Archives for March 2005

What Can We Learn from Network Marketing?

From our latest column,What Can We Learn from Network Marketing?:

Network marketing, or multi-level marketing, is one of the fastest-growing business models of the past few decades. Between 1993 and 2003, total direct selling revenues grew by 7.1% annually, dramatically above the rate of growth of the economy — and of total retail sales (according to the Direct Selling Association)….Any business model that has achieved this kind of success probably has lessons that all business people can learn from. (….even those who really dislike network marketing and network marketers.)

On sales and integrity

I just read EVALUATING THE RELATIONSHIP BETWEEN QUESTIONABLE BUSINESS PRACTICES AND THE STRENGTH OF SUPPLY CHAIN RELATIONSHIPS, Journal of Business Logistics, 2003, by Christopher Moberg and Thomas Speh. (Thank you to Lee McCroskey of the Southwestern Company for helping me in my research on sales and integrity.) What is most interesting about this report is that it found that unethical behavior was actually quite common, even in the context of long-term business relationships.

In general, no surprise: the authors found that if you lie, cheat, or steal, you will directly harm your relationships with your vendors and customers.

I would like to report that successful businesspeople are all therefore of high integrity. Of course, that’s demonstrably untrue. If you study the history of many successful businesses—Microsoft, Standard Oil, etc.–you will find varying combinations of union-busting, vaporware, monopolistic activity in violation of antitrust laws, and so on. Crime pays, as long as you don’t follow in the path of firms like Enron and go too far.

I always found it annoying in business ethics classes when professors / students argued that being ethical in business is always profit-maximizing. If it is , then it’s a no-brainer to act ethically. The real test of a person’s moral compass is when he/she makes a non-profit-maximizing decision just because it is the ethical thing to do–and doesn’t spend $50M on corporate image ads to publicize that ethical act.

I would be happy to hear examples of those events!

Social Networking: Building a Better Local Online Marketplace

The folks at the Kelsey Group were kind enough to send me a copy of Social Networking: Building a Better Local Online Marketplace, by Carlotta Mast with Greg Sterling. This is a useful (but not free) 54-page overview of the major business models in the social network space, with a focus on companies such as and Craigslist which are working to monetize local communities.

The most astounding statistic in the report: according to the World Association of Newspapers: 5% of all US classifieds are online. I’m very surprised that the figure is so low. Translation: there are many opportunities for entrepreneurs to take the other 95% online.

I completely agree with the Kelsey Group’s skepticism about most of the so-called social network sites, many of which have generated minimal revenue. They observe that once you sign up on a service like Friendster, “it’s very easy to forget about the site.”

Clay Shirky recently defined social software as “stuff that gets spammed”. Spam, trolls, etc. are inevitable evils of social software. The report spends a fair amount of time contrasting and Craigslist. One point they don’t underline enough: the two sites have different mechanisms for generating trust and killing off spam and trolls. Tribe uses mainly a social network functionality; Craigslist uses a very effective community policing mechanism and a strong focus on customer service.

So far, at least, Craigslist has certainly achived a much greater user base. Some people said it couldn’t scale, but they seem to be very functional even with over 1.9 billion page views a month (according to a recent email from Craig Newmark). If I were in Tribe’s management team, I would zoom in on emulating Craigslist’s obsessive community policing, which has clearly worked fairly well. In particular, Craigslist makes it extremely easy to flag inappropriate ads. Craiglist is a powerful example of the efficacy and popularity of the Edward Tufte/ Google/ CreativeGood/ Bauhaus school of minimalist functional design.

The report quotes Jim Buckmaster, Craigslist CEO, as saying that they have received zero requests from users for social network functionality. Some would say that’s like 3M complaining that they didn’t get requests to invent Post-It notes. Myself, I think that for many of the transactions on Craigslist (e.g., online personals, job listings), having an intermediary social network is really not that critical.

Why LinkedIn is better suited for use by advanced users of online networks

My coauthor Scott Allen pointed out this great analysis by Carolyn Burke of Psycho-sociological Stages in the use of a Public Contact List on Social Networking Sites. Her basic thesis : “As a member’s understanding of the site and its features matures with time and training, the use put to the publically displayable contact list portion of their own profile will transition over time.”

Her analysis shows that for the typical brand-new user of a site, who is seeking to amass large numbers of contacts, a service like Orkut is very well-suited. But for serious users who actually want to get utility from a site, services such as LinkedIn are much better designed.

Anyone interested in how to design an effective social network service should review this.

History and Overview of Social Software/Social Networking

Christopher Allen is a great example of quality over quantity in a blogger. He has generously posted his very detailed notes and slides from his presentation to the FVHA (Future of Voluntary Health Associations) Conference in Atlanta, on Social Software and Social Networking. This is well worth your time to review, particularly if you are new to the social software space.