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What might a recession mean for CRM and Web 2.0?

With Web 2.0 ROI examples difficult to come by and organizations cautious about spending in a recession, companies must carefully evaluate projects.

Web 2.0 and social networking tools have held the promise of fostering closer customer relationships and the potential for profits, but there's always been a hint of uncertainty about their effectiveness.

As the global credit crisis dries up available capital, particularly for new technology investments, where does that leave the market for social networking and Web 2.0?

For collaboration and productivity application vendors, often referred to as Enterprise 2.0, things were already looking gloomy before the crisis hit, according to G. Oliver Young, an analyst with Cambridge, Mass.-based Forrester Research. Young recently authored a report suggesting that prices for such technology will fall over the next five years owing to a number of factors, including commoditization; the bundling of multiple Web 2.0 tools into suites; and larger, traditional enterprise software vendors adding these features at no extra cost. And that report was researched and written before the credit crisis struck.

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Is the outlook any brighter for external-facing social networking projects that affect an organization's relationship with its customers -- things like blogs and communities?

"It's mostly the same story," Young said. "In the external-facing market, I expect a lot of these prices to come down over the next two years, but to a lesser extent than internal-facing tools."

The pros and cons of Web 2.0 and CRM in a recession

A recession creates a dilemma for those considering social networking and CRM software.

"There's two ways of looking at it," Young said. "If you believe that marketing budgets are going to be cut, Web 2.0 tools and social media are some of the newest and least proven tools, so I can easily see those as being first on the chopping block. On the other hand, the tools are cheap and very inexpensive to get up and running. You can create very dynamic, close relationships between a vendor and a customer. That kind of relationship would be extremely valuable in a recession."

It may be more cost-effective for buyers, too, as vendors that sell Web 2.0 tools are facing increased competition and commoditization of their products, giving buyers an advantage.

As for internal-facing collaboration tools, while podcasting tools will remain relatively unchanged and Enterprise RSS will play a critical role, blogs and wikis will be hardest hit, Young said.

Yet open source tools like WordPress are helping to make blogs particularly cheap. For that reason, Young expects that to be one area where firms will focus their customer-facing Web 2.0 efforts in the coming years. In addition, social communities, branded social sites or micro sites are also likely to see investment because -- though more expensive -- they produce a high level of engagement with customers.

"My estimate on this is it's probably going to wash out," Young said. "The reduction in marketing spend is probably going to hurt more than the proximity to customers is going to help."

Transcending the economy?

That's not a universal sentiment, however. While a recession will certainly have an impact on Web 2.0 spending, Adam Sarner still sees plenty of promise in social networking.

"I think this transcends the economy," said Sarner, who is principal research analyst with Stamford, Conn.-based Gartner Inc. "I think we're only looking at the beginning of this as a communication tool. When you start talking about CRM, CRM is about how to treat different customers differently. I can't think of a more promising tool than social applications to start making those connections."

It's instructive, Sarner notes, to look back at the last economic downturn. It was after that, when IT was hit maybe hardest of all, that blogging emerged, helping people to demonstrate their value. Social applications will again provide an outlet. Things like product reviews are already providing measurable value, he said, but organizations must still take care when rolling out social networking initiatives.

"Every social application needs a mutual purpose -- what's in it for the customer and what's in it for the company," Sarner said. "Companies in the next two years are all going to struggle with this idea of mutual purpose. As economic times get bad it's going to be vital to prove the value. I speak to a lot of companies that want to do social networking because others are doing it or because it's in the news. Those kinds of things, the 'let's start it and see what happens,' are going to be the first to get a watchful eye."

Enterprise CRM vendors have begun adapting Web 2.0 into their platforms. Oracle is releasing a number of collaboration tools it calls Social CRM as on-demand modules, and this week rolled out an Social CRM as on-demand modules, and this week rolled out an integration with Facebook.

Overcoming the hype

But Web 2.0 may already be failing to live up to some expectations. Gartner predicts that by 2010 more than 60% of Fortune 100 companies will host some sort of social community, but 50% of those will fail to achieve any benefit to the business.

Working against Web 2.0 and social networking in a recession is a lack of history. While there are some instances of social networks and communities providing ROI, there aren't many success-story case studies. And, in tough economic times, organizations are often reluctant to experiment.

Yet Christopher Carfi, CEO of Cerado, a social networking services and software company in San Francisco, said he hasn't noticed any slowdown in business -- in fact, he has seen a slight uptick in calls since the credit crunch.

"The thing we're going to see is [that] organizations will start to look for places they get the most leverage," Carfi said. "Areas where customers can talk about a brand via word of mouth, those are the places where organizations are going to get more leverage, rather than a huge ad buy. The more traditional advertising and marketing spend is 'proven,' but it's not going to set a company apart."

Any marketer trying to convince his company to invest in social networking will need to proceed carefully, particularly in building a business case for it.

"[Executives] are going to need even more convincing now," Young said. "Look for the easy wins and the cheap wins. A lot of this stuff can be done very inexpensively with open source software -- very bare bones and still get you 80% to 90% of the way there. Hold off on the bigger investments."

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