Amassing fans isn’t enough. Indian brands need to really engage with their customers on Facebook to make sure social media platforms don’t go the dotcom bust way.

Internet stocks have always been Wall Street’s brightest stars. Recently, social networks have dramatically upped the excitement.

Goldman Sachs valued Facebook at $50 billion by investing $500 million in it early this year. Since then, debates have raged around Facebook’s incredible valuation and that of similar companies including Twitter. The maths seems easy. Facebook has roughly 500 million users. A $50 billion valuation means every user is valued at $100.

Given the rapid rise and equally steep fall of social networks such as Orkut, Myspace and Friendster, doubts around these billion dollar valuations are understandable. An internet bubble isn’t a new phenomenon after all. Remember when AOL, a dotcom darling, was valued at $150 billion post its merger with Time Warner in January 2000. Eventually, AOL turned out to be hugely overvalued. Its users moved briskly to other service providers like Hotmail and Yahoo.

Some things don’t change

Crazy valuations aren’t the only similarity between the dotcom boom of the early 2000s and today’s social media frenzy though. The “hits” of those days are today’s “likes”.

“Hits”, a measure of the number of client requests made to the web server, was a term which was more misused than used during the dotcom boom. It was a weapon to attract investor money and advertisers. Similarly, “likes” (or number of fans) you have acquired on a Facebook page is the metric to measure a brand’s success today. While the number of fans is an important measure for any Facebook page, it’s bound to fail when used as the sole currency to calculate brand reach.

Today, the race to gain your first 100,000 fans is what drives brand marketing on Facebook. Let me take these two recent examples.

An FMCG brand manager goes to an agency and asks, “My competitor is at 300,000 fans on Facebook and I need to beat them”. The agency owner asks, “What’s your content strategy?” The brand manager responds, “I don’t know, we’ve got three months and my promotion depends upon it”.

An Indian social network observed a spike in number of new profiles being created on it one day. When they tracked the source, they discovered a Delhi-based social media marketing company had deployed over 200 of its employees to just create new Facebook profiles. Those profiles then turn into new Facebook fans which they sell to their clients.

The treasure lies beyond the number of fans

Brand managers consider “like” to be the primary measure because most aren’t aware of EdgeRank, the algorithm which calculates if fans are actually engaged with the brands they like or are just irrelevant fans on Facebook.

You might as well have 100,000 fans on your page but maybe not even 10 per cent get your posts on their top news feed because of various parameters such as engagement level of your fan’s friends, the time gap between your post and your fans’ activity patterns. These parameters make up EdgeRank, the secret sauce for success of a Facebook page. While it’s impossible to decrypt EdgeRank’s exact formula, real engagement by fans is the key parameter used.

So, it’s possible that a page with just 10,000 engaged fans might have a much higher value than another page with 100,000 irrelevant or dormant fans. Today, there are over 10 Indian brands with more than a million fans on Facebook. Nearly 100 other brands have over 100,000 Facebook fans. Still, only a tiny few like Ching’s Secret, MTV India, Café Coffe Day, Pepsi India and the Vodafone Zoozoos, have actually got it right. Most Indian brands are yet to learn the art and science of marketing on Facebook.

Take for example, Axe Angels Club page on Facebook. With more than 1.6 million fans, it’s among the top five Indian brand pages. It also has a reasonably good degree of engagement in terms of the number of “likes”, comments and feedback. However, the quality of conversations leaves much to be desired. If you spend even a few minutes going through the comments, you’ll quickly realise that this page isn’t unlike a porn page.

There is a very fine line between sensuality and pornography. Unfortunately, this page seems to have breached that line. The page owners have failed to moderate the quality of conversations. And that’s unlikely to appeal to anybody, even a supposedly “young, hip” consumer segment. In any case, I strongly doubt Axe has managed to attract, much less engage, their real target audience through this page.

On the other hand, take a look at the comments on Ching’s Secret fan page. They are one of the very few Indian brands on Facebook who make the effort to converse with their users, and effectively go beyond simply posting great content.

Worse, brands in India haven’t even begun to understand the opportunity and functionality of Facebook advertisements. If done well, Facebook advertisements can play a vital role in scaling up a community on Facebook. Unlike Google adwords, it’s highly cost effective.

Instead, they are squandering money on acquiring fans. Brands spend in a range of 5 per fan to 50 per fan to “buy” fans. The CTR (Click Through Rate) determines this price. The CTR is calculated as Number of Clicks or Impressions*100 per cent. Images used in the ads on Facebook influence the CTR most. It’s like the crazy prices brands were paying for their ads to be shown on various portals during the dotcom era.

Engagement with scale will continue to win!

Both for Facebook as the network and for brand pages, ability to continuously engage a large number of users and fans in relevant conversations, will determine their success. Otherwise, like a large number of social networks couldn’t survive against Facebook, many brand pages on Facebook will lie dormant in spite of amassing a whopping number of “likes” and fans.

It isn’t unlike how dotcom survivors like Naukri.com and MakeMyTrip made it through the downturn. They focused on delivering real value to real customers rather than on generating empty “hits”.

Can we hope that brands in India learn to do real Facebook marketing before it’s too late? We could otherwise be in pricking distance of another internet bubble burst.

This article first appeared in Inc. India, July 2011 issue. Download the pdf version here. Pradeep Chopra is the CEO of Digital Vidya, India’s premier social media training company and one of the co-founders of dvBytes, a social media service company.