Was at the Web 2.0 Strategies forum today and took part in a social software ROI discussion. The discussion wandered quite easily onto the ROI of blogging or the ROI of wikis, and the features and functions of the tools. This has never really helped develop the ROI case for Web 2.0 or Enterprise 2.0 and didn’t in this case. It got more interesting when we turned our attention to a problem that Web 2.0 could solve (maybe using blogs or wikis).

For example, if a software company has a problem where support calls cost too much, a wiki may be a good tool to lower the cost of fielding support calls. Jive Software recently quoted an organisation where phone support cost the organisation $12 per incident, whereas wiki support cost $0.25. A wiki therefore supports the ROI case for the reducing the cost of providing support – there’s no ROI for the wiki in it’s own right. It’s just that organisations that adopt Enterprise 2.0 can improve the ROI’s on many different projects.

The conclusion I took away was that ROI only makes sense when applied to a specific business problem – then you piggy-back on the ROI of that business problem, rather than trying to make a generic ROI case for widespread wiki, blog, or social software adoption.

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The intuitive view around the ROI of Web 2.0 tools such as blogs and wikis tends to be that using Web 2.0 on external sites grows revenue, your blog can gain you extra customers and brand loyalty. Using Web 2.0 internally saves cost by making your employees more efficient.

I have always had a slight suspiscion around the cost saving argument. If you look at the logic behind my recent post on Luis Suarez’s effort to stop using email, although you can point to the amount of time saved and translate that into cash savings, it is not that simple. Even if an individual stops using email and moves to more productive methods of communication they will have to spend some of that time communicating with the new tools. So a potential 25% saving isn’t really a 25% saving, let’s say it’s more like 10%. Now let’s say you have 5 people in a team who achieve this 10% improvement. How are you going to save money by getting rid of half a person? These ROI cases were made in the original Knowledge Management and Web Portal sales (fewer clicks to get to the app you need = cost savings) and fundamentally failed.

Let’s look at it a different way. Dell, one of SocialText’s customers uses a Wiki in their call centre, and have managed to reduce the number of clicks from 20 to 4, decreasing the average call time by 10-20%. Does this mean they can therefore save 10-20% of call centre payroll? Potentially, but more likely the call centre can handle 10-20% more calls without increasing cost, allowing Dell to sell more servers without risking customer satisfaction and increase net margin. This is an innovative way to drive revenue growth, not a defensive measure to cut costs.

As another example, one of the largest technology companies in the world uses instant messaging prolifically internally, especially at quarter end where quick conversations are required between a large number of people in a geographically distributed workforce to check whether a deal is in the books. In fact, the acceptable downtime for instant messaging is less than email! This is not done so that they can reduce the number of people manning the process, it is done so they can increase the number of deals successfully booked and revenue isn’t missed by an administrative failure.

If Web 2.0 business justifications were based on innovation and revenue growth they might just have a better chance of being accepted.

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There seems to be a lot of discussion around Web 2.0 Return On Investment (ROI) at the moment. ROI almost seems to be becoming a dirty word in Web 2.0 – and seen very much as 1.0 language and thinking, as argues Louis Suarez.

I actually think this is quite dangerous, and is more .com bubble than Web 2.0. It’s the sort of thinking that allows over-inflated evaluations of companies that make losses and have no customers – boo.com all over again. Dennis Howlett argues the case somewhat in his blog – ROI is no Business 1.0 : Not.

A friend of mine at McKinsey is adament that everything in business (actually, he has a rather extreme view where he would argue everything – both in and out of business!) can be reduced to a number. For exmaple, if Web 2.0 is a good idea because it builds more brand loyalty this can be measured. You can then analyse how much time individuals may need to blog in order for this to happen and deduce whether their cost (both in terms of time and opportunity cost of the fact they’re not doing what they would usually do) is worth the benefit. You can even take into account employee retention in terms of costs of recruiting replacements.

We should not forget that whilst Web 2.0 may be fun and interesting, this is not why companies do it. They do it in order to make money. As someone who makes their living out of advising companies on Web 2.0 strategy this is always at the forefront of my mind. Unless it can bring value to my customers, they will not be interested.

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