marketing is an exchange.

the marketer wants to elicit a RESPONSE or RESOURCE from someone else.

to do this they must offer something that someone else thinks is valuable.

then the other party will offer the desired (cash) response in exchange.

exchange is the core concept underlying marketing.

This is looking more and more like a happy ending for the San Francisco-based company, which, as many of our long-time readers know, has seen many ups and downs over the years. Nearly from the start, it has been wracked by painful internal issues, including management conflicts, investor conflicts, technical problems, and mixed messages to its users about what was acceptable on the site.

It gradually ceded grounded in the U.S. to MySpace and Facebook, both of which now dominate the market here. But because the site had become popular with many Asian-Americans in the Bay Area during its early days, these users shared the site with family and friends in other parts of the Pacific.

Friendster’s executives attribute its recent growth to a composite of its demographics and new features like its pages and platform, along with its new mobile version. As we’ve written, large, web-based social networks appear to have a strong advantage over mobile-only social networks, so expect Friendster to continue to do well on this front, too.

learn to build models.

• of markets
• of marketing behavior
• Marketing Decision-making: A Model-Building Approach
• start with a simple model

n the current international land-grab among leading social networks, Facebook is overtaking MySpace as the largest social network in the world. But there’s a big caveat — Asia — where a much-maligned older rival, Friendster continues to lead Facebook and everyone else by at least a two to one margin. The most recent data: This past April, Friendster clocked 36 million users in Asia, versus a distant second Facebook at 18 million.

And unlike social networking in the U.S., the opportunity in the Asian market is growing as more and more of the region’s 3.8 billion residents come online.

There’s another interesting angle to Friendster, and it has to do with making money — but not ads. Many Asian gaming companies and virtual worlds are already basing large portions of their businesses on virtual goods. With an established user base of people who are used to spending money on virtual goods, the company is primed to introduce this sort of feature. Maybe in the form of sending virtual gifts to friends for a small fee, like what Facebook already offers — but with a lot more users who care to do so. I’m not sure exactly what the company is going to introduce, at this point, as it isn’t saying much.

The international friendships between Friendster users appear to be giving it an ongoing boost in Asia, with 23 percent of an average user’s friends located in a different country. This growth is happening across major Asian ethnic groups. With the site’s recent growth across countries, it may become the go-to social network for large portions of Asia, including Indonesia, Malaysia, the Philippines and Singapore

Most especially, it is the site’s popularity with Chinese speakers outside of greater China that may be give it a better chance of reaching users in the country. Among its international competitors, Facebook is contemplating how to introduce its Chinese-version site without inviting government censorship, and MySpace has been pumping money into its China site.

But life for internet companies in China is especially complicated. Domestic social network offerings from established companies like QQ and younger startups like Xiaonei and 51.com appear to have already grown prohibitively large. I say “appear” because there is little reliable data about any social networking traffic in China, so I — and many China observers I’ve spoken with — tend to doubt any internal numbers given by companies in the country.

Still, from what I hear, Friendster, like MySpace, is seen by the Chinese government as an entertainment site, not so much a place that foments political dissent. (Meanwhile, I hear Facebook is seen by the Chinese government as being about real-world connections — something I’ve argued — real world connections that could foment dissent.)

Friendster, because of its growth in Asia, has seen its user base nearly double from 23 million monthly active users in April of 2007, to 40 million users this past April, according to comScore. That growth rate seems to be increasing, as the company has added 10 million of those users since December. Friendster also points out that comScore doesn’t account for users who access the site through internet cafes. Internally, it says it sees range much higher in many countries.

Meanwhile, Friendster users are spending an average of 229 minutes on the site per month, the highest of any social network, according to comScore data from March.

Wired, for example, was founded on the thesis that digital technologies were forever changing the face of human society – from culture to politics, business to pleasure. We then made a business out of proving that thesis. Every single issue of Wired, every page of HotWired, every book we published and every deal we did was an argument proving that thesis.

The Industry Standard was founded on the thesis that a new class of entrepreneurs and executives were leveraging the Internet to change the economy as we knew it. We then started a site, a magazine, a conference series, and 14 international editions as arguments in proof of that thesis. (OK, the argument failed after five years, but I do still believe the thesis!)

The Web 2.0 conference series also had a thesis: That the web post-crash (after 2001-2) was radically different than the web of the late 1990s, and that a new breed of company, leader, and philosophy had taken hold across the industry. The Web 2 Summit and its newer Expo businesses, again, are arguments proving that thesis.

And Federated Media, my current business, is founded in a thesis as well: That the economics of content creation and consumption have shifted significantly in the past decade, creating a new class of conversational media in need of a new business model. FM is our argument in proof of that thesis.

Well that’s all well and fine, you may say, but those are all media companies. This thesis/argument stuff won’t scale to other kinds of businesses.

