameStop of the future could look something like CostCo. and Netflix, rolled into one.

"We have over 17 million gaming whales," ravenous consumers of game products, GameStop president Tony Bartel says, "And these whales love to spend money on physical games. They love to spend money on digital gaming. We call it a hybrid gamer and what we're seeing is a transition from what used to be a physical business to a hybrid state." With its deep connection to gamers, GameStop says it's well-positioned for this shift. "We know exactly what people have in their library--over 250 million games have been logged into their library, these 17 million customers. So we know a lot about what their playing habits are. We now know what they are purchasing and what their purchase habits are and we are going back now and saying, 'Hey, if you like that, you are going to like this.' " They project business from PowerUp members to grow from 59% of all sales to 75% by 2014.

The GameStop of today can be traced back to a long line of mergers with other game retailers, both in the U.S. (Funcoland and Electronics Boutique) and abroad (Micromania and Gamesman). It still operates some stores under the name EB Games. In 2010 GameStop acquired Kongregate, an online site for browser-based games--50,000 games in total. The casual market that plays these games are in the millions of players and GameStop hopes to find success in the same way that casual powerhouse Zynga has (290 million unique members). "Kongegrate revenue doubled last year, and that's the second year in a row that we've seen revenue doubled, since we've owned them," said Bartel.

"We know you love to game--we love to game. That's all we do. We don't sell diapers. We don't sell washing machines. We sell games."

Last year they acquired Impulse, a digital download site for PC games, with 1,500 titles, that lets GameStop tap into that market--the 40 million members of Valve's service, Steam, and the 9 million members in EA's Origin service. And GameStop also acquired Spawn Labs, a streaming service for PC games that's currently in beta, but intended to compete with services such as Gaikai and OnLive.

With the public now downloading games on Apple devices and Android devices, the retailer now buys and sells refurbished phones and tablets. They also sell their own Android game controller. They project this mobile business to account for $150 to $200 million is sales for 2012 and to triple by 2014. They couldn't ignore that digital market. "We are saying, 'Hey, we know you love gaming, and you love gaming in all ways,'" Bartel says.

Not everyone believes GameStop should go whole-hog into the digital gaming market. "I think Spawn is complementary, letting people try stuff on the website. But I think of Impulse--there is no reason to think of GameStop as a distributor for digital downloads," says Michael Pachter, Managing Director of Equity Research at investment firm Wedbush Securities. "I think we are going to have packaged products for a long time."

With signs pointing to an increased focus on digital in the industry, GameStop is hedging its bets with the expansion in to their recent digital business. But it isn't abandoning the traditional retail model. The video game industry generates $17 Billion in sales in the U.S. for 2011, according to intelligence agency NPD Group. And GameStop is the biggest force behind those numbers, with 25-30% of sales in the U.S., according to Bartel. The company has 6,700 stores worldwide, with 67% (4,500) in the United States. The Texas-based retailer had global sales of $9.55 billion for it's Fiscal Year 2011, which ended Jan. 28 2012. "We bring the rich benefits of gaming to gamers any time, any where, and on any device," said Bartel. "We know you love to game--we love to game. That's all we do. We don't sell diapers. We don't sell washing machines. We sell games."

But GameStop is going to be there as digital is embraced by the industry's players and the actual gamers. The company has also invested deeply in digital media to support the game industry and their own Power Up members. Why sell video game magazines to deliver news and reviews to your customers when you can create your own? The digital version of the company's Game Informer magazine is the top-rated digital paid magazine in the U.S., according to Bartel. It is the fourth largest magazine in the U.S. according to the Audit Bureau of Circulations with over 7.5 million subscribers.

So far, GameStop's multi-prong digital strategy is working. Its digital business grew 57% in 2011, from $289 million to $453 million. They expect it to grow 50% per year, to reach $1.5 billion in 2014. They project PC downloads to triple in 2012. And the company projects that sales by PowerUp Rewards members will grow from 59% to 75% by 2014.

Most expect GameStop to continue to thrive as a company with a hybrid strategy supporting physical and digital products for hybrid gamers in a rapidly changing gaming culture. "They Dominate," analyst Pachter says, "because they have a good relationship with their customer and they retain that customer, I think they are going to be around for a long time."

