November 12, 2014
Twitter, ROI, And Bullshit
I’m a simple man. Annoying, but simple.
Among my simple needs is a yearning to understand things. Understanding something, science has taught us, turns out to be a lot different from thinking we understand it.
Much of what passes for “understanding” in the world of advertising and marketing is merely the correct memorization and repetition of phrases.
But knowing the words doesn’t mean you understand the concept. As Richard Feynman brilliantly pointed out, someone who knows the name of every plant knows nothing about plants. He knows what people call plants. Knowing the names of things is not the same as knowing things.
This struck me a few weeks ago when I was reading an (unbelievably naïve and amateurish) article in Ad Age titled Study: Twitter Marketing Drives $716 Million In Car Sales. It reported that Twitter recently released a study which showed that advertising on Twitter had accounted for over 700 million dollars in car sales. According to the story, for every dollar a luxury compact car brand invested in Twitter, they received a return of over 17 dollars.
My initial reaction to this was that it was unmitigated bullshit.
Without knowing anything about the actual calculation of the ROI in question, I am certain it is a case of mistaking correlation with causality (you can read about that here.) It reinforced my belief that almost every ROI number I have ever seen or read is, likewise, bullshit (you can read about that here.).
Here’s my simple-guy logic:
If you were to discover an investment that yielded you a return of 17 times your capital, why would you not invest every dollar you have in it? You’d have to be crazy not to.
If you could get a 17 to 1 return on dollars by putting them into Twitter, why not put every cent you have into Twitter?
I did some math. Let's say that during a 2 month period I invested $1,000 in marketing on Twitter. After two months I would have a return of $17,000.
Then let's say I re-invested it for another 2 months. And let's say I did this six times.
At the end of my little experiment I would have a return of $1,419,857,000 on my original $1,000 investment. A billion-and-a half on a thousand dollar investment. Man, this Twitter thing is awesome!
Intuitively, everyone knows these ROI numbers are bullshit. Which is why no one takes all their money and places it to win on so-called "return on investment."
According to Ad Age, the numbers in this case were calculated by a "marketing analytics company" that just happens to have a partnership with Twitter. If I didn't know about the enormous strength of character in the marketing industry, I might think that sounds a little cozy.
Here are some thoughts about ROI calculations:
1. Never believe the ROI calculation of an interested party.
2. Never believe the ROI calculation of a short-term promotion. It never accounts for all the zillions of dollars spent building the brand that made the promotion even possible. It may be a valid calculation of something, but it is not a valid ROI.
3. Unless you have a clear definition of the factors included in the ROI calculation, and the formula used to derive the calculation, you know nothing about ROI. You know something about what people call ROI.