Businesses are missing out on the rewards of online social networking due to lack of targeted investment, according to technology research experts Gartner.

Online social networking is a growing market trend and analysts predict that by 2010, more than 60% of Fortune 1000 companies will have some form of web community that can be used for customer relationship purposes. Despite this, over half the companies that have established online communities by this date will fail to manage it as an agent of change, which will ultimate erode customer value.

“Rushing into social computing initiatives without clearly defined benefits for both the company and customer will be the biggest cause of failure”, according to Adam Sarner, research director at Gartner. He suggests that investments should focus primarily on customers’ online buying processes, where it can offer a direct return ROI in terms of sales, awareness and customer loyalty. Gartner recommends that companies follow four steps when undertaking any social software initiative.

Define the initiative and its purpose
Many organisations do not take the time to assess the business case for investment in social networking, tempted by the fact that many social applications are nominally free. However, it’s critical that before launching a project there should be a mutual, balanced purpose to the investment. “The stated purpose must include a measurable business benefit for establishing the application and a customer motivation for participating”, said Sarner.

Cede some control to encourage participation
For an application to be truly social, the community must have some element of ownership in return for the value it brings with it. Organisations need to determine the level of control ceded to the community and understand how that affects the engagement between customer and company.

Harnessing an application's community can be difficult because it cannot be forced to contribute. In order to encourage participation and establish the right amount of ownership to cede, Gartner recommends that organisations follow five best practices that require them to accept the risk of criticism and use the valuable data provided to make real changes:

• Apply ground rules to install self-moderation.
• Solicit feedback to make users feel appreciated.
• Enable company advocates to gain powerful allies.
• Assign a community advocate to liaise with the community and to represent it to the company.

Understand and reward different kinds of participation
Companies need to recognise and provide social applications for all levels of participants that can be categorised as follows:

• Creators (‘I want to own this’)
• Contributors (‘I want to be part of this’)
• Opportunists (‘Since I’m here…’)
• Lurkers (‘I’ll reap the rewards’)

In addition, businesses must incorporate reputation mechanisms into their social networking initiatives to manage and get the most value from the four different groups. Social reputation technologies allow users to rank the quality of input provided by contributors, filtering content and differentiating the best information, whether actively (by voting) or passively (by page views).

“This is extremely important in high-traffic social networks, as well as for those where indicators of trustworthiness (e.g. names and job titles) are hidden behind online personas,” said Sarner. “In addition to helping customers during their information gathering phase, reputation systems also serve to recognise and reward your advocate groups”.

Acquire skills to build relationships online
Companies must acquire new skills that focus on influencing social interactions to encourage participation effectively. These skills need to cover social sciences such as:

• Psychology: To learn how customers interact and how their changing needs can be met.
• Anthropology: To learn how cultures grow, develop and interact.
• Game design: To create engaging virtual environments to manipulate ‘player’ behaviour through rules, rewards and outcomes.

Since many of these skills will be difficult to find internally, companies must allocate substantial budget to recruit these skills or outsource them to specialist providers. In a global recession, companies should prioritise the acquisition of these skills because of the direct benefits they can produce in customer loyalty and increased sales.

Sarner concluded: “Social networking has changed the way a critical mass of individuals behaves, including how they act as customers and prospects. Customers, not just digital natives, can no longer be adequately described by demographic information - the usual target for corporate CRM efforts”.

Additional information is available in the Gartner report, The Business Impact of Social Computing on CRM.