[Homepage image: Flickr user Rick Harrison; top image: Flickr user Wright Way Photography]

In Daymond John's World, For Every Startup, A Sexy Celebrity Pitchman

"I think tech is lacking sexiness," says Shark Tank personality and FUBU founder Daymond John. "I want to bring my understanding of lifestyle and culture to Silicon Valley." He's getting started by pairing socially savvy entertainer Pitbull with club-booking startup EzVIP.

In William Shatner's 14-year reign at Priceline, he became one of the best-known celebrity spokespeople of all time. Not only did the 81-year-old join a select group of Hollywood elite with long-term endorsement deals, he was also one of the first famous personalities to do so on behalf of an Internet service.

This past January, in a fiery bus crash, the Priceline Negotiator plunged to his "death" in a national television spot. While the Negotiator, AKA Shatner, burns up in advertising glory, a fellow passenger simultaneously picks up her smartphone to discover the perfect vacation deal.

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But that's not the beginning of the end for celebrity endorsements--far from it. If Shark Tank's Daymond John has his way, each startup will have its very own celebrity pitchman someday.

"I think tech is lacking sexiness," says John. "I want to bring my understanding of lifestyle and culture to Silicon Valley."

John started his career in the fashion industry as a 20-something entrepreneur, eventually growing his iconic brand FUBU into an international business with more than $350 million in annual sales. Today, he's turning his attention to the web, with ongoing relationships with Shopify, TicketLeap, Resultly, and a new startup serving the club crowd.

On a recent deal on ABC's hit show Shark Tank, John invests in EzVip--think OpenTable, the restaurant reservation startup, catering to nightclubs and bottle service. John sweetens the deal to the company's founder, offering him access to an A-list artist Pitbull (pictured above with John, rapper Fat Joe, and BET host Rocsi Diaz), the international entertainer whose brand extends firmly into the social media space. With more than 4.8M Twitter followers and closing in on 20 million Facebook fans, John says Pitbull is a perfect fit based on his solid work ethic and his understanding of the most important principles of celebrity endorsements. "They (the endorsers) have to believe and be dedicated and understand how important this is to the company that is risking their livelihood on them," John says.

John explains that his interest in the tech space is that, unlike a product such as fashion or beauty, a celebrity e-endorser is able to help to complete the sales cycle within minutes. There is no waiting for the customer to go to a physical store; just a few clicks and an online transaction is complete. Moreover, this makes measuring the success of the partnership easy to access, with real-time analytics.

According to some research findings, celebrity followers online and brands are a match made in digital heaven. Last year Nielsen released a report about the value of celebrities to advertisers and the social media audiences who follow them. In the study, they found that a "celebrity follower is four times more likely to follow a brand than the average U.S. adult online."

While it might seem like big-name celebrities have the winning advantage not just in traditional media but also in the digital realm, there is a new group encroaching on their opportunities--the influencers. Last year shopping site Fab.com reported that in a sales promotion on their site, Digg founder Kevin Rose's 1.3 million Twitter followers brought in more sales than Hollywood celeb Ashton Kutcher's 7.3 million (incidentally, both are investors in the service). Just a couple of months ago, YouTube beauty blogger Julie Gutierrez partnered with Jesse's Girl Cosmetics to launch a new line of nail polish for Rite Aid stores.

John explains that whether you're hiring an Internet celebrity or a mainstream celebrity, endorsements are all about believability. In other words, be warned when shopping around for an endorser--an online influencer can be a celebrity in the Internet world, but a big-name celebrity doesn't always have digital influence.

In tonight's season finale of Shark Tank, viewers get an update about Pitbull and his EzVip role, and a brief look into how the artist is helping the brand.

As for Shatner, he may be stepping away from his Negotiator role for a while, but don't discount his understanding of the importance of influence in the digital age. Just this week he thanked his 1.4M Google+ fans for circling him, perhaps building up an army of followers that could come in handy when he's ready to renew his reign as the Internet's favorite pitchman.

The Factors That Determine Whether The Price Is Right For Facebook

The bell has been rung by a hoodied billionaire. Facebook's stock is trading and the question is whether the bell will toll for the shorts or the longs. Here are realities, fundamental and exogenous, that will work together, along with the market’s very own alchemy, to chart the stock’s course.

The only other confounding variable is that Facebook is both a company and a platform. Those who will determine its future valuation are likely to use it every day, or often. It’s a new species of financial performative utterance. If all your friends on Facebook are talking about how the company has been destroyed by the IPO, well, it’s hard to remain ebullient.

