By social networking websites, I am talking about the likes of Facebook, Myspace, Linkedin, Xing and StudiVZ (and of course any other web property who are engaged in Social Media activities – like any decent blog you know).

Social Networking is the prime headline for Web 2.0 and highly successful so far. This fact only leading towards an even greater responsibility in trying to measure ROI on ones social networking activities, especially as it is somehow agreed upon that only a limited number of players can win (having Metcalfe’s law in mind). Remember how quickly Friendster somehow lost momentum, I bet you that they did not deploy detailed analysis, at the level required in this game, within their organisation! – if so, they would have spotted the decreased user engagement and its relating metrics in time.

First I would like to conclude that one have to accept that however sexy social networking is as a trade, there MUST be a set of measurable KPI’s that are strongly aligned to ones business objectives, like any other organisation that operates with the web being a channel of theirs. Hereby concluding that KPI’s are meant to be acted on and not just reported on. Most of the social networking sites that I have been working with somehow work to optimize the following two business objectives.

Social Networking business objectives:

• Increase Advertising and/or premium member-ship Revenue
• Increase User Engagement

Now that we have clear business objectives defined – and some that in my humble opinion are pretty much spot on in regards to the overall success of any social networking business. Assuming that you agree with me, we now have the opportunity to define a set of specific KPI’s and accompanying important metrics.

Social Networking advertising revenue KPI’s:

• Advertising Revenue
• Visits per week
• Ad units per visit*
• Ads served*
• Ad CTR

* The “Ad units per visit” KPI is a replacement for the old “page views per visit” as a way of indicating the size of your Ad inventory and the “Ads served” KPI is the actual number of revenue generating banners or other media type served in those units.

Remember, that when talking about these 5 important KPI’s (and no business should really have more than 5 KPI’s on a management level) – we are not just talking about a set of basic reports on their performance in retrospective – we are talking about collecting data on a granular level so that we can both report AND more importantly do analysis on these – by segmenting, slicing and dicing them any way imaginable.

In the end for any Social Network to succeed and survive it’s users have to be engaged with the website - and that engagement actually turns into positive revenue as they spend more time, take more action and convert on a higher rate than non-engaged users. Concluding that we are looking at a win-win-win situation for the user, the social network and finally it’s advertiser. We of course have to agree on what “user engagement” is to begin with and inspired by Eric Peterson I would say:

“Social Network User Engagement is an estimate of the degree and depth of visitor interaction on the website against a clearly defined set of measurable goals.” – and with that in mind we can define our KPI’s.

Social Networking user engagement KPI’s:

• User Engagement*
• Anonymous visitors to members conversion rate*
• Active member length
• Time since last login
• Total time spent on site

* The “User Engagement” KPI is a custom session metric designed and calculated from a set of basic metrics such as for example; pages viewed, time spent on site, time since last login, comments or other content submitted, subscribed to a feed or alert and so on – the calculation of this KPI is highly dependent on the structure of the Social Network in question). The “Anonymous visitors to members conversion rate” is very much a growth KPI that is used until the Social Network reaches its final plateau.

I think it is of the utmost importance (as in any other media company) to understand what benefits the advertiser and how he get the best possible ROI. Social Networks have the opportunity to create value for the advertiser far beyond the click — if the Ad creative and Ad content showed allow this — so it is also important to track the actions taken beyond the click (and in general for the website). Such accompanying social network user engagement action metrics like:

- Forwarded advertiser content
- Endorsed advertiser content
- Rated advertiser content
- ..and other obvious types of engagement with an advertisers content

As you can see the secondary audience is as important as the immediate audience and somehow one should be able to illustrate that value to ones advertisers - as in being able to increase revenue based on the fact that the advertiser gets proven value increase by word of mouth with the secondary audience derived from the immediate audience.

