Generally speaking, I’m very against a lot of promotions and advertisements that happen on social media. That’s not because I despise advertising, but more because a lot of ads on social media are actually disguised as user generate content. Things got so ugly that the FTC had to step in and impose regulations on how to advertise on social media. Recently, there was a class action filed against Yelp for extortion, where the company is accused of asking for money in exchange of good reviews. How did things get there and should we get rid of marketers?

Advertising is unavoidable in a free market

The great thing about capitalism is that all have the freedom to choose a trade out of their own decision. There is no government that will impose it’s view on how the economy should be run. Rather, it is an ‘invisible hand’ that dictates or at least suggests picking one trade over another. Basically, when one has to take its own competences as well as that of its surrounding when deciding upon the trade to choose. For example, someone who is good at repairing cars must also see if there are other mechanics in the area where he wants to open his business.

Here, free market must have a mechanism in which suppliers can promote their products or services in a way with which consumers will be able to decide between a few competing suppliers. In other words, every business has to be allowed to communicate whatever it is offering to the market, but also, every consumer accepts to invest some of its time to take knowledge of the different offers available on the market. Without this implicit agreement, free market wouldn’t exist meaning that there won’t be any competition and that things will end up in monopolies.

Advertising needs space to communicate its messages

We live in a physical world. Therefore, even things that seem abstract like communication needs a medium to travel. One very simple way of communicating is through sound. If I shout loud enough, then every body on the planet will hear me! I wish I could do that…

But there are other ways of communicating. For instance, posters are used a lot everywhere to communicate messages to people. In a similar way, the Internet is also a medium to communicate. Of course, it seems abstract because everything is bits of information, but if you think of a wall of information where your favorite news or email is displayed, then it is easy to see that that little space that is used for advertising is taking a piece of physical space. My point is that this is the second pillar of marketing, meaning that it needs to have access to all the space that it can use to communicate its messages.

Social media is a damn good space to advertise

Since social media has attracted a great amount of attention lately, it is only natural that marketers throw themselves at the platform. The same why big displays on the highway are used by marketers to advertise their products, a few pixels on a web page can also be used to advertise. But there is something about social media that is different from traditional platforms for promotion: it is new. Since it is new, people don’t deal with it the same they do with other platform. When we see a ad on a poster, we know it’s an ad because we have been trained for it.

The new thing with social media is in the agreement that all users have to exchange with complete strangers. We have tons of Twitter friends and followers and we are friends with Facebook people that we have met on Mafia Wars. So somewhere, we have all agreed to have a place where we could exchange with people we do not know of, something that we don’t do in real life. Now the problem is that having people to cooperate on an open platform doesn’t guarantee that malicious agents will not infect it.

Imperfect information and market failures in social media

The problem with marketing on social media is that consumers and suppliers are in a game of imperfect information. When a suppliers pays someone to write positive feedback about a product, there is practically no way for the consumer to find out who is behind the good review. Of course, consumers could check the reviewer’s history and try to estimate to what degree it can be trusted. But then, people have to spend a lot of time figuring out who is trustable or not. Even worse, there is no guarantee that someone who has been a reputable source of reviews has integrity in the future.

It is precisely this reality of social media that malicious agents exploit in there advantage. This is where the market fails to deliver value or that value is not delivered in an optimal way when dealing with advertising through social media. The problem is that people will take bad decisions because they will be deceived by user generate content that is not really content but only advertising. Trying to avoid deception at all costs could lead to pathological situations where consumers will have to spend an undefined amount of time screening reviews to make sure of their legitimacy before taking a decision. Since there is no guarantee that the consumer will get anywhere by screening he might become victim of paralysis by analysis and not be able to take a decision.

Advertising on social media must be regulated

Knowing that markets can fail, there could be an attempt to regulate supplier behavior on social media. FTC’s attempt to fine bloggers who don’t disclose payments is one of them and it could be a safe bet to say that more regulations are to be expected in the future. These regulations will impose that advertisement must be clearly marked and differentiated from real content. What it means in terms of the agreement between consumers and suppliers that I describes earlier, is that consumers are willing to have a piece of that physical space reserved for advertising. For example, people are willing to have the right sidebar on Facebook be reserved for advertising. Of course, this is going to take space that will not be used by Facebook to display otherwise useful content. That not-displayed-and-useful content will have to be places somewhere else on another page and accessing that page will mean that the consumer will have to perform a click.

Consumer lassitude and the failure of regulations

It might seems to be little effort in exchange of living in a free market, but it is still effort that means a bigger server for Facebook, and a whole lot of clicks if we add up all those clicks by the 300 million members. As a result, there is a general lassitude among consumers in regards of advertising. It is as if all consumers know that they have to deal with advertising for free market to function, but that at the same time they are fed up with being exposed to it.

It is because of this feeling that people disregard publicity and it is the same reason that pushes marketers to use tricks to avoid the defense mechanism that all consumers have developed against advertising. In other words, regulations will not regulate supplier behavior but only force them to combine secretly with malicious agents. Now the challenge for legislators and law enforcement is to prove the existence of secret combination between a product supplier and a social media reviewer. History shows that this is a very difficult task that succeeds only under a few strict conditions.

Consumers must be aware of the different forms of advertising

Since regulations will not stop businesses to use fake reviews to promote their things, consumers must learn to use social media in a way that would detect fake reviews. To take an example from day to day life, fake reviews would be like walking in the street and having someone come up and say: “Pepsi’s so good for the stomach, I tried it and its great. You should do the same”. How do we know that this person is working for Pepsi? Simply because it doesn’t make any sense for a sane person to go out there and say such a thing to someone he doesn’t know. Therefore, our reflex is to thing that the person is crazy and that the message that he is communicating should be disregarded. Marketers are very aware of this fact and that’s why they don’t invest in such techniques!

Now my point is that the should be common understandings among social media users about what is the ethical way of interacting to each other. The same way that there are norm in society about not going to a stranger and talk about Pepsi, there should be norms of ethics for proper behavior on social media. My point is that consumers must adapt their attitude and behavior to a new media for communication if they want to take full advantage of the benefits the it offers.