The Birth of the referral economy
written by Steven Rosenbaum for Forbes in May 2014
Sometimes, it takes a series of events to turn a number of unrelated instances into a glimpse into the future.
The other day I was talking to a friend about hiring. It’s gotten hard, harder than ever. Not because the tools are hard, but in fact because they’re easy and cheap.
Anyone can post a craigslist ad. The most expensive ones cost $25. And anyone can respond to a craigslist ad, and they do. So a post the other day for a Senior Sales Manager resulted in resumes from an Undertaker, an IRS Agent, and a High School Student. Seriously. Hundreds of responses, few of them even remotely responsive; SPAM resumes. Yes, I know -it’s my fault for using craigslist. Fine, I also posted to LinkedIn LNKD -0.83%, and a number of other quality pubs. So far, no luck.
But – the truth is – what I really want is a referral. Someone I know who can say “here’s the perfect person for you.”
That would be sweet. And, I’d pay them for the referral.
Chances are – we may be about to arrive there.
Marketers are calling this trend; the birth of the Referral Economy. It’s a self-help system where people share and monetize their social network. Because these recommendations happen between trusted friends, the customers trust referring users and the recommendation is inherently non-commercial.
In real estate, the potential to change the way apartments are listed and rented is huge. The founders of a startup called Circumrent see their mission clearly.
“From being scammed by brokers to spending weeks trying to find the perfect no-fee apartment and save money, it’s safe to say that we’ve ran the gauntlet of renting an apartment in New York”, writes 20-something founders Nikhil Gregg and Vamsi Katragadda. T
he way that Circumrent works, the current tenant shares his plans to move out with his or her social network. The result – qualified renters see the space first, landlords and tenants are able to save broker fees, and the former tenant (the referrer gets paid for sharing the apartment with his network.) Not only does it save costs and get qualified tenants, Nikhil told me that New York apartments are vacant for 28 days on average, costing landlords money. So efficiently connecting tenants with rentals reduces vacancy rates as well.
Once you see the power of referrals, the impact easily spreads across sectors and markets.
Danielle Morrill of Refer.ly told TechCrunch: ““The entire internet is monetized this way and people are often getting monetized without them even knowing it,” Morrill said. “Any site that has a ‘Buy’ button has an affiliate program.
But it’s hard to become an affiliate. The process for signing up is pretty long.”At Refer.ly, you can create your own product links. If a product you suggest ends up with someone in your social network buying something, you get paid. The comissions are small, but heck, it’s the thought that counts. If you’re endorsing a product, why not get a bit of cash for helping the product along?
The “recommendation economy” is increasingly important as growing number of consumers are tuning out traditional advertising and relying instead on their peers’ recommendations according to Deloitte. Smart and, engaged consumers are sharing their interests and broadcasting their opinions about the products and services they like. Through posting on social networks, blogs, and community sites, they share their decisions and why others should trust their experiences. Says Deloitte; “A recent Nielsen study found that 84 percent of global respondents trust word-of-mouth recommendations from friends and family—making it the most highly trusted among digital and traditional methods of receiving recommendations.”
There’s no doubt – the power in marketing is moving from the brand with the largest checkbook, to the consumer with the largest social network.
As this happens, thought leaders and social ‘alpha’s’ are going to find their recommendations and leadership gives them a newfound economic value in the world. Media noise is replaced by human recommendations – and that makes creates a new economy around the power of the Referral.
Bad landlords and bait-and-switch brands beware. The Referral Economy has arrived.