How the Franchise Industry misused the Internet - Part 3 of 5

This is the third of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.


---------------------------------------------------

To best understand how the Internet has impacted on the institutions within the Franchise Industry, one must first understand the scope of this industry and the role of its institutions.

The Franchise Industry is a $624B industry. It is larger than the entire durable goods industry which includes automobiles, computers, trucks and airplanes. It creates nearly 10 million jobs and generates approximately $229 B in payroll. Overall, it accounts for an estimated 7.4% of all private sector jobs. (Source: Economic Impact of Franchised Businesses, A Study for the International Franchise Association Educational Foundation; PriceWaterhouseCoopers, 2004)

The Franchise Industry is comprised of two distinct groups, franchisees and franchisors. Franchisees own local businesses and generate revenues by selling products/services to the ultimate consumer. Franchisors provide support services to franchisees in return for various payments. Each of these groups have different goals. Franchisees desire to maximize their profits by limiting their payments to their franchisor while receiving as many support services as possible. For the Franchisor, the goal is the exact opposite. Franchisors desire to maximize their revenues from franchisees while spending as little as possible on the services they provide. This is a symbiotic relationship where both parties are dependent on the other for survival yet compete to maximize their benefit in this relationship.

When an individual franchisee needs to communicate with their franchisor, for good or bad, they can be at a disadvantage when dealing with a large organization. It is for this reason that the Franchisee Association exists. Franchisee Associations provide many services to franchisees including educational programs, informational newsletters, facilitating communications with franchisors, developing or supporting business development initiatives, educating franchisees and conducting proprietary research.

While all these services are important to ongoing franchise relations, it is research that is least understood and (arguably) of most importance. There are times when franchisor and franchisee look at opportunities or challenges from a different perspective. Perhaps franchisees feel that a particular product is priced too low or that advertising is ineffective. Alternatively, franchisees may feel that vendor product or pricing is too high. In order to justify a change these types of changes, solid documentation is often necessary. It is this ongoing research that provides franchisee groups with the supporting evidence and/or documentation to support this franchisee perspective, or to quantify the negative impact of what may currently be a bad business policy. The need for this documentation is particularly important when the franchisor perspective is in conflict with the franchisee perspective.

Out of necessity, Franchisee Associations have morphed into two types. In the absence of Franchisee Associations paid for and supported by the franchisee community, franchisors have created similar organizations and provided them with funding. Where both forms of association exist, those supported through funding by the franchisor tend to dominate because they have the ear of the franchisor and also the financial resources to undertake initiatives. Unfortunately, these franchisor supported groups can be in conflict with franchisee interests. Their dependence on the franchisor for funding and support services limits their ability to fully represent the franchisees. To cite just one example, there is no reason for a franchisor to support and fund research by a Franchisee Association when the research results could conflict with their own corporate agenda.

The term Independent Franchisee Association refers to the franchisee association that is fully funded by franchisees with a sole purpose of representing franchisee views in all dealings with their franchisor. Because of its independence from the franchisor, this group tends to be better able to represent the franchisee perspective and support their interests.

Franchisee Associations also exist at more global level. These groups can provide a single voice for the numerous franchise specific associations when it comes to broader issues. These associations may serve as a lobby group to the government, for example, or to undertake research of or on behalf of the entire franchise industry. These associations may represent franchisors or franchisees.
--------
About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

How the Franchise Industry misused the Internet - Part 2 of 5

This is the second of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.
---------------------------------

For over a century we have relied on print media to provide us with in depth and unbiased information about our society. The Internet is viewed as an improvement on our ability to communicate with each other and to access information.

Media has now moved to the online world. Magazines and newspapers have lost their traditional customer base - both advertisers and those who purchase the product. Media is challenged by convincing consumers to purchase their product(s) when they also distribute the same information for free on the Internet. And in today's society, people are too busy to read in depth articles on a particular subject. Most individuals prefer to listen to brief sound bytes or read short articles that summarize the information for us. In this environment, the market for print media is declining at a rapid pace.

The consequences of this are significant. We continue to lose the gatekeepers who were most capable of providing relevant information to us. The print media that remains today is much smaller and less capable of providing the quality information of the past. What remains is shorter in length, less effectively researched and more dependent on biased sources of information that is easily reproduced. Former reporters of the news were the first to migrate to the online world in order to replace the incomes they lost as their jobs disappeared. Through this transition, it was hoped that the tradition of effective and relevant print media would migrate to the Internet. It has not worked out this way. Most former print media writers found that they could no longer earn a living in a world where few would pay enough for their expertise. Yet this was only the beginning of the decline in media.

The online world quickly became overpopulated with individuals reporting or redistributing information. Individuals began to build their own personal online presence for many reasons - far too many to describe here. They often did so because there was no longer a significant cost to online communications. Simply start a inexpensive web site, blog or just reply to existing articles. Most felt they could earn a living by selling advertising yet very few have proven capable of doing so. There are now far too many information sites seeking advertising dollars in a world where few are willing to pay for content.

