Metrics — Soft Metrics

I con­tinue with the met­rics series. On Mon­day, I looked at who needed met­rics and yes­ter­day, I dug into hard met­rics, the kind that can eas­ily be mea­sured. Today, I’m going to go through what I con­sider soft met­rics, a group of met­rics that is harder to mea­sure objectively.

Brand Equity

Brand equity is a well known met­ric within the mar­ket­ing world. Wikipedia defines Brand Equity as

the value built-up in a brand. The value of a company’s brand equity can be cal­cu­lated by com­par­ing the expected future rev­enue from the branded prod­uct with the expected future rev­enue from an equiv­a­lent non-branded prod­uct. This cal­cu­la­tion is at best an approx­i­ma­tion. This value can com­prise both tan­gi­ble, func­tional attrib­utes and intan­gi­ble, emo­tional attributes.

In the case of blogs and web 2.0 prod­ucts, brand equity can be cal­cu­lated based on a num­ber of attrib­utes that go beyond the tra­di­tional group­ings like press hits, rep­u­ta­tion, etc.. I would ven­ture that a cer­tain por­tion of a web 2.0 brand equity should include a per­cent­age include links, com­ments, and sub­scrip­tions (both paid and RSS.)

I’ve already spent a fair amount of time exam­in­ing links as a value indi­ca­tor (for exam­ple, look­ing at dis­tri­b­u­tion, or exam­in­ing links as a value indi­ca­tor in the Weblogs/AOL deal). While they can work to do com­par­isons (for exam­ple, look­ing at Tech­no­rati vs. Google, Google vs. Yahoo, or vs. MSN), links, in and of them­selves can­not serve up any stand­alone value. They work as a com­po­nent of cal­cu­la­tion but can­not stand for the whole cal­cu­la­tion itself. How­ever, because they are part of an engage­ment met­ric (as I see it, a link rep­re­sents a vote by some­one that this page is inter­est­ing, and I believe oth­ers, like the folks at Google, believe the same to be true since they cre­ated PageR­ank as a basic esti­mate of a page value based on such votes) that reflects to some extent on brand equity.

Sim­i­larly, com­ments rep­re­sent another engage­ment value in the sense that some­one takes a cer­tain amount of time to voice their opin­ion (either pos­i­tive or neg­a­tive) on a par­tic­u­lar sub­ject when they leave a com­ment on a site. Such engage­ment means that the com­ment writer is engaged with the web prop­erty, will­ing to help fur­ther the dis­cus­sion through participation.

On a lower level of engage­ment, one would find RSS and paid sub­scrip­tions. The rea­son one should mon­i­tor RSS sub­scrip­tion as a por­tion of a brand equity is that those rep­re­sent peo­ple who care enough to want to be reminded of changes to a site. Alter­nately, paid sub­scrip­tions (either to a newslet­ter or a web site) can rep­re­sent peo­ple with a higher level of engage­ment as they are will­ing to finan­cially reward a site and believe that the mon­e­tary value they derive from that site is in line with what they have to pay to get to the con­tent. Alter­na­tively, one could see declin­ing trends in sub­scribers (either in RSS feeds or paid sub­scrip­tions) to be a major neg­a­tive on a site and find a dimin­ish­ing brand equity as a result.

The recent dis­cus­sion over the move by the New York Times to start charg­ing for access to colum­nists can be seen as a case in point. One could say that the Times is tak­ing a major risk and could poten­tially dam­age the value of their colum­nists in the online world. The jury is still out on this but it seems that some brand equity oppor­tu­nity, in such case, is lost in terms of link­age and influ­ence, while some of it could be gained in terms of assess­ing the actual finan­cial value of said columnists.

Rep­u­ta­tional trends

I would posit that rep­u­ta­tional trends will even­tu­ally work as part of the over­all brand equity analy­sis. For exam­ple, brands that are stag­nat­ing in terms of rep­u­ta­tion could be seen as los­ing brand equity. In terms of analysing this par­tic­u­lar model, I would take a look at two online brands: Amer­ica Online, which once was the biggest point of access to the Inter­net, and MySpace, a teenager com­mu­nity which was recently acquired by Rupert Murdoch’s News Cor­po­ra­tion. In this case, AOL has been suf­fer­ing from being seen as the anchor weight­ing down the Time-Warner empire after what many con­sider an ill-fated merger, which failed to real­ize any real return for investors. Mean­while, MySpace is grow­ing by leaps and bounds attract­ing a young audi­ence very quickly. As a result, look­ing at the rep­u­ta­tional trend of a busi­ness is another impor­tant met­ric that needs to be quan­ti­fied in some way.

Inte­gra­tion value

We already know that there is some value to be derived from net­works (what is com­monly known as Metcalfe’s law and can be sum­ma­rized as fol­lows: the value of a net­work equals roughly the square of the num­ber of users of that sys­tem.) but Web 2.0 brings up a new model I would call the inte­gra­tion value. In a future entry, I will prob­a­bly try to go into more details as to how to define that value (I’m work­ing with some peo­ple who are bet­ter math­e­mati­cian than I am to rep­re­sent this as a for­mula). While I do not yet know what that value is, I do believe that the inte­gra­tion value of a busi­ness will even­tu­ally be quan­tifi­able and that Web 2.0 does give us a chance to estab­lish that metric.

Risks

Not all met­rics reflect pos­i­tively on a busi­ness. Another impor­tant met­ric can be found in the risk analy­sis of a busi­ness. Such things as over-reliance on exter­nal part­ners can actu­ally be mea­sured and weighted as part of the over­all eval­u­a­tion of a busi­ness. While it is hard to qual­ity the actual weight of a risk, once again, it is pos­si­ble to try to put some fuzzy value on it. For each risk that has been assessed, one should fig­ure out a size (is it a major or minor risk to the busi­ness) and assign that some weight along with a mul­ti­plier rang­ing from –100% to 100% as to whether the risk can be mit­i­gated (a neg­a­tive value is worth here). This can pro­vide some help­ful infor­ma­tion and mit­i­ga­tion of risk and decreas­ing risk fac­tors over time can be a use­ful set of met­rics to any business.

Peo­ple

Last but not least, is the peo­ple met­rics. Val­ues like pro­duc­tiv­ity can pro­vide some hard num­bers on the qual­ity of work being put out and some value should be put in for knowl­edge and exper­tise (or even rep­u­ta­tion, in some cases, like blogs, where the peo­ple can be an impor­tant fac­tor of the brand). How­ever, for soft­ware busi­ness, one has to won­der whether peo­ple are really the most impor­tant asset any­more. Are they worth more than a com­mu­nity? Are they worth more than the inte­gra­tion value or brand value? What is their weight­ing in this new world?

One of the tired cliches of busi­ness is that peo­ple are a busi­ness’ most impor­tant asset but, in a world where edu­cated labor is avail­able at cheaper and cheaper price points as a result of glob­al­iza­tion, what is the value of an indi­vid­ual to a Web 2.0 busi­ness. While few peo­ple are key, is it true of all employ­ees? Those are dif­fi­cult ques­tions to answer (and I will not attempt to, to be hon­est) but here, peo­ple are becom­ing an impor­tant met­ric in the sense that their pres­ence could be both a pos­i­tive or a negative.