It’s easy for marketers to think that large numbers of consumers reached equals success, especially with the Internet, where the traffic is potentially huge. It’s the same fallacy that bedevilled the direct mail industry for years.

This is becoming an issue again with the revelation that trust in friends and peers is declining. According to Edelman’s 2010 Trust Barometer, published last month, the number of people who view their friends and peers as credible sources of information about a company has dropped from 45% in 2008 to 25% this year, a big decline.

This is attributed in large part to the growth of social media networks, and the exposure consumers are getting to all kinds of recommendations that in reality they have little interest in pursuing. The bigger the networks get, the more the commodity of ‘trust’ becomes eroded. It may also have something to do with the increasing business penetration of social media, and the increase in the number of marketing messages flying around.

If trust is declining, does that mean the channel is becoming less relevant for businesses? Not necessarily. Referrals from friends still matter.

But the whole idea of ‘friends’, as hyped by Facebook in particular, is not what one would customarily associate with the term. I was shocked by the ‘scientific findings’ back in January that 150 friends is the most that one person can typically manage, not because it was a vastly smaller number than the thousands that one can theoretically communicate with on Facebook, but because it’s still so large. My guess is that most people’s meaningful relationships number 20 or 30 at most, and for some it’s a dozen or so, if that. These are the people one really trusts.

For a business, there’s an analogy here. It’s the difference between advertising on the one hand, and developing relationships on the other.

If a business treats social media as an advertising channel, a way of getting a message out, the effect will be heavily diluted, because any ‘recommendations’ will be treated with scepticism. If, instead, it searches out those consumers who have a real or potential interest in its product or service, and develops a dialogue with them, it is far more likely to benefit.

Brands were used to buying eyeballs on web sites. But no more. This is an inadequate policy in the social media age. Brands need to forge on-going relationships, build and become part of communities to protect their reputations.

Also brands need to become publishers and must distribute relevant content to their audiences. Brands used to rely upon other people creating content and they would fill in the space in between. But now they need to participate. The audience is no longer passive and monolithic. It is active, it is sharing, it is commenting,tweeting, blogging, it is book marking and it is talking 24/7 in real time.

This piece makes some good points and explores the issue in more detail.

I found this really interesting interview with Scott Monty of Ford about the company’s attitude to social media and the approach they are taking. Heartening to see a traditional company, from the CEO down, recognising the value of social media.

Monty emphasises how social media is so important in terms of them being able to connect and listen to people. It is also interesting to learn about how they are incorporating what people are saying about them on their site, which aggregates Twitter, Youtube and Facebook coverage. Will be fascinating to see how this engagement with social media could affect the development of their products.

Monty actually emphasises during the interview that the success of social media does come down to the quality of your products. If people are not interested in what you have to offer, no amount of social media activity will compensate for that shortcoming.

When a new marketing channel appears, can regulation be far behind? There are moves afoot to extend the remit of the Advertising Standards Authority to include social media.

In the US, the Federal Trade Commission has already set guidelines for social media marketing. Now in the UK the Advertising Association has proposed an amendment to the Committee of Advertising Practice (CAP) Code which, if accepted, will cover ‘companies’ marketing communications on their own websites and other non-paid for space online’.

This move is hardly surprising, considering how controversial marketers’ activity has been in the past, in the areas of mail, email and telephone especially. Regulation is something we are getting used to. And one thing has become clear: after the initial panic at the thought of restraints to their activity has subsided, most marketers don’t worry about it. They recognise that some sort of order and discipline is required if consumers are not to be turned off, making it impossible for businesses to benefit from the channel at all.

The problem, as always, is keeping the miscreants in check. It only takes a few cowboys to ruin it for the rest. So a lot will depend on how far the ASA’s remit extends in practice with regard to social media, and what powers it has to enforce the new rules.