why do social media ads lose so much money? What are we doing wrong? Because sometimes they work. Sometimes social media ads take off and the people who bought them do so well, they buy more. But sooner or later, they stop working. So to understand this, we have to think about the American Express card and the Columbia Record Club. My late friend, Lester Wunderman, who was on the board of my company, Yoyodyne, just a little bit of a blast from the past. I wrote this book about 25 years ago. I invented email marketing. And the idea that you could bring direct marketing to the internet was stunning at the time. And I invited Lester to be on my board.
Lester invented direct marketing, period, not online, but all direct marketing. What is direct marketing. Direct marketing is action marketing, meaning I pay money, I run an ad, I get a response. I buy a magazine ad, there's an 800 number in it, someone calls me. Direct marketing is measured marketing. So what is on offer here, which was controversial in 1970, is instead of doing brand advertising, which is just to earn a reputation, to put a face on what you're doing, to direct marketing, which has a totally different set of metrics because the magic of direct marketing is simple. If you spend a dollar on a direct response ad and you make two dollars, you should do it again and again and again and again until you make all the dollars that it's possible to make and then you should stop.
So that is how the American Express card became the American Express card. Columbia Record Club used to run ads in magazines saying, here's a whole bunch of records. You can pick any 12. Mail us a penny. We'll mail you 12 records. They hired Lester and they said, we want to run TV ads. The problem with TV ads is we don't know if they're working or not because they didn't have 800 numbers back then. So Lester came up with this great idea. They added a little box to the bottom of the ad and it didn't explain what the box was for. And then they went on TV and they promoted the Columbia Record Club and they said, look in your Sunday paper and grab that coupon and see that little box?
Fill it in and we'll send you a 13th record for free. So they could measure how many people on TV were going to get the magazine ad, fill in the little number and mail it in. And so they ended up buying more and more TV ads to support their magazine ad. I think you see where this is going. When I invented online direct marketing, what I was able to do is go to companies that understood direct marketing and say, this is direct mail with no stamps. It's not spam. It's the opposite of spam. It's how do we earn permission to send anticipated, personal, and relevant messages to the people who want to get them. The opposite of spam. Come up with a reason why someone would open this email and don't send it if they don't want to hear from you.
Okay, that makes sense. How much does it cost? Well, it turns out it's a screaming bargain. That the money you spend to earn permission always pays for itself. So with this foundation and this enormous success, and now email marketing whatever, $20, $30 billion a year industry of which I own zero. From that, the people who wanted to build websites started to take a few lessons. The first lesson was they had banner ads. And a banner ad is a fine way to build a brand. Not to measure anything, but to just say, oh yeah, I saw your name all over the place. I trust you more. But you could measure the clicks. And as soon as people could measure something, they did measure something.
And once they started to measure, the banner ads that worked better got run more, and the ones that didn't got run less. But pretty soon, when lots and lots of people are trying to steal your attention with a banner ad, it gets too cluttered, and none of them work. And so they invent Facebook, and they invent Pinterest and I invented Squidoo. And people started inventing platforms where you could put an ad in front of a segment of the population, not everyone. You don't want the home page of the internet. That's too many people. You want some people. And then you could pay money in order to get folks to click on it. This is direct marketing thinking.
Direct marketing thinking keeps us honest. Direct marketing thinking keeps us focused. And direct marketing thinking doesn't scale. Because if you run a coupon too many times, if you interrupt too many people, if you come back one too many times, it stops working. So the big thing to understand in this segment is simple. mark zuckerberg wants you to buy as many social media ads as you can afford and they have gamed their algorithm so that when you start buying these ads your response rate will be great and then inevitably over time it will get worse and worse and worse because behind the scenes people are adjusting things so other advertisers are getting just enough clicks that they will keep buying ads.
And what happens, and this is where the strategy is going to come in that we're going to talk about in a minute, what happens is advertisers get hooked on direct marketing and they stop paying attention to what matters, which is finding the tribe, earning the attention of the tribe, building conversations within and among the tribe, figuring out how to matter to people as opposed to simply strip mining their attention. So what we need to do if we're going to say we're strategists is the hard work of asking why. Why am I even spending the time or the money? Am I measuring the right thing?