The Uh-Oh Factor

Fundamental Shifts From Social Business and What To Do About It


Phil Fernandez (Marketo), interviewed by Renee Boucher Ferguson, July 10, 2012

With social media fundamentally changing the ways in which businesses sell to customers — be they consumers or partners — a pivot point is at hand.



Phil Fernandez, president and CEO at Marketo

A SERIAL ENTREPRENEUR — he’s taken two marketing-oriented companies public and is looking to do the same with his current endeavor — Marketo president and CEO Phil Fernandez knows a thing or two about social businessMarketo utilizes social media, data analytics and Web site traffic to help companies find prospects, interact with them and, ultimately, sell to them. His track record to date is impressive. Since Marketo started in 2006, Fernandez and his team have raised $107 million in venture capital (yes, in this economic climate) earned $33 million in subscription revenue in 2011 alone — revenue is expected to double that in 2012 — and signed more than 2,000 customers, including the likes of Intel, LinkedIn, EMC and McKesson.

As a 30-year veteran in Silicon Valley and the author of Revenue Disruption, a book that outlines strategies for companies to transform their sales and marketing organizations to accelerate growth, Fernandez has seen a few shifts in marketing strategies. He believes we’re in the midst of another big one. A shift that has many companies, particularly in the business-to-business sector, caught off guard.

“We see it playing out over and over and over again, where social is everywhere in B2B, but a lot of people are in denial,” says Fernandez. “They’re not quite matching up that all those same themes and trends that are affecting them in their consumer lives, are affecting their businesses, too.”

In a conversation with Renee Boucher Ferguson, a researcher and contributing editor at MIT Sloan Management Review, Fernandez discussed the changing social business landscape and how companies can start to think about — and capitalize — on those changes.

Let’s talk about the fundamental shift in the way buying and selling occurs today and then we can talk about how social has impacted that.

They’re intimately linked. Over the last 15 and 20 years we’ve seen just waves of a fundamental transformation — a shift of, if you will — of power from the seller to the buyer. Before the Internet, if somebody needed to buy something, whether it’s for their own personal life or in a business situation, there was very little opportunity to get the information you needed to make a good decision without engaging with somebody that had something to sell. And even then information flows were really very limited.

Now not only can a buyer avail themselves of BMW’s great website, or GM’s great website, but the buyer can ask their friends in a really fluid way about, hey, do you like the Chevy Volt or don’t you like the Chevy Volt? And that ability for unfettered communication to be taking place so easily, that’s just radically shifted what the experience of having something to sell is. It’s really left a lot of people with something to sell at sea. They’re a little bit lost.

One of my favorite stories that’s dead true is that the head of marketing, the CMO of the world’s largest manufacturer of gas turbine and jet engine generators that cost $50 million, was talking to me the other day about how their price list is all of a sudden out there on Twitter. Their entire selling process has been disrupted by the fact that buyers already know their prices because they’ve been comparing prices on social media.

So do you see this power shift from buyer to consumer playing out much more in a B2B scenario?

It’s playing out everywhere in everything. That’s what had this gentleman so surprised, is he had sort of neatly compartmentalized social into, sure, before I go to a movie on the weekend I go to Rotten Tomatoes and figure out what social tells me about what movie is hot or not. And he had fully incorporated that into his world view. But he acted like his business was immune from it.

And I hear that a lot. In our business in Marketo we’re at this point 70% B2B and 30% B2C. We see it playing out over and over and over again, where social is everywhere in B2B, but a lot of people are in denial. They’re not quite matching up that all those same themes and trends that are affecting them in their consumer lives are affecting their businesses, too.

In that B2B scenario where there is a lot of denial, what should companies do to prepare for the onslaught of social business?

The kooky thing about this gas turbine power generator thing was that the next question was, how do we get our prices back off Twitter? There are a lot of themes like that, that people are really lost on. How do I pivot my business, or my position to market, or my marketing activities, or my brand to try to turn this to my advantage or at least to neutralize it?

Almost nobody has started to think about how to incorporate those ideas, particularly B2B, into their brand strategies. The world’s top brands have all at least made significant steps along this way. I would argue still they’re only part way there. And B2B is still just kind of in the uh-oh mode.

Do you think the impact of social will require, in many cases, a pivot of business strategy? Or of marketing strategy at the very least?

I think so completely, because it is a fundamentally different medium. Marketing strategies, and digital marketing strategies, have grown up in this head set that you control the shots. If you’re buying a TV ad and you’re a big brand, you would have quite a bit of control over who your audience is and what you were going to say. That permeates the way marketers think about marketing still. This loss of control is a fundamental transformation that marketers are only beginning to wake up to; that social is a different medium that needs to be approached in a different way.

It was an iconic thing that just points right to it, the news that hit right before Facebook went public about how GM was pulling their marketing spending from Facebook because they determined that pay-for-click ads really don’t work. It was really a statement that said, this is an old model clashing with the new model. The old model of just putting ads against people on Facebook doesn’t work. We need to find a new model.

People are just starting to figure out the norms and adapt to what the realities of the social world is going to be. Everybody is going to need to pivot. Some of the best brands have maybe started to move there pretty well, but there’s a big long tail of companies that just don’t even have a clue yet.

