Scoble has a very interesting post on why myspace is successful.Secrets of Myspace

Among the reasons, get influential’s using your product, let your customers guide your actions, innovate quickly and frequently and finally make start up easy and friendly. While these all seem pretty basic, it is amazing how many companies either don’t buy into this thinking or simply loose this focus along the way. I would add one additional item to this list, and that is market creatively. In some ways myspace is the anti apple, their site is UGLY, however it has a massive following. By allowing for easy creation, easy sharing of music and the addictive addition of friends myspace has created a powerful network. For them the question is where do you go from here, how do you continue the growth while remaining hip and cool, something that is often not possible.

For the rest of us Scoble’s post is a good reminder of how important customer focus is, it is amazing how simple it sounds but listening to your customers really is a great path for success. One question facing much of the internet industry is how do you balance customer requests against monetization. I think the answer lies in changing the advertising game, for all the talk internet advertising has changed very little since it first blew up in 1996. I challenge all of the major online companies, MSN, Google, Yahoo, and who ever else to truly create innovation in advertising, then and only then do I think we will solve the challenge of Customer Focus v Advertising Focus online.  What about you? Any ideas for how to improve internet advertising?

I’ve been reading Thomas Friedman’s newest book, The World is Flat, for the last several months (sorry, Tom, I think you might make the same point a few too man times in a row to make it a quick read).  In it he describes the differences (of which there are many) between two retailing giants - Wal-Mart and Costco.  Of the points he makes, the one that struck me as the most interesting was the drastic difference in employee benefits.  Friedman writes:

“Wal-Mart spent about $1.3 billion of its $256 billion in revenue in 2003 on employee healthcare, to insure about 537,000 people, or about 45 percent of its work force.  Wal-Mart’s biggest competitor, though, Costco Wholesale, insured 96 percent of its eligible full-time and part-time employees.” (Friedman, p. 214)

No, that isn’t a misprint, you read it right - Costco’s health insurance plan covers 113% more of its employee base than does Wal-Mart’s. 

So which one of these two companies is the Wall Street darling?  You guessed it, Wal-Mart.  Because Wal-Mart is nearly 2x as profitable as Costco, Wall Street sees Wal-Mart as the better company.  Where the CEO of Costco is consistently berated by Wall Street for paying his people too much and thus not controling his costs as tightly, Wal-Mart is seen as a hyper-efficient, streamlined machine.  But is this drastic difference in Wall Street opinion warrented?  Should Wal-Mart be seen as such a Wall Street darling?

In my opinion, Wall Street is missing something very important.  They are holding Wal-Mart on a pedestal for the coporate policy of pushing the health benefits of 55% of its employees on the U.S. tax payers.  Ironically, this “government subsidy” looks the same to me as the type that France and the E.U. give Airbus, which Wall Street calls anti-competitive.  Apparently the Aerospace Industry traders don’t talk to the Retail Industry traders.

So this brings us back to my original question - What is the purpose of business?  In my opinion, it should be two-fold: to create jobs where employees are compensated well enough to be self-sufficient AND to generate returns for investors.  I can guarentee that the average Costco employee is a significantly better consumer (and thus more positive impact on the economy) than the average Wal-Mart employee.  It is my belief that the “value” of a company is actually understated (or overstated) by P/E multiples and Market Caps alone.  I think we need to add some other variables to the equation - ones having to do with the social benefit (or decay) of a company and the secondary and tertiary effects that it creates (i.e. employing quality consumers vs. draining the MedicAID budget).  If we could account for these variables in a suscint way, maybe Wall Street would rethink its stance towards the worlds two largest retailers.