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Foursquare's founder Dennis Crowley has an idea: turn influential social media users into affiliate marketers.

At a panel discussion the other day, he suggested that if you mention a brand, or one of its products and services, and that mention generates revenue for the brand, "you should get some kind of referrer’s fee." He predicted that within a year, "there will be some way for [users] to get kickbacks" through social media platforms.

There's only one problem: there are already ways for individuals to shill for brands and get paid for it, and technically, many risk running afoul of the Federal Trade Commission (FTC) social media guidelines, which require disclosure. That the CEO of one of the hottest social media startups was unaware of the FTC's 'rules' speaks volumes about the FTC's ability to effectively 'regulate' paid shilling, but that aside, there's an even bigger problem with Crowley’s vision: the kind of kickbacks Crowley thinks are going to be a boon for brands aren't going to be. Here are five reasons why.

Word of mouth is powerful because it's genuine

Word of mouth's effectiveness is based on the fact that when somebody you know and trust recommends something to you, you’re more likely to believe that it’s genuine. If everybody is getting 'kickbacks' to promote products and services, your friends will become about as trustworthy as the used car dealer on the shady side of town.

Word of mouth is attractive because it's 'free'

Why is word of mouth so attractive to brands? It's not just that word of mouth recommendations are powerful. It's that word of mouth is as free as marketing can be. And that's how it should be. When brands aspire to deliver quality products and services, they shouldn't be surprised that their customers sing their praises to friends and family. Conversely, when brands disappoint, they shouldn't expect to fix their problems by throwing money on marketing.

It sets the wrong expectations

On paper, paying customers to 'like' you seems like a good way to game the system. But long term, there can be little doubt that the consumers will regret creating the consumer expectation that saying something nice about a product or service should always result in a kickback. After all, there will inevitably be consequences when brands decide not to pay.

It's hard to pay everybody, but it's hard not to

Who should brands compensate? If they only pay kickbacks to the 'influencer' class, they make stoke resentment amongst consumers who aren't in that class. Even more complicated: defining who's an influencer. Once faced with the realization that influence isn't what they thought it was, brands will have to answer the question: do we just spend money anywhere and everywhere and see what sticks?

It's an accounting/auditing nightmare

The last thing most brands need is to be tracking affiliate revenue for a large number of individuals who may only mention their products or services once or twice. There's plenty of room for disputes and fraud, and while Crowley may not care about the FTC, he and those receiving kickbacks should care about the IRS. Annual payments to individuals in the U.S. exceeding certain thresholds will need to be reported, and kickbacks will produce taxable income for the consumers being paid, creating a whole host of issues for many of them that may make the entire exercise a net loss.

Conclusion

In short, the kickbacks Crowley seems to think are the future of social media are a bad idea, and will probably never work at scale. There are fundamental and logistical flaws with the whole model. In some cases, brands that really like the kickback model would probably do far better building a 'kickback' into their products and services in the form of -- wait for it -- lower prices.

That kickbacks aren't going to be the secret sauce of an effective social media strategy, of course, doesn't mean that social platforms are worthless to brands. Quite the contrary. But for brands to take advantage of these platforms, they can't treat their target customers -- consumers -- as media buys.

Patricio Robles

Published 29 October, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2381 more posts from this author

Comments (2)

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Adam Viener

I think you will see social media companies work with firms like SkimLinks and VigLinks to monetize links and either choose to share or not share with thier customers.

over 5 years ago

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Tom Chernaik

Patricio, Here at CMP.LY we have been on the forefront of these issues. We have developed an emerging standard that makes compliance straightforward. It allows for exactly the type of tracking that you describe and manages the data for marketers. This poses a real challenge in short form media (Tweets, Facebook status updates, or Foursquare check-ins) but is just as important in blog posts and web pages. The affiliate marketing space is clearly in the crosshairs of the FTC and the guidelines and FTC statements have been clear as to the need for disclosure for these relationships. The guidelines may be complex, but the solutions can be simple. For examples, see a great example of a disclosure that was posted earlier today: http://cmp.ly/6/uep9w6 and, of course, my disclosure: http://cmp.ly/4/t2ziwc

over 5 years ago

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