I also find it important that one set up specific custom fields for tracking such accompanying social network user engagement metrics like:

- User profile completion level
- Premium member level

Both the accompanying set of metrics for advertiser and user engagement are super specific - so the above two small lists are only a couple appetizers. More importantly how do we “work” the KPI’s

Social Networking KPI control elements:

• KPI Targets
• KPI Indexes
• KPI Competitive Intelligence

I am sorry to add to the list of tasks, but one simply have to create a credible target for every single social networking KPI that we discussed above (credible as in utilizing competitive intelligence to set realistic goals) so that there is a clear driver within the organization on where it is going. At the same time while working towards those targets one need to create a sensible social networking KPI index that can be used when doing analysis for the KPI in question (sensible as in taking into consideration how the KPI fluctuates due to season, campaigns and other factors). Finally utilizing competitive intelligence to spot market opportunities for optimization and general KPI improvement.

NOW - having clear business objectives, 10 well defined social network KPI’s and a set of KPI control elements in place - we get the opportunity to put all this to work, as in nobody should go to the extent of setting up a framework as the above without aggressively pursuing a performance improvement in ones business objectives. It’s really not worth measuring something if you cannot or will-not take any action on it, and to be worth taking action on, it has to have some kind of measurable monetary value. There is no magic 7 points to optimize, but given the framework as described above one would have an unlimited number of opportunities to make more money! - find a couple of suggestion below:

Social Networking optimization opportunities:
(7 basic and to some extent obvious suggestions)

My first comment is that before trying to optimize anything for the better - some sort of potential monetary valuation should be put on the effort as in; are we looking to increase revenue EUR 10.000 per year or are we looking to increase revenue EUR 2.000.000 per year and with what certainty can this be determined.

As an example, let’s say that we have 15 Ad units served per visit and that we have an Ad unit CPM value of EUR 3 and that we have 1.000.000 visits per week (notice how all of these are KPI’s) – this leaves us with a weekly Advertising Revenue on = EUR 45.000 (1.000.000 visit * 15 Ad units per visit / 1000 (CPM) * 3 EUR). The optimization opportunity in question estimates that we can increase the number of Ad units served to 18 by adding a small additional unit AND that there will be a 0.30 EUR decrease in Ad unit CPM value due to this (notice that we utilize out KPI’s index here). Therefore an monetary opportunity on EUR 3600 per week or in perspective approximately an opportunity per year of an additional EUR 188.000 in revenue!

Here goes is my 7 basic and obvious suggestions (very specific and less strategic though) on what you should look into when optimizing a social network:

1. Segment users based on their community activity (this could be anything from viewing pictures or videos to commenting and participating in forums, this is essentially all the defined actions in your web analytics package) - and list this according to the Ad CTR KPI and comparing the different segments to your Ad-CTR index. This giving you an opportunity to do better internal promotions (as basic as a link in the right place) for better converting content (that above your index) on poorer performing content pages.
   Opportunity: To increase the Ad CTR and thus the Ad unit CPM value.

..and a bonus optimization comment/suggestion inspired Jim Novo on why using the “User Engagement” KPI on a management level can save your business (or Job). Let say you have a Social Network for students and the number of members and total number of actions in general is increasing (up and to the right), but the “User Engagement” KPI and the related “Time since last login” is decreasing in value more rapidly – then at some point the disengaged users overpowers the increase in members and the website starts to spiral downward in volume. One can predict this downward spiral will happen by monitoring these KPI’s (even as a basic management Alert in your Web Analytics tool) so one can try to take action before it’s too late. Most people look at volume as a measure of popularity and growth and by the time volume starts dropping, it is already to some extent too late to save the website. The audience has already disengaged. The user engagement drops off before the traffic volume does, and that is why user engagement is predictive and directly addresses future value.

Even though these 7 basic suggestions + bonus comment (and both you and I could come up with 50 others) somehow seem simple – I am confident that anybody running a social network would be far better off looking at and concentrating on the KPI’s framework described.

My overall conclusion is that one cannot be successful — in the long run — running any social media activities if not one or more activities around enterprise optimization analysis is deployed - and I hope that the above somehow indicated and inspired which direction to go in.. sorry for the partly long post (essay) :-)