Don't Panic - Social Media is recession proof, sez Forrester !

Forrester believes the Social Media market is recession proof, in a post today they note :

.....do not panic. Things are different this time.

I always panic when people say things are different this time ... especially when it's explaining that the laws of economics no longer apply...been there before!

1. It's not a tech bubble. The last recession was caused by the dot-com bubble and the terrorist attacks. There was a lot of ignorant money out there chasing illusory opportunity, and companies had overinvested in technology. This time, the precipitating event is a housing bubble, and technology spending is not irrational.

2. Awareness ads will lose effectiveness. Advertising (or as we often call it, "shouting") is mostly about generating awareness and reinforcing brands. In a recession, ordinary consumers like you and me aren't as willing to spend.

3. Social applications are about consideration, not awareness. Blogs, word of mouth, social networks . . . they're about people connecting with other people. You may resist advertising if your finances are tight, but if your bud tells you that new movie is really worth seeing or that the Gap has the cutest new tops, that's more persuasive than advertising. Basically, in a recession, the consideration phase is more important than awareness -- and that's where advertising flops and social applications succeed.

4. It's cheap. Social applications can be nearly free (think blogs, Ning.com, facebook pages) and even more sophisticated communities are typically $30K to $200K -- a lot cheaper than a significant sized ad campaign.

I'm afraid I find the argument a bit confusing. As I understand it, the logic is that there won't be a recession in tech in the first place, and anyway even if there is traditional Adspend won't work (as awareness ads are useless) so no point in using it, but we will still all act on friends recommendations to buy, and the platforms are cheap anyway so need very little cash to run on anyway. (This I'm not sure of at all btw, especially as bigger bandwidth is increasingly utilised. Building is cheap, running it.....)

I think I see Son-of-Beacon esque logic here - ie the pittance required to run the Social Media setup will be taken from the Advertisers paying to pimp stuff to you via your "buds" (what, no Fan-Sumers then, team?)

In other words, the Forrester Web Strategists are betting (or rather, getting clients to bet) that the average Social Media user will be prepared to have their social network commercialised so they can carry on using it's services for free, rather than leaving.

Judging by the adverse reaction so far to Beacon by people who understand it (and the small number who got hit by it), and Google's view that its darn hard to get decent returns from Google style ads, I don't think this is a proven case at all yet. Social Media 2.0 undoubtedly has some advantages - visibility of user behaviour and metrics (if we can calibrate them), but it's history so far is one of of low Ad rates.

I can think of an alternative case.......the non-tech recession impacts the amount of money sloshing around for new tech investments, adversely impacting the VC "runway funding" and the price at exit. Users just aren't that bothered by (staying with particular) Social Media sites, and those that try to "Beaconify" themselves find people go away - so funders only fund web services that actually do attract Awareness Ads, because that industry is still in growth - albeit of a smaller pie - as people's attention time online is still a larger % than adspend online.

Update - there are some parallel thoughts on all this on Read/Write Web.

In a recession, the winners are able to make one of these two propositions:

1. I will get you new revenue for a variable cost that is lower than your current cost of revenue acquisition. Note, that does not mean invest a lot of money now in the belief that new revenue comes in. It means, your current cost of revenue is 30%, I will deliver you that revenue for 25%. Guaranteed, no revenue = no fee to us.

2. I will cut your costs now. Not, in 12 months, maybe, if it all works out. I will cut it now, this month, no investment needed. We are talking hard costs, external vendor costs, not fire a bunch of people to get the return; the latter is also popular in a recession but takes longer and is more painful and may also harm the business, who knows when it is muscles not fat that is being cut. But if you are replacing another vendor it is simple; “they cost you $100,000 per month, we cost $80,000 per month and I can prove that we are at least as good”.

The challenge to Social Media will be to fit into those categories.