Recently Facebook announced that it is going to pay its users to watch its ad in return for some coupons/game points.
I once got a query from a friend about a business model. He asked me that if it is a good idea to pay customers to come to his site. By paying them to view the contents of site, he will be able to convert some of them. Because of the "bribe" offered however, he would get endless supply of customers whom he can convert.
The logic is sound, get as many customers as you want and then some of them convert into meaningful leads and then into sales. Everybody wins, you get to make money by being on the site and the vendor gets its customers.
It should have been the best business model till date. Like a self perpetuating energy machine, it would feed more users that lead to more sales and vice versa.However, I am not sure that most of the successful business models are based on this principal.
This has been tried before many times before. Take a look here for such a model by Pizza Hut and troubles with it.Another interesting example is effects of bribing in auto industry by incentives that are running forever. After reading these case studies and from my own experience, I can say that bribing customers to attract them to our shop/site may be a good tactic for short term, but it may lead to many problems in future.
Here are some of the reasons , I see bribing customers is bad for a business.
The sales cycle is not permanent:
The sales cycle typically starts from lead and end at sales. "Lead" is a person or a company that needs certain goods/services. The demand is real and driven by economic principles of demand and supply.
However when a business bribes a customer the demand is artificially created. Such demand cannot sustain longer than the time such tactics being used. This demand probably will not generate much sales in longer term.
It is an incorrect transaction:
A sales is a transaction. People want to be on Facebook, willing to spend time and share information. They get results because of their activities( for e.g. increase in traffic and more sociability etc). In this scenario, there is a use of service to meet a demand.
Imagine if I were to pay to make a friend, how long will Facebook be the most popular site. It will be against the principles of making friendship, building relationship and sharing things with them. I would not trust people whom I have bribed to become my friends and would not share my personal information with them.
It gets people who are interested only in what they get :
Imagine you are running a shop and pay people to come to your shop. Soon, you will have a large number of people coming. Most of them however are in for a payment and they will disappear instantly the moment you pay them. Having more people in the shop means increasing risk of theft, vandalism and trouble for genuine customers.
Similarly, in the online world, such a tactic will need more bandwidth and server space . Bandwidth is a physical thing and is not infinite. By getting more and more people,Facebook will strain to retain quality for its users because of resource constraints.
It gets your brand negative publicity:
A business induces customers to buy, by bribing them, runs a risk of being viewed negatively . Remember the last time you were treated badly by a business and then you looked at their ad. You could not help mocking at their lack of seriousness.
A negative brand does not generate trust and hence suffers in the long run.
It increases greedy behavior and there are hidden costs :
Such a measure increases greedy behavior in users of your service. The best example is misuse of adsense. Adsense is free to install at your site. Google places a certain amount of trust in those sites. However it has not stopped publishers from clicking on their own ads or asking some one to click on the ads. The situation is so bad that now if you are found indulging in fradulent activity, you are banned from adsense for a lifetime.
Another example of greed is the recent mortgage crisis. Customers were lured with promises of ever increasing rewards if they buy a piece of mortgage equity. Without even a thought, thousands of people invested their hard earned money in these schemes, which resulted in untold misery on millions of people.
In the economics, it is clearly document that all booms which have destroyed business values and which are not built on solid business fundamentals have brought in economic troubles and issues that have lasted longer than the benefits reaped by these booms. Due to mortgage crisis a number of countries are suffering from debts. They are thus unable to provide better living conditions to their citizens.
A business might not have such an impact but remember worldwide recession was caused by a number of banks and other corporations.
How is Facebook so sure that it can avoid such cheating behaviors of end users? How much resources it would need to check frauds like above? How much would your business needs?
It takes focus away from other activities:
A sales force who is tasked to get new customers find it easy to take owner's money and distribute it to random people. There would be no hard work, intensive analysis and strategy development. The company's focus would be shifted from delivering value to getting in as many prospects so that sales can be made. There will be no focus on repeat sales. No doubt such a business will collapse.
There is no long lasting success:
Even though in the case of adsense, there are plenty of businesses that are involved in illegal activities and also are successful in making money from them, the maximum incomes comes to those, who do not indulge in such practices. These business focus on delivering value to their customers and improving the experience of their users. They are the ones who are going to survive in the end.