I disagree. Consider a dry cleaning business, for example. One of the most successful new businesses in my neighborhood is a small company called Alex’s Dry Cleaning Valet. This business has a strong thesis: That it’s possible to provide high-end dry cleaning services and also lead the industry in using renewable, green, and sustainable technologies. Put another way, Alex’s thesis is even more simple: Dry cleaning doesn’t have to suck. It doesn’t have to ruin the environment, and you should be able to talk to someone who knows who you are and will respond to whatever issues you have (a broken button, a rush delivery, a question about a bill).

Alex’s is an argument for the thesis that a dry cleaner can be both green and conversational (for more on what I mean by conversational business, see here and here). When I sent an email to their site asking about pricing, I got an answer from Alex himself, and we argued (literally, but in a very nice way) back and forth over whether what he charges was fair for value given. Alex clearly is passionate about his business, his value proposition, and his thesis. And that makes his business a great argument for a thesis I, as a customer, am happy to buy into.

• attention
• interest
• desire
• purchase
• positive word of mouth

I know the answer for my friend Mark, who runs a successful family restaurant near where I live. For him, it’s the countless exchanges he has each and every day with his customers. His place is always full of people, always buzzing, and Mark’s at the center of it all. He knows nearly everyone who comes in, and makes a point of getting to know the newcomers. He remembers your children’s names, your favorite wine, or the fact that you’ve been traveling too much lately. And when he comes by your table, nothing seems to please him more than to tell a story about his business – where he got the special cheese in the pizza, for example, or the day last week when a local winemaker came for dinner. In short, Mark’s greatest pleasure seems to be the conversations he has with his clientele.

And his restaurant is, in effect, a platform for those conversations. It’s a truism for nearly every successful local business I’ve seen: The owners are engaged with their clients, they know them well, and moreover, they are seen as leaders and storytellers – masters of their domain, and more than happy to talk about it.

Now, that is a lot of throat clearing to get to the first topic I promised to talk about in this post: Search as the driver of customer intent. But stick with me here, I think there’s a real connection.

Think about your favorite part of running your business. (OK, besides counting the money.) Is it the independence you feel from being your own boss? The pride of ownership in something you’ve built? The satisfaction of having made it this far?

Or might it also be the pleasure you get from providing a service that others value?

• products
• services
• people
• places
• ideas
• experiences
• organizations
• brands

We humans are a very social lot. Without getting too academic, a pretty common tenet of psychology states that our greatest satisfaction comes from adding value to the lives of others. I know that in my business, my greatest satisfaction comes from the result of the work we do – providing a key source of revenue for scores of talented publishers. So think about that question again – what gives you the greatest satisfaction in your business?

OK, so maybe that title is meant to provoke a response, but is that so wrong? This post is about arguments, after all. Or put another way: I’d like to argue that the best businesses are, in essence, arguments.

There are many definitions of the word “argument,” but the one I want to focus on is the one that comes up first when you type define:argument into Google: “A fact or assertion offered as evidence that something is true; (as in) ‘it was a strong argument that his hypothesis was true.’”

In my experience starting businesses, and in my study of other businesses that have succeeded wildly (like Apple, Google, or eBay), every great business is founded in a thesis, a statement of what should be true. It’s then the business’s job to go prove that thesis – in essence, the business becomes the argument that proves the thesis.

The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.

In short, customers are knocking down your door to get the product; the main goal is to actually answer the phone and respond to all the emails from people who want to buy.

And when you have a great market, the team is remarkably easy to upgrade on the fly.

This is the story of search keyword advertising, and Internet auctions, and TCP/IP routers.

Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter—you’re going to fail.

You’ll break your pick for years trying to find customers who don’t exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die.

This is the story of videoconferencing, and workflow software, and micropayments.

When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens. You can obviously screw up a great market – and that has been done, and not infrequently – but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure. Market matters most.

And neither a stellar team nor a fantastic product will redeem a bad market.

Since team is the thing you have the most control over at the start, and everyone wants to have a great team, what does a great team actually get you?

Hopefully a great team gets you at least an OK product, and ideally a great product.

However, I can name you a bunch of examples of great teams that totally screwed up their products. Great products are really, really hard to build.

Hopefully a great team also gets you a great market—but I can also name you lots of examples of great teams that executed brilliantly against terrible markets and failed. Markets that don’t exist don’t care how smart you are.

Understand I’m not saying that you should shoot low in terms of quality of team, or that VMWare’s team was not incredibly strong—it was, and is. I’m saying, bring a product as transformative as VMWare’s to market and you’re going to succeed, full stop.

Short of that, I wouldn’t count on your product creating a new market from scratch.

add complexities to the simple model

• more than one competitor
• more than one marketing instrument
• multiple territories
• multiple products
• partnerships and collusion
• delayed responses
• powerful customers
• bidding or undercutting
• multiple goals
• strategic intent
• higher levels of risk/uncertainty

in my experience, the most frequent case of great team paired with bad product and/or terrible market is the second- or third-time entrepreneur whose first company was a huge success. People get cocky, and slip up. There is one high-profile, highly successful software entrepreneur right now who is burning through something like $80 million in venture funding in his latest startup and has practically nothing to show for it except for some great press clippings and a couple of beta customers—because there is virtually no market for what he is building.

