Kate, from the Other Side Group wrote a blog post about Keeping Social Media Social. She said that people can get to a state with social media where they subscribe to a large number of people, but filter out everyone but a select few to compensate for the information overload. Participation with the masses goes down, and results in one-way conversations that are no different from traditional marketing.
I think there are two benefits to social media that are different than traditional media. The first is listening - companies now have the ability to hear what people are saying in ways they never could before. Blogs, forums, Twitter search, and Facebook status updates all create a stream of searchable content that companies can use to get feedback and keep abreast of perception shifts. They can do this without creating accounts or participating.
The second benefit is engagement with customers. This can affect product cycles, help with PR and marketing, increase sales, help identify trends, decrease support costs and empower fans to help spread the word. Engagement also provides an answer to the question "Is anybody listening?"
A common perception of many of these social media outlets is that they will be a gigantic time drain on already strained resources. This can actually be true - truly listening and interacting with customers can and should take time. That is why it is really important to understand up front what a company's goals are and what resources they have to commit to the process. Everybody hates finding out that companies aren't truly involved; that they aren't really interested in putting in the effort, but are merely checking a box. Lack of authenticity leads to outrage and abandonment. Sites become ghost towns.
Just listening to customers is a great first step. It helps companies to understand how and where they might engage in the future. However, it is important to let people know that you are gathering feedback and it also very important to have a plan to address that feedback, even if that doesn't happen via social media channels. Customers will appreciate this and will be happy to know that someone is hearing them.