Helping drive the growth of WoM marketing are Web 2.0 technologies such as social networks, blogs that allow consumers to share information, and opinions about brands and products. While 90% of WoM activity is estimated to take place offline, marketers are shifting more spending to online vehicles that can provide more measurable results. Findings of the PQ Media study were presented Thursday at the Word-of Mouth Marketing Summit 2007 in Las Vegas.

What exactly is WoM marketing? PQ Media defines it as an alternative marketing strategy that uses online and offline tactics involving peer "influencers," WoM communities and brand advocates to encourage consumer dialogue about products and services.

The category doesn't include what are considered unethical tactics such as spam, "sock puppeting," (assuming a false identity online to promote a product or company online), or paying someone to talk about a brand without disclosing that they work for the company.

Also not counted in WoM estimates were spending on activities like in-store product sampling, coupons and loyalty programs, and advertising on social networks and blogs. So Facebook's new social ads, which let marketers attach messages to the communications of members who have identified themselves as "fans" of a particular brand, would not be included.

Only marketing through fully disclosed brand advocates on blogs or other online outlets would be included. "The brand advocates or agents have to state that 'We are hired by this particular company,' or 'we were given a sample of a product,'" explained Leo Kivijarv, vice president of research for PQ Media.

Wal-Mart and Sony both ran into trouble last year when they used paid writers to create authentic-seeming blogs evangelizing their brands.

Kivijarv says 2006 was a turning point for WoM marketing, when it went from being an experimental media buy to becoming "increasingly included in fully integrated marketing campaigns." Marketers are no longer just monitoring WoM efforts, but expecting to see a return on investment in increased sales or buzz surrounding a product.

That trend is expected to continue in 2007, when WoM will grow an estimated 37.7% to $1.35 billion. Overall, however, WoM remains the smallest marketing segment, capturing less than 1% of industry dollars. Direct marketing, branded entertainment, and business-to-business promotions garner the lion's share of spending.

Kivijarv estimates that there are about 200 agencies and technology companies that either specialize in WoM marketing or have units dedicated to it.

While no specific data is yet available on WoM spending by product category, food and beverage, media and entertainment, and sports and recreation are among the most active in employing WoM strategies.

This news story is important. I recommend that everyone read it.