Should you bank on Twitter? Yes, if your product is free, Compass benchmark analysis has found.

By Bjoern Lasse Herrmann

After only ten years, social media has a huge global penetration, allowing businesses to reach nearly 2 billion people, practically the entire online population, through just a few platforms. Naturally, there is a lot of hype. The question is whether the hype is deserved.

To allow leaders to make more effective, data-driven decisions, we decided to analyze how important social media really is as a growth engine for businesses. From our active user base of 30,000 businesses, we found that about 30% of the technology companies with between one and a hundred employees (median at eight), and a million dollars in annual revenue, primarily rely on social media to acquire customers with a growing trend.

While there are many ways to measure social media’s impact, such as brand value or informational benefits, we wanted to begin with the core business problem. We put ourselves in the shoes of a software CEO trying to craft a go-to-market strategy or decide whether to hire a traditional or social-focused VP of Marketing. To that end, we defined effectiveness around a common, critical performance indicator: user growth. We looked at the aggregated business metrics of thousands of small to mid-sized, high-growth technology companies at the 6-month stage of evolution, and analyzed the data in several directions. The most significant findings came down to business type:

1. For free products, social media is up to 2x more effective than traditional marketing methods. Overall about 38% of tech companies with free products (monetized indirectly), use social media as their primary acquisition channel.

2. For paid products, traditional marketing is 10% more effective. Only 29% of directly monetized companies rely primarily on social, favoring more traditional methods such as direct sales, partnerships and affiliate marketing, that led to greater success.

In just a few short years, therefore, social media has clearly established itself as part of the marketing mix for small and medium-sized technology companies. For those looking to grow free products with indirect monetization, it is a must as a primary acquisition channel. However, for most paid products, social media still serves better in a supporting role than as the primary channel.

“Finally someone is applying data to the question of social commerce”, says Lutz Finger, Director of Fisheye Analytics and author of the forthcoming book Ask-Measure-Learn, a book on social media decision-making, to be published by O’Reilly Media in January 2014. “Social media is great for creating awareness or reach, but awareness is not intention. Because I know about a product, does not mean I intend to buy it. To make customers purchase still requires more than pure attention.”

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Analysis details: Social Media includes includes Facebook, Twitter, Google, Youtube, Linkedin, Pinterest, Tumblr, Instagram, etc. For these findings we picked a representative sample of about 4000 technology companies and examined their trajectory. Free Product examples are companies with indirectly monetized business models, such as Facebook, Techcrunch, Udemy and WordPress. Paid Product examples are directly monetized companies such as Amazon, Salesforce, Quickbooks and Zendesk.