“In America, you have the watches but no time. In Nairobi, we have the time but no watches.”

That’s a familiar quote I heard recently from “Evans,” an international student from Kenya who is currently enrolled at the Tuck School of Business at Dartmouth College. He got me thinking about the economics of marketing in the U.S., and how the proliferation of social networks has influenced media consumption and business user engagement. Although it is rarely thought of in this context, the rise of social marketing is rooted in basic economic principles. When the price is “zero,” the laws of supply and demand often are ignored, but they still are relevant. Don’t forget another familiar quote: “There is no free lunch!”

Back to Basics—The Economics of ‘Free’

Remember those undergraduate days, waking up from an afternoon nap seated in a lecture hall, dazed and confused by a myriad of supply and demand curves compounded by explanations of elasticity and marginal utility? Well, all that stuff is still the foundation for business behavior today and will continue to be the underlying principles of the free market economy. While there may have been hype about the “chocolate rainmaker” (YouTube celebrity) and “twitters being quitters” (retention rate concerns), the basic economic principles remain essential to understanding current social marketing trends in business today. A couple of modifications to traditional variables can help explain the logic supporting the rise of marketing “freeconomics.” Here’s how it works in a free market.

Traditional laws of supply and demand state that increased prices are the result of decreased supply and/or increased demand; the inverse also is true. For example, with all other factors remaining constant, you can generally expect to negotiate lower mailing list prices when there is a greater supply of lists on the market and/or a decrease in the demand for list rental. This macroeconomic principle is based on perfect competition, so don’t jump the gun and expect to negotiate a 50-percent net-name arrangement on a highly targeted, niche response list of 5,000 names.

Putting the traditional list industry model aside, how does macroeconomic theory relate to social marketing when the price of those services is “zero”? First remember, there is no free lunch. The variable for price simply needs to be replaced with the opportunity cost of time, which in itself can have a wide range depending on who is most engaged in the process. Within the macroeconomic context of “price,” the opportunity cost of time generally will be lower as the supply of time is increased due to factors like unemployment or idle capacity. This makes the relative labor “price” more attractive and increases the demand for services that enable businesses to leverage those resources; it goes without mentioning that there are a lot of independent consultants out there trying to rule the blogosphere.

Explicitly stated, the economic downturn resulted in an increase in the supply of labor and a decrease in the average marketing budget. Therefore, companies and individuals are challenged once again with delivering more for less. Social networks, bookmarking services, free business listings and affiliate programs become more attractive when we have fewer “watches” and more time. The suppliers of these services, mostly in the form of online application service providers, benefit from the free labor and leverage the resulting assets (content) as a platform for contextually targeted advertising solutions and other innovative message delivery systems used to stimulate demand and add revenue.

Furthermore, the implications for search engine optimization (SEO) expand the value proposition to include getting noticed from higher positions on search engine results pages (SERPs). Bookmarking services provide external links that may be scored by search algorithms to increase a particular Web site’s ranking by Google and other major search engines. This is a key benefit to marketing professionals who have embraced the digital revolution, but it’s still not that easy to measure the ROI. Despite any claims that search rankings can be mastered by prioritizing domains for placing external links, an effective long-term strategy must recognize that SEO is a moving target-especially as personalized SERPs continue to evolve and take root. If that doesn’t leave you feeling out of control, then add in the fact that there are hundreds of social marketing sites, which are not all created equal.

This brings you back to the basics of direct marketing and defining your target market. The following social media summary will help you filter what makes the most sense for your business. Keep in mind that the targeted groups within a social network (e.g., LinkedIn) may be just as important the network(s) you choose.

Take a targeted approach to social media.

Would a gun safety instructor hand you a blindfold and take you to the Bronx Zoo? Of course not, but why are we so cavalier about social marketing just because it is free? Again, there is no free lunch, so evaluate the opportunity cost of your time and do not target the wrong audience or there could be negative implications to your brand. There’s nothing wrong with a shotgun approach when shooting skeet (moving targets like search algorithms), and the same is true for connecting with your target market. Here’s a list of resources you may use to reach your market with social media. It’s never too late to get started.

Free Social Media Resources for Business (Top 100)

Aggregation Tools (5):  Bloglines, FriendFeed, Lifestream.fm, Lijit, YouBundle

Blogs (7):  Blog.com, Blogger, Livejournal, Posterous, Tumblr, Typepad, WordPress

Blog Directories (10):  Blogapedia, Blogarama, BlogCatalog, Blogdirs, Blog Flux, Bloghub, Blog Listing, Blogtoplist, BritBlog, Technorati

Bookmarks (12):  Delicious, Digg, Diigo, Fark, Mixx, MyBlogLog, Newsvine, Propeller, Reddit, Slashdot, StumbleUpon, Yahoo! Buzz

Comment Systems (2):  DISQUS, IntenseDebate

Free Directory Listings (25):  Akama, Bateekh, BizHWY, Cardboard, CrunchBase, DMOZ, EVliving, GetFreeListing, Google Local, IllumiRate, Jayde, Jigsaw, Librarians’ Internet Index, Little Web Directory, Manta, MerchantCircle, NextMark, Simple Directory, Spoke, SuperPages, TurnPike, VentureBeat Profiles, WebBuyersGuide, Web World, Yahoo! Local

Name Checks (2):  Namechk, Usernamecheck

Post Documents (3):  eHow, Google Docs, Scribd

Post Presentations (3):  AuthorSTREAM, Myplick, Slideshare

Post Videos (2):  Vimeo, YouTube

Press Releases (4):  i-Newswire, PR.com, PressReleasePoint, PRLog.org

Publish Articles (5):  ArticleDashboard, ArticlesBase, Articles FACTORY, Ezinearticles, IdeaMarketers

Social Networks (8):  Biznik, Crowdvine, Facebook, LinkedIn, Naymz, Ning, NowPublic, Plaxo

Twitter Tools (5):  Grader, Ping, TweetDeck, TweetLater, Twitter

URL Shorteners (4):  bit.ly, doiop, memurl, TinyURL

Wikis (3):  Pbwiki, Wetpaint, Wikipedia

Here are three tips to help you with choosing the right services for your business.

Tip 1:  Since PageRank is important to your exposure on the Google search engine results page (SERP), you may want to check out the page rank for each of these services as well. That can be done for free online by using the PageRank Checker (higher = better).

Tip 2:  adding your blog to the directories can improve your search rankings and exposure; the same is true for your web site and your business. That’s the reason for including 35 directory listings (25 free directory listings + 10 blog directories) in the top 100. You only need to do it once, so take advantage of them.

Tip 3:  be careful which URL shortening service you use, as it may affect your future search rankings. Not all URL shorteners are created equal, and there are a surprising number of issues to consider when choosing one of these services. You certainly could roll your own to have full control, but there are plenty of good commercial solutions available for free. Just be careful to avoid those services that point to their Web site with your site in their wrapper, as they rob your site of the fuel from external links, devalue your analytics and generally undermine your business. A best practice is to choose a service that uses a 301 redirect, indicating that the short URL referring link be moved to the long URL as the permanent address for your Web site. In contrast, a 302 redirect tells the search engine that your destination is temporary, and the service provider can subsequently take credit (SEO results) for the link—that’s bad.

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