There is now an unrealistic consumer expectation that information should be available at no cost to the reader. I would argue that the fault for this lies entirely with the newspaper industry. They made a decision to put their content online for free despite the high cost of gathering this content. This has destroyed the perceived value of their product and had many unintended repercussions. Reporting news is costly. Without revenues to cover these costs, many jobs have been lost. Publications became smaller and less frequent. Many have disappeared. The information we now see in these publications is usually less effectively researched and dependent on less credible but easily available sources of information. The ripple effect of these events, however, is what this paper is attempting to address. Many necessary institutions that also depended on placing a value on information (and intellectual expertise) have been negatively affected by these events.

In place of these failing institutions we now have too many news websites, online newsletters, web sites and blogs. The belief that everyone could sustain their new businesses with advertising revenue was and remains impractical. To feed this growing expanse of sites that provide free distribution of information, we have seen an increase in communications directed to these sites - press releases, company announcements, government initiatives and privately contracted (or internally generated) surveys to support specific products/views. And the reporters of this information no longer have the desire or ability to focus on unbiased and relevant information while ignoring biased sources of information. In short, we have sacrificed quality of information for an increasing quantity of irrelevant or unreliable information. It is now up to the reader to decide what information is relevant and accurate, while also identifying what information may be false, incorrect, misrepresented or simply fabricated. And it is increasingly evident to me that most individuals are not up to this task.

None of these drawbacks to Internet communications are recent. As early as 1998, an article in a Chinese publication used the term "Internet junk" to describe "use of the Internet to disseminate ... product catalogues and advertisements." This article talks about the spread of a massive amount of "junk" at extremely low cost. This was combined with a "lack of regulations and standards ..... to produce any type of information - real and fake information, correct and wrong information, good and bad information - thus creating a flood of information online. The result is to make it easier to mislead people .... while increasing the difficulty and cost of searching and using valuable information, thus wasting considerable Internet resources and time." (Source: The Negative Impact of the Internet and Its Solutions by Ru Guangrong, The Chinese Defense Science and Technology Information Monthly, Issue 121, 1998)

Further adding to the destruction of informed reporting of information is a more recent phenomenon of allowing readers to comment on a particular article or posting. It is ironic that individuals who could not be bothered to write a letter on a topic think nothing of drafting a poorly thought out, nasty or otherwise inappropriate e-mail to anyone of their choosing. Unlike Letters to the Editor which are selected for publication based on content and awareness of the author, these online comments are often not controlled in any way. Posters can and often do hide their identity and choose not to disclose their reason(s) for posting. This anonymity and lack of disclosure often results in a less than professional discussion of the topic. Individuals who can contribute useful information on a subject are often less likely to participate in a public discussion that very often degenerates into a mean spirited distortion of the topic at hand.

------
About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

How the Franchise Industry misused the Internet

This is the first of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.


Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion
At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.
-------------------

The Internet is now an accepted part of the way in which we all communicate. Low cost computers, cell phones and networks have allowed this technology to become ubiquitous. We access more information than ever before at lower (or no) cost. Industries and institutions have changed to embrace this technology. Yet our ability to manage and understand this information has not improved. In many ways, much of our society has lost the ability to critically evaluate information.
It has been nearly fifteen years since I wrote about technology. Back in the 1990s, I published approximately two dozen articles on how to best utilize technology for business and investing. My focus was on the use of the Internet and information technologies. I was also a public speaker on these same topics at technology conferences in Canada and the USA. Since 1998, I have been part of the franchise industry.
Today, I look back on how the Internet has developed over the past twenty years with disappointment. The Internet is, first and foremost, a mechanism for communication and the sharing of information. So how is it, in the Franchise Industry that I have been part of for more than a decade, that during this same time franchisees seem to have lost ground during a period when the ability to communicate among themselves has improved so dramatically? Why is it that franchisors are now perceived as being more ruthless in their dealings with franchisees than ever before? Is this perception correct? This paper documents the way in which I have come to understand what has happened these past twenty years. Through this process I have come to three conclusions.
A. Franchisors have not changed in the way they work with their franchisees. Franchisors have adapted, out of necessity, to changes that have been forced upon them by the franchisee community.
B. Internet technology was never envisioned as a way to destroy institutions that have existed for decades. Yet that is exactly what has and continues to occur in the Franchise Industry. This situation has come about by decisions made by a very significant proportion of individuals (franchisees) to no longer support their own institutions.

C. The necessary equilibrium in franchise relations has been disrupted. Franchisors no longer have the opportunity to work with franchisees speaking with a single voice. The organization tasked with this responsibility, when it exists, no longer has the financial resources and intellectual capital needed to fulfill this role.

This paper provides an overview of how the Internet has affected overall communications and flow/quality of information. It then addresses how these changes have become entrenched in the Franchise Industry. Finally, recommendations are provided for improving the current situation.

---------
About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at www.FranchiseFactsUSA.com. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.