As our addiction to social media increases, and as we spend more and more time with our hand-held devices rather than in front of television sets, it was only a matter of time before the commercial potential for these technologies would become apparent.
And, for small businesses and start-ups this seems like the best thing since sliced-bread!
Easy and cheap access — extremely low barriers to entry, individual control of marketing strategies — easy and timely changes, and most importantly: It can go viral!
As Internet shopping is increasing annually (and states are worried about how to collect sales taxes), and as we are more likely to check the Internet for information about sales and movies, restaurants and cars, it seems that the Digital Age is here to stay.
The good news: freedom of choice for the individual combined with a global competitive marketplace that dictates the best quality of goods and services for the lowest price.
What are the drawbacks?
First, you are bound to be inundated with advertisement all the time, worse than classical telemarketing, when using your personal computer or cell phone. Second, unlike telemarketing that can be ignored, if you ever open a marketing message it may have lethal viruses. Third, will the success of Internet marketing kill print-media?
Newspapers used to be exclusively dependent on their survival and success on their advertisers: see how many pages of medical marijuana are printed in our own town! Now that papers have gone digital, would the change of venue eliminate print media and all the jobs and interesting analyses they have historically provided? The digital age of marketing not only changed what marketers do, it has changed the entire print media industry.
Fourth, unlike an ad in a newspaper, it seems that using Facebook, for example, to bring people to a restaurant would be cheaper than to print an ad in a newspaper or air a television ad. Think again. Groupon and LivingSocial are in the forefront of enticing local businesses to use their services.
What’s the model?
Groupon approaches a business and says that at “no cost” it can bring traffic to the store, offering potential new customers 50 percent discount. Internet users flock, volume increases a bit, but at what real cost? Assume you buy an apple for $1 and sell it for $2.
When you give 50 percent discount you have at least covered the hard cost of the apple itself. You hope that this “lost-leader” will entice the new customer to buy something else and thereby you’ll eventually benefit from this “no cost” ad. But this is not the end of the story. What does Groupon charge? It gets 50 percent of your 50 percent, so now you are in real trouble, because your apple still costs $1, but you are collecting only $.50… No cost advertisement? If your margins are high enough ($1 apple sold for $3), maybe you can sustain deep discounts. But if not, your costs are so high that you are in fact losing money each time a new customer walks in your store.
In New York there is already a backlash and fewer and fewer small businesses use these marketing services. It’s one thing to help push a particular product you wouldn’t otherwise sell, and quite another if the discount is across the board. This marketing model is unsustainable and will surely be adjusted soon.
Fifth, individual complaints that may be erroneous at best or malicious at worst are unfiltered. You can become a target of a competitor or disgruntled former employee who writes something about you that then becomes an Internet “fact.” You are powerless.
Like all great things — ice cream comes to mind — there are costs and disadvantages to them. As sophisticated as we think we have become in controlling the Internet for commercial purposes, we haven’t fully seen yet all its potential and actual harms. Remember Midas and turning anything he touched into gold? How about biting into a gold-plated apple?
Raphael Sassower is a professor at UCCS and a businessman who experienced first-hand the drawbacks of Internet advertising.