What might a recession mean for CRM and Web 2.0‾

Barney Beal, News Director
20 Nov 2008

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.

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.

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