The valuation could be low if these things go right:

• New and innovative advertising solutions emerge

Analysts are looking at the cheesy little ads on the right of a Facebook page, and wondering if advertisers will ever spend enough money on them to move Facebook from its roughly $4 billion in revenue to something Google-like. But if that's just the beginning, if Facebook develops more elegant and integrated ad units that maintain the user experience but give advertisers more to work with, and room for creativity. Then the revenue number is far more realistic.

• A search breakthrough

Google and Bing are already attempting to make their search more social, by including results from your social graph. (That's one of the drivers behind Google +.) They are desperately worried about the amount of data Facebook has about your friends' and family's preferences, and what they could do with it. If you're searching for a Thai restaurant in an unfamiliar neighborhood, you'd trust your connections more than strangers on Yelp. If Facebook Search turns into an actual product, it's easily monetizable and could be a game-changer.

• Transformative acquistions

Spending $1 billion for Instagram was a bold stroke that shows Zuckerberg isn't suffering from a not-invented-here syndrome. The company will be sitting on bushels and buckets and boatloads of cash, and the nature of its social platform is such that there are many companies which can be integrated into its ecosystem and create extraordinary value through the 900 million people who use Facebook now. Think back to the smartness of Google buying DoubleClick in 2007.

• Charge corporations

Zuckerberg has said Facebook will always be free to users, but there's wiggle room to create a freemium model for corporations. It's one thing for Facebook to be free for a mom-and-pop pottery school, and another for Starbucks to have 30 million fans and not pay for it. If Facebook started to charge corporations who have over 100,000 followers, say, there could be substantial upside revenue for them.

• China

The complexities and obstacles to Facebook launching successfully in China are vast--and it's virtually impossible to predict whether the government's tight hold on social media will be maintained. But the upside of the world's largest market could make valuation niggling appear silly.

The valuation could be high if these things go wrong:

• Facebook grows--but not fast enough

Online advertising is expected to grow faster than any other segment, up from $21 billion in 2011 to a projected $38 billion in 2016. But that's not even a doubling. Facebook will need to grow much faster to justify its valuation, which means it must take share from other digital publishers. But the market is getting more and more competitive, not less. Consider that Twitter hasn't fully figured out its monetization model, and LinkedIn is just getting going. Facebook will need to justify both its ROI and its ability to shift perception in a quantifiable fashion against really smart competitors that offer experiences that are actually more ad-friendly.

• Mobile flops

The company has admitted it has been slow to develop a compelling mobile strategy. Facebook failed to anticipate the rapidity of the shift to smartphones in that same way that, almost a generation ago, Microsoft failed to recognize the Internet. And there are real questions about the grab-and-go mobile experience, versus the kind of more prolonged engagement that users have been accustomed to on their computers. And even if mobile succeeds, it monetizes far less well than non-mobile digital advertising.

• Ad scrubbers

I haven't read anything about this, but why not? In today's New York Times, directly below the Facebook story, is a story about a new DVR being offered by Dish Networks that blocks advertising, called Ad Hop. Why couldn't a clever entrepreneur develop software that would effectively scrub the ads from your Facebook page?

• We get bored with games

According to Facebook's S-1 filing, approximately 19% of its 2011 revenues came from Zynga. If we reach a level where Farmville fatigue sets in, the company is in trouble. Perhaps the reason that nearly half of Americans think that Facebook is a fad, according to a survey released this week, is that they associate it with casual games, and they're feeling that the water is quickly draining from that bathtub.

• Schumpeter

Schumpeter's famous theory of "creative destruction" hasn't taken a vacation in the digital world. (Ask Yahoo!) What seems like an unstoppable machine can quickly turn into a poster-child for the impermanence of everything.

[Image: Flickr user marketingfacts]

Free Stuff! Finally, A Deals Site That Doesn't Suck

More business-friendly than Groupon, and more respectful of user data than Facebook, Merchant Exchange is a one-stop shop for rewards programs. It'll save you money without creeping you out.

Michael Tolkin is the founder of Merchant Exchange, a site that wants to be the one-stop shop for rewards programs. When you get two dozen emails a day in your inbox about promotions, deals, and freebies, it becomes so distracting as to be considered spam. But when you put those all in one dedicated site, argues Tolkin, and when you give consumers the power to filter out unwanted messages, communication between brand and buyer grows more fruitful. And by aggregating (while anonymizing) your credit and debit card spending data, Merchant Exchange offers a smarter system for both merchant (who can target high-value potential customers) and consumer (who can be automatically rewarded for loyalty).

