The Referral Economy

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[edit] The Referral Economy

The ‘referral economy’ also known as the trust or the shared economy is a new phenomenon sweeping the online world. Some professionals describe this as word of mouth networks. Online websites such as MySpace, Facebook, Friendster, and personal bogs have created and nurtured a new and effective way of communication. These sites have created enormous advertising revenue to what is now becoming advertising economies. More users or ‘bloggers’ are recommending products and services on their personal sites or personal online space, readers therefore are then motivated by trusted sources and therefore responding to advertisements. In laymen terms response rates increase because the source of recommendations to products and services are trusted.

According to the Kelsey Group, this type of social networking is already taking the advertising economy by storm with an estimated $10.9 billion globally by the end of this decade. Such sites mentioned above highly rely on advertising revenue to profit as most of them are free to join. A balance however is needed as too much commercialisation may put users off.

According to Shaa Wasmund, a strategic advisor at Bebo, research now shows that 82% of consumers are more likely to purchase products recommended by friends, or a trusted Internet friend or source, i.e. blogs. New statistics show blogs are created over 80,000 times per day according to Time Magazine. The referral economy is becoming ever so important in terms of competitive strategy with the recent purchase of MySpace by Rupert Murdoch. Such a strategic move would drive users towards Fox TV and other websites in favour of Rupert’s Empire. The purchase of Flickr acquired by Yahoo! And the most recent the purchase of YouTube by Google.

In the digital marketing field a prime example of the ‘digital referral economy’ includes a website called ‘http://ipods.freepay.com’ (recently set up by the Gratis Network, a company offering members to accumulate points for rewards). Users who sign up for the website receive exclusive offers and are asked to refer friends to the website. Once a minimum specified number of referred friends sign-up to the exclusive offers, a free Ipod is rewarded to the referee. The cycle then continues, whereby the newly registered users would refer their friends and trustees to the site. This simple, yet innovative business model is highly effective as the website retains a commission for all the offers completed. The model is being copied my more and more websites, and examples include http://freeipoduk.co.uk, http://ipodsgiveaway.co.uk, http://myoffers.co.uk, and many more. Other than internet-startups, large companies such as T-Mobile are also starting to catch onto the idea: the telecommunications giant has launched an attack on this referral economy. Their website (http://t-mobile.co.uk) allows current users to refer friends to sign up for a mobile/cellular monthly contract rewarding the referee with extra call allowances.

Such new ways of communication holds great revenue opportunities however with these opportunities quickly realized and acquired by large corporations, what will the future hold? Within this highly commercialised, global, capitalist economy will there be any non-advertising websites left??