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.

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