Merchant Exchange just signed up its 75th merchant, and is finalizing a million-dollar angel round. We caught up with Tolkin to learn more.

FAST COMPANY: What is Merchant Exchange?

MICHAEL TOLKIN: It’s a universal rewards network. The commercial ecosystem as it exists today is quite cluttered, with a whole bunch of rewards programs in silos. You have to sign up for each one individually, manage each one individually, and redemption is a pain in the neck.

So do you pool my frequent flier miles and Duane Reade loyalty points and turn them into a single Bitcoin-like rewards currency?

Not exactly. The brands we work with each have their own mini-program within Merchant Exchange. But the main consumer pain point, in terms of separate points of registration, separate points of managing programs, and separate points of redemption--all that’s addressed in one place. We’re all hit up with a ton of spam in our personal inboxes. We feel fundamentally that each person should have three inboxes: a professional inbox, a personal inbox, and this third inbox--the commercial inbox--that essentially doesn’t exist.

So Merchant Exchange is trying to be that third inbox. How’d you get the idea?

When I was in college, I was on a tight budget, so I signed up for a bunch of email lists to get rewards, points, and offers. I found it was drowning out my important messages, so I wound up treating all of it as spam. Some people create separate inboxes just for commercial messages, but by doing it in a closed ecosystem like Merchant Exchange, it enables some cool features. For instance, users can filter the type of message--since a gift or reward is very different from an announcement or offer.

How are the rewards, perks, offers, etc. implemented on your site?

We have members register their credit and debit cards. If you go to Dunkin Donuts every day, spending hundreds of dollars a month in coffee, you’re probably a great target for Starbucks, but Starbucks has no idea you even exist. With Merchant Exchange, Starbucks can give you rewards and perks to try to win you over. We’ll aggregate all your spend data, put that data in a black box, and run algorithms to understand what your spend potential score is. Any of our merchant partners can target you on that basis, with one nuance: the individual consumer selects the brands they are opting to receive messages from. You will never receive anything from a merchant you have not explicitly consented to receive message from.

How does a user redeem these rewards or offers?

It’s done automatically on the back end with the credit and debit cards. We don’t believe people who are exceptionally busy should be walking around having to check in, scan things, and type in codes.

What can you tell people who might be squeamish about registering their cards and sharing that data with you?

We have a set of values, and at the top of our list is that the consumer owns his or her data. It’s not our data to sell to a third party, it’s not our data to hand over. It’s one of the reasons why we put such substantial resources to developing a security system that is bank-level, with the most effective encryptions, to make sure your data is super secure and super private.

What are your goals for the site?

Our goal is to have every merchant in the world on our platform, and every consumer in the world on our platform.

A modest goal.

Exactly.

If everyone’s getting a deal, then isn’t no one getting a deal?

That’s the daily deal model, and some can argue that’s the Gilt model as well. But by creating a much more holistic consumer profile--one not only built upon demographic and interest data but also verified spend and transaction dates--we offer a more powerful way to target individuals. Not all consumers are created equally, and not all people should receive the same offer or the same reward. It should be based on a combination of factors, either the ability to spend, or the fact that they already spent with you.

How do you make money?

It does not cost anything for the member. Merchants pay a per-message fee, the rate of which varies as to how targeted the message is and to how many people it’s being sent. But you own your data. We are an aggregating vehicle for you, and we will help you monetize your data in the form of rewards and incentives. But ultimately you as an individual own that data and we will not be monetizing the data directly.

It’s sort of like you’re brokering a consensual data swap between consumers and merchants. You’re facilitating a kind of consensual data sex.

[Laughs.] Exactly. I saw your article about Trunk Club, and it seemed like the whole thing was about how it'd help people have more sex.

I try to bring these interviews to the topic of sex, whenever possible.

There are certain buildings in some cities called “The Merchants’ Exchange,” and that was our inspiration for our name. But as a domain name, it simply doesn’t work. That’s why we have it as Merchant--singular--Exchange.

This interview has been condensed and edited.

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[Image: Flickr user mybluevan]

Facebook Is About People, Not Brands--So What Is Your Company Doing?

To assume that because someone created a Facebook account she will want to be bombarded by marketing messages--even from friends--is wrongheaded, and can result in a lot of wasted energy, not to mention money.

