Last Friday a few hundred  smart business people lunched together at Chicago’s Hyatt Regency to talk about “The Economics of Social Media.” Except for a few dozen oddballs — myself included — most everybody  was an MBA from  the Booth School of the University of Chicago.  Since the U of C has given rise to 25  Nobel Laureates in Economics, I was hoping  the lords of the dismal science might reveal the missing element in the Internet revenue equation and we would all leave rich. That didn’t happen, but I did leave with a richer appreciation of social media. The panel consisted of a handful of successful business people key to forming  the likes of Groupon, Razorfish and Twitter, as well as a full economics professor or two.

“How do you define Social Media or the social web?” asked Steve Neil Kaplan, Neubauer Family Professor of Entrepreneurship and Finance.

“We define it as the people’s network,” said Rishad Tobaccowala, Chief Innovation and Strategy Officer of Vivaki, which oversees such firms as Razorfish. “To a great extent, we define the Internet as a connection engine where people connect to transact, share, express and discover. We believe that people have always wanted to connect and create and now technology allows them to connect and create without the technology getting in the way.”

[Social media is] led from the slime and not from the heavens,” Tobaccowala said later in a statement that sounded slightly rude. In explanation, he said that means the trend has not been dictated or marketed by the likes of a Microsoft or IBM.

“The reality of it is people are analog. Organizations are analog. It takes time for organizations to change. If you don’t have a sense of urgency now, you won’t ever catch up — ever,” Tobaccowala said.  “It is consumer led and not business led. It is rapid iteration, amazing that it continuously improves. Business is almost forced to react. “

The interactive nature of social media is what sets it apart from any marketing that has come before, said Jean-Pierre Dubé, Sigmund E. Edelstone Professor of Marketing.

“From a marketing perspective, there’s two keys for [social media] marketing —  interactivity  —  the opportunity to interact with customers, to not simply deliver messages to them but to get something back.  And in some of the most successful applications  we’ve seen so far [there is also the ability] to co-create. You are jointly creating the media that’s going to be feeding back into your brand and what your brand will represent.”

Dubé also suggested that instead of looking at metrics, business should understand that social media is different, that it is a conversation. “It’s more than sending a message. It’s a dialogue,” Dubé said. ”We should ask instead, ‘What are we trying to do with this dialogue?’ Sometimes a dialogue is about avoiding a cost.”

It’s the power of the platform that fuels social media, said Eric Lefkofsky, co-founder and chairman of Groupon, currently president of Blue Media LLC, a Chicago-based private equity and consulting firm, and founder of several successful digital companies..

“An easy way to think about this is to understand that there are these tremendous platforms that were built:  Facebook being one; Twitter being another… Business today can monetize those platforms in a highly connected social context. Those companies that take advantage of that are monetizing the social web and that comes together as social media. “

“Everybody wants to be playing in that space,” Lefkofsky said, “Facebook’s Zuckerberg would say everything’s social. … It has no beginning and no end.”

Perhaps because of the 140 character nature of his business, Brent Hill, director for the central region of Twitter, broke social media down into two parts.

“I like to separate the two words —  the social side and the media side,” he said. “Not everything designed to be social — social being easy to share, easy to connect, easy to follow — has a media component to it.  Not everything has a media side — meaning videos, photos.”

To be in social media is to be coveted, said Matthew Gentzkow, Professor of Economics with a specific focus on media.

“The definition has been expanding over time [to include] sites where people build explicit social networks and interact. Other than that it has become something that everyone wants to be. It moved quickly to be a term that gets applied very widely.”

Closing up a great conversation about return on investment, which I will be fleshing out in a later post, Kaplan said social media ROI is just like regular ROI: “We know half of what works. We just don’t know which half.”

Obviously I can’t  do justice to the discussion here. Tune in to view the full panel,  The Economics of Social Media, at the website for the Booth School at the University of Chicago.