Friday, May 27, 2011

Do Happy Social Networks = Financial Results?

Source: Sysomos; LiveCharts; Draftfcb analysis

Not much is strongly correlated to stock prices on the open market.

Sure there are indicators in the environment -- some leading, most lagging -- that can be used to predict what a given equity or index will do on the market. But the use of data to model and help traders, fund managers and other financial experts plan for future shifts in market prices has been a confounding exercise. Those who have cracked the code on marrying data to market performance are few (and chances are you won't be able to find them, as they're somewhere on their own personal island).

But the growing size of social networking and the immense power those networks are amassing has given new life to this pursuit. Add to the debate this small, albeit topical, finding I came across the other day.

While analyzing social network conversations around several leading United Kingdom banks over the first four months of 2011, I was pleasantly surprised to find that the sum total of positive comments made about these UK brands (the orange line in the above chart) exhibited fairly strong correlation to the price of a well known UK financial sector stock index (the white line). Not perfect correlation, to be sure, but pretty strong nonetheless. "Number of Positive Mentions" was the first metric I correlated to the index price, but I quickly looked at every other metric I could make from the social networking data I had on hand: percent of total mentions that were positive; ratio of positive mentions to negative mentions; total mentions; total "authority score" of positive mentions; average "authority score" of negative mentions; average "authority" score of any mention; etc. etc. No other metric was as strongly correlated as total positive mentions.

Interestingly, much of the positive mentions came before the stock price increased. In other words, I wasn't just seeing a bunch of congratulatory noise following a market gain for the index. I seemed to be observing positive social network conversations that preceded a run up in stock price.

The thing that really had me thinking was the fact that this correlation exists and, despite the enormous participation numbers and gaudy growth social networks are experiencing, the platforms making up today's social networking landscape are all really, really nascent.

As social networking continues to mature and gain influence, there is no doubt that correlations such as this will become much more clear. As marketers it is our responsibility to get our clients well positioned in those conversations, so they can reap the benefits of today's social networking scene and -- more importantly -- ensure that they get a piece of the benefits that are soon to come.