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Comment by dsr_ | Hacker News Reader

One of these companies has developed something new, interesting, and economically useful.

The other company has great marketing.

One of them is playing a positive-sum game. The other is playing a zero-sum game: http://en.wikipedia.org/wiki/Zero-sum_game

I don't know that one of these really represents MIT and the other really represents Stanford, but I can tell you that the technology company is adding value to the world in a way that the marketing company is not.

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Marketing is real and economically useful.

Think about it like this: In economics it's useful to assume perfect information so the market prices and clears and generally works. In the real world perfect information is extremely false, there's a cost to getting new information, a maximum processing speed for humans to digest new information, and a maximum amount of information humans can store (at or below max processing speed * hours lived).

Marketing (the advertising side) is the mechanism by which information is disseminated to consumers.

Marketing (the product-design side) is the mechanism by which information is gathered by producers.

Marketing is the mechanism by which the market attempts to overcome the lack of perfect information.

Marketing (ceteris paribus) reduces transaction costs, and thereby adds real value to the world.

That's a nice perfect scenario.

Marketing (in its current form) does not attempt to overcome a lack of information. It exploits the lack of information.

See: The consumer driven debt-march of the American people.

"When I walk past a shop, I am amazed at all the things that man can do without"

Exploiting the lack of information _is_ overcoming the lack of information.

It might not be the most efficient net outcome, as a better solution might otherwise exist, but if there is an exploitable lack of information that is exploited then by definition the information in the system has increased.

Only if we believe that "exploiting a lack of information" necessarily involves increasing true (and useful) information in the system. I certainly don't believe that's true, much less "by definition".

If you mean lying then I have to agree. Perhaps I need to qualify the above statement.

It's actually not zero-sum unless their marketing is misleading customers into buying products they actually would want less given perfect information. If their marketing introduces new customers who prefer their product, then it's positive sum. Even if those customers are spending money on this instead of something else, they are spending it on this because they derive more utility (of some type) and therefore there's more economic value. Economists don't consider marketing zero-sum - read the article you linked more closely.

In a mature market, marketing/advertising is zero-sum because it shifts demand from one supplier to another without altering the overall demand or supply.

The obvious case is a commodity, like wheat or soybeans or oil, where nobody bothers branding it at all until they get to a retail product. In the retail marketplace, the primary differentiation between one kind of cleaning product and another is the marketing, advertising, and associated superficial differentiations: coloring, fragrance, and so forth. That's why the largest advertising budgets are for companies with similar competitive products: GM/Honda/Ford/Nissan/Toyota/Hyundai; Procter&Gamble, L'Oreal, Estee Lauder; Samsung/Sony/HP; Progressive/Allstate/State Farm.

They aren't advertising to get new customers into the market: they're advertising to shift customers to competing suppliers.

Samples pulled from adbrands.net list of top 100 US advertisers. There are many, many more clusters there to illustrate the point.

you make good points but I think you are over-simplifying great marketing companies down to companies that spend a lot on advertising.

Going back to the stanford example, great marketing companies understand user problems and design products that solve that problem in a scalable way. Awareness (via advertising) is only one aspect of marketing.

So while advertising in a commodity market might be a zero sum game, I contend that true marketing is not.

I'm pretty sure that is an artifact of the fact that this is a blog post--it's easy to think of a hypothetical example of an innovative product in the MIT mold ("existing production process, but much better/cheaper!") and difficult to give a hypothetical example of an innovative product in the Stanford mold. We know we want to produce things more cheaply--we didn't know, before Facebook, that we wanted Facebook.

As pg puts it, writers who need to come up with startup ideas "come up with an idea that sounded plausible, but [is] actually bad."

You need both to add value. How would a technology that is not used by anyone add value ? Note that, marketing is not just advertising.

The first company is a postitive sum game if the employees of the existing companies can find new jobs. Otherwise, its machines 1: humans -1.

actually, finding product-market fit is adding value to society.

Imagine a world where there is all of this wonderful technology, but no one knows it exists or it is not applied to their problems.

I think both companies are valuable and great companies should strive to do both well (tech and market development)

Agree.

To me, the crux of this article seems to be that investors need to be more scientifically literate.

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