One of my former agency managers said "social media doesn't work". That's odd because I see it in action all of the time. Take yesterday for example, I went to a new salon to get my hair done. I learned about the salon because the owner friended me on Facebook. I talked with her yesterday and she said she has gained many new customers through this kind of marketing.
I've learned of chiropractors, new musicians and special promotions at Starbucks, etc all from social networks. All of these businesses have benefited from social media. Big brands can capitalize on community-building for their brands and achieve reach and frequency more often and less expensively. Small brands can build their awareness and their communities just the same - although smaller the principles still apply. The link below is an article I read today on Mashable, highlighting some additional small business success stories.
Additionally, the intelligence one can gather on social networks (especially Twitter) is invaluable.
So to my former agency manager, I have to kindly disagree because I see it working everyday.