Payola, Extortion and Market Correction

For the last two weeks, I’ve been mulling this concept of market correction as it pertains to the web. There are a variety of stories that have been related, in addition to signatory bubble characteristics that I have observed for some time, but it’s all coming into a lot more focus as time has gone on.

A market correction is an economic term describes a natural occurrence when a certain market sector becomes “over sold” or hyperinflated, or when a sector becomes irrelevant to the market and is put out of its misery, or re-capitalized. It is a “coming to center” that occurs naturally when there is an imbalance in the system.

We’ve seen macro-economic market corrections in the form of the housing and financial market implosion last year or the dot-com bust of the late 90s. Last year, around this time, the stock market gave up half of its value in a correction that wreaked havoc in every market sector. Even the startup market based largely in Silicon Valley felt the effects as leading venture capital firms started informing portfolio companies of looming doomsday scenarios.

Right now, I’m seeing another kind of market imbalance looming larger as a bubble seeking market correction and that is in the area of payola. Bloggers and social media people, anchored largely, but not at all exclusively, by the mommy-blogger sector, have taken and accepted “bribes” (let’s face it, that’s what these things are) from corporate America to provide coverage of their products. These things come in the form of reviews and can include anything from household cleaning supplies to all expense paid trips to New York, Los Angeles… even London.

There seems to be no limit on what corporations will do because they feel they have to win the favor of a small, but vocal minority group. So corporations, thinking this is the way to do business in the new world, and not understanding that the same principles that have always guided their PR efforts should apply to bloggers as well, willingly open their pocket books to garner that good will.

In a vacuum, the idea that the world has changed due to blogs and social media and thus the way to do business has changed too, makes some sense. But because nature abhors a vacuum, we must look at the economic principles that will force a market correction and will assist corporations back to center for the better of the entire market.

111286829_c24b4c7b31This will not go on because at some point, companies will have to realize the ROI involved in “buying off” bloggers and how they represent themselves and the companies they get paid off by, are not worth the dollar drain that will come from it. Bubble burst.

When this happens, and it will happen soon, the ship will return to center. This does not mean bloggers won’t get to do reviews, but the reviews will not be because of payola, but legitimate business-minded ethics guidelines that have roots in traditional journalism.

The New York Times spells out their guidelines on review material:

76. Staff members who borrow equipment, vehicles or other goods for evaluation or review must return them as soon as possible. Similarly, items borrowed to be photographed, such as fashion apparel or home furnishings, should be returned promptly.

77. Automobile reviewers should carry out their testing expeditiously and return the vehicle promptly. Any period longer than two or three days must be approved by a responsible newsroom manager. A reasonable amount of personal use is permissible if that use contributes to the review.

78. Staff members may keep for their own collections ““ but may not sell or copy “” books, recordings, tapes, compact discs and computer programs sent to them for review. Such submissions are considered press releases. But no one may request extra copies of review materials for personal use. Local management may impose a ceiling on the value of review copies that journalists may retain. If not retained by the reviewer, recorded or digital media, such as tapes or disks, must be destroyed or returned to the provider; they may not be given away or left where they could be carried off for illicit copying.

79. Photographers, camera operators, picture editors, film editors, art directors, lab personnel and technology editors and reporters may not accept gifts of equipment, programs or materials from manufacturers or vendors. They may not endorse equipment, programs or materials, or offer advice on product design. (This guideline is not meant to restrict our technical staff from working with vendors to improve our systems or equipment.)

Of course, the Federal Trade Commission (FTC) has already weighed in on this stuff (a bit late, but hey, they are now getting involved) updating their disclosure requirements to include bloggers with “material relationships” with any company. Clearly, the beginning of a market correction.

Where the whole bubble gets bizarre is in the strong arming practices of bloggers who believe that they have authority and leverage to for a company to provide freebies for them (believe me, it happens). Somehow, some bloggers believe that by threatening a company, they can get what they want because they are a blogger or personal brand. Let me make it real simple…. that’s illegal. It’s extortion. If the companies don’t stop buying your crap first, you could end up in jail. Just saying.

Takeaways on this idea are this: Companies face a new world of online public relations and community management and they have, so far, played the game that puts bloggers completely in the drivers seat. At some point, the game is going to change and I think that time is very soon. When the game changes and the market corrects, the bloggers who are in the business for free stuff are going to end up on the outside looking in as the market correction takes business back to business, centers, and all industries involved grow up. At that time, the quality of journalism will increase and the effectiveness of blogger-company partnerships will also increase and mature.

Until then, start the clock ticking. The bubble is about to pop.

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Ethical Questions over Apps.gov

It’s been no secret since the Obama administration took office, that a key technological interest for the administrations tech policy would involve Cloud-based, Software as a Service (SaaS) initiatives. To that end, contractors and providers have been jockeying to provide cloud service to the federal government.

One of these contractors, notable for their size and breadth within the government I.T. contracting ecosystem, is Computer Sciences Corporation [CSC], who has partnered with Microsoft [MSFT] to provide a specialized product offering for the government.

Interestingly this week, the federal government jumped on the the “app store” movement, made sexy by Apple [AAPL] and expounded on by BlackBerry manufacturer Research in Motion [RIMM] and Palm [PALM] and now Google [GOOG] with their Android phones.