As the CEO of a company that provides social marketing apps, did the GM example change, or make you think more about, the way that you develop apps?

Well, it was sort of elevating. We’ve been playing with the theme around our own apps to say look, the mode in social is that it’s people to people, and people have to want to be brand advocates. People have to want to share.

Anything that attempts to use social as just a way to talk to people in the same way that e-mail talks to people or TV advertising talks to people isn’t going to work.

We decided long before this GM thing to bypass the entire phase of social marketing apps that were about how the brands publish tweets or whatever. There’s been a whole category of software that’s been all about, schedule your tweet to go at 10:27 in the morning because that’s the best time for people to see what you have to say. In other words, that’s a brand talking to the market.

I really think there’s a whole new social paradigm growing up in marketing and social, which is about how do you, in a truly authentic and transparent way, incent and encourage your brand advocates to share on your behalf. Because that’s what social is all about. So we’ve been pursuing that as an app strategy. I think it’s still early days to see how it works, but so far I think there’s some interesting ideas.

How should organizations think about authentic social business and about attracting those folks that are going to be brand advocates?

The first thing is, it has to be transparent and sincere. Crowds just plain old figure out manipulation and lack of sincerity in the social environment. As crass as it is, with all the dollar spend, the dark side of advertising is that it’s manipulation. If there isn’t a pureness of heart in a campaign to authentically create brand advocates, it’s bound to fail. That’s a really great thing, because it forces brands to be more responsive to consumers and to be more real. Everybody wins.

The second thing is you need to understand that the essential goal in social advertising is to have brand advocates amplify your message and want to share. You need to then think about, who are the personas? Social has grown up where there’s this vast cadre of people who use Facebook and Twitter and other social media every day, who are essentially hungry for the next thing to share. They’re actively looking for ways to put their next tweet out. There are some people who are naturals at that, who just manage to tweet what they had for dinner, and there’s other people who need a little help.

The next thing is to understand, what is the currency of exchange? In B2B, people who are trying to build careers — trying to build stature on LinkedIn, trying to build a resume — want to share things that are thought leadership oriented, that make them seem smart. So that says fun stuff probably doesn’t work that well. We’ve seen a whole wave of people trying to do fun social media campaigns, ‘You Don’t Know Jack’ and various other kinds of things, but I think it failed pretty miserably. Because people in B2B don’t share because they want to have fun with their friends. They share because they want to look smart. If brands can find a way to produce authentic and transparent content that people who are looking to build their careers and look intelligent want to share, that’s a very powerful tool.

How has the social graph changed the way companies earn revenue?

Ultimately, the information that people share needs to come with enough incentives for people, when they consume it, to then want to follow back and move back to a brand. Often those pieces that get shared need to come with a call to action, something that offers the next thing to do.

That’s the challenge. How do you design social sharing campaigns that truly convey value, and at the same time have a next step? Sharing about a movie, one can encourage somebody to share how great Prometheus is. Or you could share how great Prometheus is along with a 10% off if you click through to Fandango. The ability to combine the thought leadership and an actionable offer gets really important to then turn the ability to use “the social graph” into revenue, which means you actually need to encourage people to then do something once they consume content.


A screenshot of the Marketo Social Marketing product suite, which provides real-time dashboards and analytics to see the performance of social campaigns.

Image courtesy of Marketo.

Where would you say organizations are in their ability to implement a next step process?

It’s still pretty early days. The more experienced brands in the consumer space still are much more biased towards wanting to measure viral reach, rather than measure conversion. So we see all the time brands that are like, ‘we ran the X-Men campaign on Facebook and we got to 580,000 people,’ and that’s the metric they use. As opposed to, ‘we ran the Facebook campaign for X-Men that got to 580,000 people, and 40,000 of those came back to our destination website where they got a 10% coupon on their next purchase of Diet Coke.’

The viral reach metric is still way too strongly represented, and not the conversion metric. Because people aren’t yet generating effective campaigns that necessarily are about: plant the seed, generate virality, encourage people to come back and do something as a follow up.

The trouble is, while the biggest brands that have very large teams and big Madison Avenue ad agencies can craft those campaigns, the whole “closed loop marketing campaign” that includes the trip through the social media fabric is just too hard for people to build today, even if they know they ought to.

That’s exactly the leading of edge of what our software, and lots of other interesting companies that are building software in this area, are trying to do.

Would you say you, and those in your industry, are there yet? Or you’re still working toward that goal of enabling closed loop social campaigns?

We are laser-focused on providing this technology to our customers. The company mission is to give businesses control of their entire ‘revenue loop’ or revenue cycle in order to drive growth. That’s our passion — and the social graph is playing an increasingly critical role in how we help companies succeed. The amazing thing about the pace is that the target keeps moving faster and faster. It’s really a very interesting time — and we have no plans to slow down anytime soon.

Renee Boucher Ferguson is an editor at MIT Sloan Management Review.

This interview was conducted as part of a social business research initiative that MIT Sloan Management Review is conducting in collaboration with Deloitte.


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