Does WOM or Social Network Marketing Create Agency?

We are now near the end of January, and I realize it has been a little while since my last post.  Before leaving LexisNexis, I prepared a proposal, formatted as a white paper, for a position specializing in information management.  At the same time, I wrote a post here on how online social networking technology impacts marketing strategy.  I’m looking into writing on the subject, and how it intersects with law.

Social networking technology is just one aspect of Web 2.0, the paradigm that was encapsulated and named only four-and-a-half years ago by IT publisher and guru Tim O’Reilly.  As such, social networking should be considered as one of many related technologies.  In fact, it shouldn’t be seen as a technology at all, but as an interaction platform, a way both of enabling interaction between participant users and also of nurturing those interactions.  And like any nurturing mother, the platform controller infuses the nurturing with whatever flavour suits it.

O’Reilly summed up Web 2.0 as “the move [by business] to the Internet as a platform.”  Seeing the Internet as a platform instead of as a mess of often unrelated technologies is key to understanding both the interconnectedness of Web 2.0 and the resultant online social networking phenomena.  The various technologies always were related, but this was not apparent as they (e-mail, web pages, newsgroups, chat, etc.) manifested independently.  The interconnectedness is now apparent.  It is part of the user experience, not just the underlying technology.

Users are now able to connect their web toys in uncountable ways.  From wired broadband to wi-fi hotspots to 3G iPhones, BlackBerries, and other smartphones, to the variety of social networking platforms (Facebook, MySpace, Twitter, LinkedIn), cloud computing web-based applications (a Google app world?), and user-generated content (YouTube, etc.), connectivity is the emergent über-paradigm.  Connectivity is the defining factor of this post-industrial information age.

I’ll climb down from the soapbox now, put down the megaphone, doff my cyber-evangelist’s cloak…

What does this mean to business, and to the law that affects business?

There has always been a question for an enterprise whether to market directly to the consumer or to appoint some kind of agent.  (I’m using the term “agent” casually, not legally.  I’ll get into a legal discussion of agency later in this article.)  Before the social networking phenomenon, the agent model took, generally, two forms:

1 – The Seller.  Example:  You make snowblowers.  You arrange a marketing deal with a major retailer whereby they promote, through whatever tools are at their disposal or whichever ones you agree upon, your snowblowers to the consumers.

2 – The Expert.  Example:  You make tools for sculpting clay.  You endear yourself and your company to teachers and professors of fine arts who, in turn, recommend your art tools to their students.

Here’s the third agent model, which has grown from getting people to wear branded clothing to transforming them into fans banding together to pontificate, not on the merits of your product, but on the social imperative of being a fan of the brand.  You become socially relevant, not in the “global responsibility” sense, but in the pop tart-du-jour kind of way.  Your new agent, in the world of online social networking, is your consumer, whom you’ve transformed into a rabid fan!

It’s not that this is different because it’s indirect marketing; that’s been around for ages.  It’s different because the agent evangelizing your brand has no responsibility, either through corporate and legal means (the seller is bound by contract), or professional ramifications (the expert trades on reputation and peer membership).

If the seller messes up, they may be in breach, or at the very least, suffer a pecuniary consequence.

If the expert messes up, they risk discipline from their peer organization, or at least damage to their reputation.

If the consumer-agent messes up?  Well?  What happens?  And what do I mean by “messes up”?

Now we’re getting into one of the two legal issues surrounding deliberate word-of-mouth (WOM) marketing through online social networking:  Agency.  The other issue is intellectual property, specifically trade-mark and a bit of copyright, but I’m not going to write on IP in this post.  I’ll cover that another day.

So, Agency.  What does it mean?

I’ll paraphrase Yoda:  “Always two there are: a principal and an agent.”

Agency is a legal relationship between two parties where one is authorized to act on behalf of the other.  In private life, this is commonly seen as power of attorney.  In business, this is commonly seen as employment.  There are various types of agency, most notably agency in fact and agency by operation of law.  Agency in fact would be where there is a written agreement creating the agency, such as the power of attorney papers, or the employment contract.  Agency by operation of law is also called agency by estoppel, implied agency, and a few other things.  It means that the behaviour of the parties is such that the court would deem agency to exist.  None of the forms of agency currently defined (I carefully perused Black’s, but this research is not yet at the level of in-depth caselaw analysis) resembled our little social networking scenario.  That’s not to say it doesn’t exist in some form though, or couldn’t in one of the recognized forms.

I have to ask the question whether a partial or limited agency could be read into this situation – whether the deliberate solicitation of customer-based promulgation of the brand and the deliberate nurturing of the social imperative that is being developed around the brand constitute some form of delegation.  Delegation is a transfer of authority to some extent, and in this case, the authority to promote (and protect?) the brand is being delegated to the customer.  That implies some level of agency.  Is the customer able to act on behalf of the company?  No.

Wait – that’s not entirely true.  The customer is possibly being given some control over the promotion, use, and protection of the trade-marks and goodwill of the company.  Although that’s not full agency, as an officer or partner would have, that sort of full agency is not required to exist for agency to be found.  Sales reps have agency, though they may not have the same authority as an officer or partner.

So we do have something that looks a lot like agency, especially when we start moseying down that intellectual and intangible property road (trade-mark, goodwill, etc.) that I’m generally avoiding in this article.  Once you let someone use the stuff you’re supposed to be protecting, and you let them use it to an extent that gives them a fair bit of potential power because of the near-instantaneous and viral nature of the networks used, you’re actually handing over some pretty hefty reins.

Which raises the next legal question (not really, since I asked this several paragraphs back):  Where’s the recourse?  There’s no employment contract to form the basis of legal action, and there’s no peer organization to which you can report the agent who abuses the agency relationship.  Is that risk worth the payoff of massive gains from this sort of marketing?  Are there ways of mitigating the damage, or better yet, minimizing the actual amount of control given to the agent?