Study: Measuring the Impact of Social Media on Business Success
© 2015 Peter Lang Publishing
Is it reasonable to use social media metrics such as the number of Twitter followers or the number of Facebook likes to predict a company’s business success? Social media highly affects today’s business operations but the long-term effects of using social media to engage stakeholders on the company’s business performance have not been profoundly examined and are questioned. The study “Measuring the Impact of Social Media on Business Profit and Success” by Don Stacks and Cong Li looks into this question and examines on a large scale whether the use of social media has in impact on business financial outcomes and how, when defined as nonfinancial indicators, the social media activities are related to the financial outcomes.
Method
The authors collected and assessed social media activities data of 472 of the Fortune 500 companies and their business performance data like stock return, net income and total revenue over a five-year period from January 2009 to December 2013. The Fortune 500 is a list compiled by Fortune magazine ranking the top 500 companies of the US as measured by their gross revenue. The social media platforms examined were Twitter, Facebook, YouTube and Google+ and their coded key performance indicators were likes, tweets, favorites, response valences and shares. The financial and nonfinancial data were matched and statistically analyzed to see whether a company’s social media activities are significantly associated with its business performance. Therefore the non-financial outcomes related to public relations like reputation, relationship, trust etc. were operationalized. Both the impact of each social media channel and the combined impact of all platforms were analyzed.
Results
Stacks and Li could show that almost all companies utilize social media and that companies tend to be active on other channels, when they are active on one of the four examined platforms. The research findings of the study suggest that ‘yes’ is the answer to the question raised above: Significant relationships between nonfinancial outcome indicators for social media activities and financial outcome indicators were found. But the impact of social media is not as clear-cut when looking at the results in-depth. For instance, social media do not directly affect financial outcomes. Only Facebook was identified as impacting on the metric most stakeholders consider most important: stock return. Furthermore, social media’s influence may be more subtle than originally thought. Looking at processes that from a business perspective traditionally underlie the attractiveness of a company to stockholders and which are perceived as indirect influencers on stock return or price, all four social media platforms studied in this project had some influence on accounting processes.
Bottom line
The study is the first one to examine the question in such a depth and breadth. It serves as an adequate starting point for future research. The findings of this basic research can be used to “further test the variables, and implement new strategies that will produce a better understanding of how public relations/corporate communication nonfinancial indicator variables, combined with financial indicator variables, drive business success or failure”, the authors suggest. It could be examined whether the findings hold true for businesses which do not belong to the Fortune 500 companies. Also, the results invite researchers to have a closer look at the more indirect impact of social media activities on the return of investment for example.
The authors
The authors of the study are Don Stacks, professor at the School of Communication at the University of Miami, and Cong Li, associate professor in strategic communication at the School of Communication at the University of Miami.
The study was published as a book in August 2015. You can purchase it here.
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