Incidentally, I’m including stock symbols for a reason. Follow the money and see where it goes. Thats your homework for the day, kids.

Screen shot 2009-09-17 at 1.52.02 PMThe new government offering, Apps.gov is a new “app store” for the federal government. Unlike other app store offerings that are geared toward mobile computing, this app store, an initiative of the GSA seeks to be a clearing house for cloud/SaaS services for the federal government. I’d be lying if I told you I thought this wouldn’t work in driving adoption by other federal agencies of these services.

The App store is divided into four sections: Business Apps, Cloud IT Services, Productivity Apps and Social Media Apps. Most of the applications found in Apps.gov are for-pay services and they are only available for purchase with a government purchasing card. These pay-services include a variety of products from Force.com, creator of the highly popular (if onerously annoying) Salesforce, and a variety of Google Apps products (all paid).

Interestingly, there are free products as well, and this is where I have ethics questions. Many of the products that are free, mostly in the Social Media section, are tools that are used everyday in social media, blogging, and web culture. Many of these apps we take for granted and talk about everyday. Applications like Slideshare and DISQUS have been used on this blog absolutely free of charge.

However, in the government, there always needs to be a tradeoff. You do something, you get something. Even Freedom of Information Act provisions make getting information a freely available right, but it doesn’t make it free. Most requests must be paid for.

Even when working with Lijit, I spent weeks and months trying to get one of the campaigns to adopt the product, but we couldn’t get it done as a free product without it being considered a campaign contribution. Granted, campaigns are not government, but you see where I’m going with this.

Daniel Ha, the CEO of DISQUS commented that they work with a variety of government agencies but that the GSA requires agreements to keep things official and on the up and up. This does not surprise me. It seems to be necessary. Ha did indicate that he was not aware of Apps.gov though, which seems to indicate that the app store was simply populated with providers who the GSA has a record of. It seems to me there’s some kind of missing piece here and I can’t put my finger on what it is.

When browsing around Apps.gov, it is not immediately known how providers get listed in the store. This is where my ethics questions come up. Companies listed in the store gain an implicit endorsement by the government, and probably immediate adoption in other agencies struggling to identify which services should be allowed and which services should not. This is not a transparent process of product selection or offering that I would have hoped for, though on the surface, it is certainly a good step in the right direction.

The major missing piece here is a transparent statement that informs the public on how apps are selected, if there is money changing hands (pay per play), how companies can get their own apps listed, etc.

This is the same problem Apple [AAPL] has had with the iTunes App store and arbitrary selection. It is such a problem that the Federal Trade Commission is looking into it. It also sets up a possibilty of an FTC investigation of the GSA for anti-competitive practice, though I’m not entirely sure if that is logistically or legally possible.

My point is that GSA is doing the right thing here, mostly. They just need to tweak and get rid of any shadow of wrongdoing or ethics questions.

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FTC to Close Loopholes in Blogger-Marketer Relationships

Late last night, I came across an AP article that indicated a long awaited smackdown was coming from the FTC regarding paid reviews on blogs. Digging deeper into the article, it seems that the issue is not so much paid reviews as it is proper disclosure and verifiable claims.

In the blog world, we are subject to increasing amounts of “freebies”, particularly as our individual or demographic influence grows stronger. Companies want to get involved and get bloggers on their side, spouting their reviews and influencing opinion. As a disclosure, I participated in a Sears promotion, have been provided VMWare software on a “view” basis and was given a pair of Joe’s Jeans. Early on, I was also provided a cell phone from Sprint. That’s about the extent of the freebies I received. In terms of reviews, my policy has already been defined.

In some sections of the blogosphere, it’s reached a tipping point.

Meanwhile, some readers of Outside the Beltway see the move as indicative of future malfeasance by the federal government.

The problem is, this enforcement measure is just that – enforcement. There already are fair trade regulations on the books that dictate appropriate ways for businesses to engage in commerce – whether marketing, communications, disclosures, advertising, etc. These regulations already exist to protect the consumer. As with many industries, new media was a disruptive introduction and businesses are left trying to figure out how to compete in a new landscape.

The medium changes, but the business does not.

Businesses are still subject to FTC regulations that protect the consumer from the overrun of over-capitalistic companies trying to beat the competition at the expense of the consumer. This new regulation will simply update existing regulations to more specifically clarify that, hey, yes, companies have to play by the same rules when it comes to bloggers too. Companies should be enforcing their legal requirements on anyone peddling their goods in a quid pro quo or financial exchange. This is fair trade.

Deeper in, we see the same kind of attention and connection to affiliate marketing – the online business tool that allows a blogger to sell a product or service on behalf of someone else, and make a commission on it. While I don’t endorse eliminating affiliate marketing, I do find it borderline seditious and would not mind stiffer requirements on it’s use. For example, there should probably be an LLC or other legitimate business entity behind the use of affiliate marketing to ensure that paper trails and accountability can be traced.

Either way, this sort of thing requires some kind of enforcement, I think. It doesn’t feel right. On the flipside, this feels completely right from an ethical standpoint.

Update: Caroline McCarthy of CNET has more. Everyone keeps talking about the freebies. I want to know more about the affiliate crap.

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