In 2011, IBM published a report that clearly highlighted a gap in the perceptions of consumers and business when it comes to social media. “Getting closer to customers is a top priority for CEOs,” according to the IBM CEO Study. “Today’s businesses are fervently building social media programs to do just this. But are customers as enthusiastic?” In a word, no, says IBM: “What we discovered may come as a surprise to those companies that assume consumers are seeking them out to feel connected to their brand.”

IBM surveyed consumers about their social media use, asking them to identify the reasons they go to social networking sites. By a wide margin, the top reason, and perhaps unsurprisingly, was to connect with family and friends, cited by 70 percent of the respondents, reinforcing the notion that social networking is about personal (offline) connections. The next most popular reason is to access news and entertainment, cited by about half. You have to go way down the list, to the tenth spot, to find anything about brands, with a quarter of consumers (23 percent) saying they use social media so they can interact with brands.

IBM’s researchers then did an interesting reality test. They asked a sample of business people why they think consumers follow their brand’s social activities, and then asked consumers why they really did so. The perception gap was stark. Sixty-four percent of business executives think consumers interact with them on social media to feel more “connected” to the brand, when in fact only 33 percent of consumers say that is the case. Sixty-one percent of businesses think consumers follow them to be “part of a community”; in fact that is the least important reason why consumers say they connect with businesses socially. Instead, consumers told IBM, they mainly go to a company’s social site to hunt for discounts (61 percent) and--this is better news--to make purchases (55 percent). Both of these categories rank at the very bottom of businesses’ perceptions.

What can we conclude from this? To the rather modest degree that consumers are interacting with companies in the social media sphere, they’re most often looking for two things: to get coupons and to buy stuff. They’re also looking for product reviews, which are often closely associated with e-commerce sites as well.

There’s good news and bad news here. While there is clear transactional potential, social media isn’t shaping up to be a great place to build a brand. Instead it is a place for consumers to get a deal. The other thing worth noticing in this study is how far companies are from understanding consumer motivation in the social environment, which makes the programs that rely on it so often misguided. As the study phrases it, “Businesses hoping to foster closer customer connections through social media conversations may be mistakenly projecting their own desires for intimacy onto customers’ motivations for interacting. Interactions with businesses are not the same as interactions with friends. Most consumers are not motivated brand advocates who connect with a company primarily to feel associated with a brand community.”

The IBM study should dash the misguided way of thinking in a case study like that of Pepsi Refresh, where product-focused marketing is replaced by gauzy notions of relationships, and should cause marketers to realize the large numbers of people they see on Facebook and Twitter should not be mistaken for an audience clamoring to connect with brands.

Social Media Scales. Or Does It?

In a 2011 speech, Facebook’s Dan Rose made the point that Facebook “scales” word of mouth. When people at Facebook talk about scale they’re usually referring to the more than half-billion people who use the social network. There’s no arguing with Rose’s point that Facebook has signed up a ton of users. So has Twitter. Foursquare is getting there, and MySpace had a ton and then lost them. The big audiences are certainly assets for traditional forms of paid advertising, particularly when targeted based on the needs and interests of the users. This is a source of great value. But how much of the value comes from consumer-to-consumer advice on these social networking platforms?

It has been estimated that there are 256 billion brand impressions created per year via status updates, tweets, and other mentions on social networking sites, according to Josh Bernoff and Ted Schadler in their 2010 book, Empowered. They too believe that one of the most attractive things about social media is that it scales. Maybe there is a lot more word of mouth that takes place offline, they say, but if one person tells something to a few real-world friends, the impact is fairly limited; if someone tells something to a few hundred friends on Facebook, the message travels far wider, and faster. At least, that’s the argument.

But our research has found that this way of thinking is flawed, and for a large number of reasons. Among them:

· Face-to-face communication has a far greater impact, in terms of perceived credibility and likelihood to take action, than just reading something online.

· The fact that adveritising and other forms of marketing spark so much word of mouth means that the right type of campaign with significant reach, can unleash a number of offline conversations, making the question of scale a nonissue.

· Most people on Facebook keep in close contact with only about four people per week.

· The greatest impact is created be people’s close personal connections, not the far wider number of loose connections.

The crucial thing to remember about social media is that it is, at most, a complement to brand and marketing fundamentals. To properly tell the story of your brand and spark conversation, you’ll most certainly need the time-tested tools of marketers that have the reach and persuasive power to get the job done.

[Image: Flickr user Darwin Bell]