Although social media statistics are staggering—almost 2 billion people use it, and that number is still growing at double-digit rates—the real story is simple: the billion consumers about to enter the market have never lived in a world without it. 

They are a social-first generation and will expect to find, connect, and communicate with you through social media as a default.

Businesses that have not developed a strong online presence may already be missing out on growth opportunities—but, going forward, they risk becoming unsearchable and irrelevant.

According to McKinsey, $8 trillion is currently exchanged through ecommerce. In many countries, the Internet’s contribution to GDP has doubled over the past five years. Their study of almost 5,000 small and medium-sized enterprises (SMEs) showed that those with a strong web presence grew more than twice as quickly as those without across every sector.

In order to determine how to properly invest in a strategy, decision-makers need to understand why social media is an important and how it fits into the Internet economy.

Social media matters—and will matter more

Decision-makers know billions of conversations occur daily in social media networks, but many do not necessarily understand how or why this translates into business impacts.

When social media first erupted, it was perceived as a place where people went to talk to other people, which led to a strong narrative about social media as a time-waster or distraction. Many businesses failed to realize how powerful these seemingly mundane connections were—and how simply talking to other people and sharing information underpins almost everything that happens in our lives.

In fact, conversations are:

• How we hear about new products
• How we share views about an existing product or service, and encourage or dissuade others to use it
• How we express our feelings and opinions about the behaviors of the companies we deal with, whether through customer service, corporate citizenship, or our perceptions of a company's "social license to operate" 

These conversations matter enormously. They impact those people who buy your products, as well as suppliers, investors, and even future employees.

Why is this? A significant factor is trust.

The 14-year-old Edelman Trust Barometer, which in 2014 surveyed 33,000 people from 27 markets on trust, has recorded a decline in trust in institutions and leaders over many years. At the same time, it shows high and growing levels of trust among peers. 

That means we’re more likely to trust the recommendations of peers over any amount of sophisticated and costly advertising from a company.

Personal recommendations have always been important. What has changed is that now it makes little difference whether they come from physical or virtual networks. For example, a whopping 72% of consumers trust online reviews.

This effect is likely to get stronger in the future. Research from Bazaarvoice shows that when making a purchasing decision, Gen Ys rely on user-generated views above even those of family and friends. 44 percent trust experienced consumers more than people they know.

Given that their annual spending power exceeds $200 billion in the US alone and will soon eclipse that of Baby Boomers, taking buying behavioral preferences into account is critical for business strategy.

To influence the conversations these social-first generations are having, businesses must first become a part of those conversations—and that means developing a strong presence in social media.  

Closing the gap

A 2012 study of more than 1,700 CEOs from 64 countries by IBM found many CEOs felt out of their depth with technology, including social media. The study found 16 percent of CEOs used social media to engage customers but expected used to as much as triple within the next five years. 

Of course, its use is far broader. C-suites can use it to harness internal expertise, form connections that can help establish new business synergies, and connect directly with future talent.

Similarly, IBM's latest 2014 study of Chief Marketing Officers found that technology was a critical business influence, and that many CMOs were working to understand individuals as well as markets. They believed customer intimacy was crucial, and helping CEOs get closer to customers was seen as one of the three prerequisites for success.

But like other senior executives, they were anxious about the complexity and their ability to handle it.

That gap can be addressed with good business intelligence and an education program at senior levels. But first, it requires the mindset to recognize that social media is important.

Decision-makers must ensure their business models do not put them at a competitive disadvantage by understanding that social media is not about a ‘like’ on Facebook or a 140-character ‘tweet.’ Instead, it's about how these small but significant interactions influence the future of business.

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