From social capital to social performance: lessons from Facebook and Groupon

The disappointing stock performance of Facebook and Groupon illustrates the differences between "social capital" and value-adding social performance.

Both companies base their business models in social capital as a resource: Facebook focuses on using relational capital (the interpersonal networks) for recreational and marketing purposes. Groupon's business model uses relational capital as well by grouping buyers for heavy discount purchases.

As a resource, social capital can be an asset or a liability, depending of its application and theresults achieved. These results, in turn, can add or subtract value to different stakeholders. In the case of Facebook, loss of privacy, identity theft and unauthorized use and/or sale of users' information have been proven ways in which the "social network" actually subtracts value to its customers.

As for Groupon, its business model is an example of "antisocial" capital, extracting value from merchants -forced to sell at a loss in order to increase customer turnover- in favor of rebates-seeking buyers. The rebates and sales tactics are usually short-lived and frequently counterproductive -as money-losing carmakers and retailers see their margins erode or become negative, losing pricing power-.

Both stocks were priced on estimates of social capital value rather than in reliable results and value creation data, generating unrealistic IPO valuations that ended in large loses for stockholders -including the companies own employees-

The only way to value intangibles such as social or intellectual capital is to apply metrics based on actual value delivered to customers and society (Mega) and shareholders (Macro). Those indicators can be build in a double bottom line business case that reflects both value added -increased sales, profitability or brand recognition, for example-, value captured -revenue for each stakeholder- and value lost -costs, risks-, providing a sound valuation of the business model and the stock.

Figure 1 shows the three dimensions of social capital and its relation with social performance: relational capital involves interpersonal networking, organizational capital involves the quality and effectivenes of organizations and ecosystems to deliver value and institutional capital refers to the rules of the game -rule of law, protection of contracts, customers and markets-. As organizational capital, both Groupon and Facebook have serious shortcomings that customers and now stockholders are starting to recognize -and price-. As institutions, both have dangerously loose rules and regulations.

Figure 1: The three dimensions of social capital