On ROI and Appliction...

Thank you for your indulgence as I suggest the following considerations with regard to the so often unjustly imposed benchmark know as ROI.

The anarchist in me loves the suggestion that considerations of ROI or "Return On Investment" be, dismissed as irrelevant. While, however, most of us have borne personal witness to strategic failures grown out of flawed deference to measures of ROI, I would suggest many of these failures are not in the application of these measures but in their determination.

The crux of any consideration of ROI, by reason of complexity, remains the accurate determination (or estimation, as it often manifests) of the total return—usually as earnings or income— directly attributable to some investment. The difficulties in determining an accurate ROI are further exacerbated when statistically significant returns from an investment are expected over time, from multiple channels or from higher-order consequences. While time and value weighted returns can be easily addressed by standard arithmetic means, the nonlinear systems that underpin the approximation higher-order returns remain far more complex. I believe this is where the meaningful application of ROI measures, break down.

Today’s massively interconnected, “many-to-many” communication channels do not simply drive additional returns over a longer period but, realistically, have the potential to generate returns from channels historically unaffected by more traditional “one-to-many” (i.e. broadcast media, etc.) functions. While precise measurement of these higher-order returns from massively networked markets probably remain intractable, I believe currently available logging and statistical data can be used to predict earnings accurately enough to be actionable.

Put simply, I believe the application of ROI to investments in networked or social media fails not as a result of its irrelevancy but because of a common failure to accurately address potentially significant (and historically unanticipated) returns from higher-order influences—influences that remain at the center of social networking’s explosive proliferation.

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