Conversely, I can name you any number of weak teams whose startups were highly successful due to explosively large markets for what they were doing.

VMWare is the most recent company to have done it—VMWare’s product was so profoundly transformative out of the gate that it catalyzed a whole new movement toward operating system virtualization, which turns out to be a monster market.

And of course, in this scenario, it also doesn’t really matter how good your team is, as long as the team is good enough to develop the product to the baseline level of quality the market requires and get it fundamentally to market.

Whenever you see a successful startup, you see one that has reached product/market fit—and usually along the way screwed up all kinds of other things, from channel model to pipeline development strategy to marketing plan to press relations to compensation policies to the CEO sleeping with the venture capitalist. And the startup is still successful.

You can always feel product/market fit when it’s happening.

• The customers are buying the product just as fast as you can make it—
  • or usage is growing just as fast as you can add more servers.
• Money from customers is piling up in your company checking account.
• You’re hiring sales and customer support staff as fast as you can.
• Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it.
• You start getting entrepreneur of the year awards from Harvard Business School.
• Investment bankers are staking out your house. You could eat free for a year at Buck’s.

Lots of startups fail before product/market fit ever happens.

The only thing that matters is getting to product/market fit.

Product/market fit means being in a good market with a product that can satisfy that market.

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

My contention, in fact, is that they fail because they never get to product/market fit.

Carried a step further, I believe that the life of any startup can be divided into two parts: before product/market fit (call this “BPMF”) and after product/market fit (“APMF”).

When you are BPMF, focus obsessively on getting to product/market fit.

Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital—whatever is required.

When you get right down to it, you can ignore almost everything else.

I’m not suggesting that you do ignore everything else—just that judging from what I’ve seen in successful startups, you can.

“A great team is a team that will always beat a mediocre team, given the same market and product.”

Conversely, you see a surprising number of really well-run startups that have all aspects of operations completely buttoned down, HR policies in place, great sales model, thoroughly thought-through marketing plan, great interview processes, outstanding catered food, 30” monitors for all the programmers, top tier VCs on the board—heading straight off a cliff due to not ever finding product/market fit.

Ironically, once a startup is successful, and you ask the founders what made it successful, they will usually cite all kinds of things that had nothing to do with it. People are terrible at understanding causation. But in almost every case, the cause was actually product/market fit.

the question to all of you who run or are thinking of running your own business: What’s your thesis? What differentiates your business from all the others in your market? Once you get that thesis, the rest is pretty easy. Everyone loves a good argument, after all!

Markets that don’t exist don’t care how smart you are.

search has become your customers’ interface to the web. It’s how they ask questions, research buying decisions, and increasingly, how they understand who you are and what service or product you provide. Given that, the question becomes: When folks find you on the web, is your site like Mark’s restaurant? If they are returning customers, does your site greet them warmly, invite them in for a glass of wine, remember their kids’ names? If it’s the first time someone’s come by, does your site welcome them in and tell a story that engages and connects?

It’s a great way to think about designing what is, in essence, a proxy for your physical business online. Online, as in your storefront, you need to be in conversation with your customers. And the better that conversation, the stronger your business will be.

The #1 company-killer is lack of market.

the commodity approach

• describes the characteristics of different products
• describes buyer behavior towards those products

the institutional approach

• how various marketing organizations work
  • wholesalers vs retailers

the functional approach

• how various marketing activities perform in the marketplace
  • advertising
  • sales force
  • pricing

• managers face tons of tough decisions
  • choosing a target market
  • developing optimal feature sets
  • visualizing key benefits
  • establishing an effective price
  • deciding on sales force size and allocation
  • deciding on various marketing budgets
• environment of incomplete information
• environment of ever-changing market dynamics

managers should analyze markets and competition in systems terms

• explain the forces at work
• explain the interdependencies of these forces

In a great market - a market with lots of real potential customers - the market pulls product out of the startup.

The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.

Meanwhile, as the number of internet users in Asia continues to grow — and gain more wealth, expect Friendster to do very well for itself. Indeed, if it maintains its lead in Asia, it may one day be larger than Facebook or MySpace.

Regardless of what happens in China, the site has already launched versions in both simplified and traditional Chinese, Indonesian, Japanese, Korean and Spanish. Today, it introduced a new version in Malay (see screenshot below), and has also recently added Vietnamese. It plans to translate the site into more Asian languages. Note: When I asked Friendster executives about its plans beyond Asia, I got a roundabout answer about Asia’s promise — so I’m guessing Asian users can expect 100 percent of the company’s attention.

The site has been aggressively launching other features, including a “fan page” for musicians and others to promote themselves to Friendster users similar to Facebook’s “Pages.” It has also been building out a developer platform, starting last October. We’ve been hearing positive things about it from some big third-party developers, including Watercooler (which counts Friendster as its second largest platform, with 1.5 million total users), Slide, and others. The platform has been live since December, and while it was developed before the Open Social effort to standardize developer platforms came into being, Friendster was a founding member of that movement. There are more than 350 third-party applications, with thousands of developers working on the platform, the company says.