Silicon Hutong

China and the World of Business • China Business and the World

Silicon Hutong - China and the World of Business • China Business and the World

Whom Can You Trust with your Social Media in China?

Hutong Forward
Counting the helicopters outside my window
1629 hrs. local

Note: Over the summer I taped a segment for Thoughtful China where I talked briefly about what agencies to use for social media. The response has been huge, so I wanted to expand on my point here, especially as so many people are in the later stages of planning their China marketing efforts to begin after Chinese New Year.

Yunnan 2009-02-04 08-10

Internet cafe in Yunnan (Photo credit: sweart)

Most companies in China have yet to realize out that making the best use of social media demands more than a twenty-something customer service person posting links to content on the corporate website. This is understandable: social media is a relatively recent phenomenon (compared to, say, print media, or even the web), and the art of using social media for business is evolving with blinding speed. That means that today’s smart social media strategy is obsolete tomorrow.

This has provoked the companies who want to stay ahead of the game to turn to outside agencies. Unfortunately, the solution is more confusing than the problem. Jockeying for relevance and revenues, nearly every kind of agency in the marketing business is cooking up products and services to help companies handle their Chinese social media programs. Social media absorbs so much of the Chinese public’s time and attention that agencies feel they either must create a social media offering or consign themselves to the junk pile of history. The one-upsmanship between agencies is earnest, and sometimes desperate.

Elephants and blind men, meet social media and agencies

That would be fine if the solutions proffered were similar. They’re not, because each type of agency sees social media through its own prism, and approaches the medium accordingly. Advertisers approach social media as another form of advertising, or as an appendage of offline campaigns. PR people approach it as a fast channel to reporters or as a way to bypass journalists altogether. Digital agencies approach social media as a way to drive hits to digital content lodged elsewhere. And social media specialists want us to believe that social media is so different that it demands a special mojo, and it should be left to them as experts.

Ultimately, the agency a company ends up choosing for social media management is usually a function of how the firm has organized its internal marketing function. If there is a social media team, the agency is likely to be a specialist social media house (after all, if you are a specialist in social media, how would it look if you hired an ad agency?) If, on the other hand, advertising covers social, the ad agency will get the nod. And so on.

(I won’t bother to talk about companies who hire agencies to scoop up masses of zombie followers or who astroturf social sites with fake laudatory posts: any firm engaging in that kind of behaviour is going to get its just desserts in the form of bad publicity and ultimately negative ROI).

Social Done Better

This approach is understandable, but it is bass-ackward. What social media does that is unique is provide a space where people, not brands, dominate the channel. It is a space that is not just about promulgating a message, but about listening, responding, and demonstrating that a brand can be a person, too.

The real ROI from social, therefor, comes from the conversations people have about a company and its products with minimal encouragement on the company’s part. In short, the he trick to winning in social media is to get other people talking about you and delivering your messages far more than you do about yourself in all other media, and the more influential those people are on the behaviour of others, the better.

For that reason, the agency that should be handling your social media in China should be:

  • A firm that is used to cultivating influencers over time
  • A firm that understands how to develop, deliver, sustain, and support powerful messages; and
  • A firm that knows how to monitor opinion, respond rapidly and appropriately in the face of a crisis or opportunity, whether that is a product problem or a corporate scandal.

To me, that’s not an agency full of creatives, of people who write apps, or of social media “experts.” It is, on the other hand, an agency filled with smart communicators. Find one of those, and you have found the agency to help you in China’s lava-fluid social media milieu.

Big Pharma, Bad Medicine, and What GSK Can Teach MNCs in China

Hutong West
Watching Louis Malle films
0813 hrs

I’m a little late to the bar with my take on this, but here it is, in three parts. Experienced China hands – go straight to the third section below.

When I first joined a global PR firm in China in 2000, I spent one day in my first week reviewing potential clients with my new boss. While my beat at the time was technology companies, I suggested we also look at pursuing some healthcare clients, maybe the big pharmaceutical companies. Surely, I thought, growing prosperity would send the demand for medicines skyrocketing, but local challengers would bring increasingly heated competition. A high-profit industry vulnerable to local competition sounded like the ideal client for us.

My boss gave a derisive snort and told me to forget big pharma. Seeing my confusion and taking pity upon the ignorant, she softened, and then gave me an eye-opening education in the ways of the pharmaceutical business in China. I won’t recount the details, but the gist was that pharmaceutical firms didn’t need public relations, because, allegedly, they marketed their wares in a rather more straightforward manner: they simply spiffed hospitals and physicians for prescribing the drugs.

Why spend money on PR, the thinking went, if what you needed was sacks of cash? I promptly forgot about Big Pharma in China until two weeks ago. Now it is clear that the plight of GSK and its cohorts is something none of us should forget.

The China operation of GSK stands accused of price fixing, of bribing doctors and hospitals by funneling those funds through travel agencies, hiding the bribes as travel costs and thus engaging in fraudulent financial accounting, and of conducting an internal investigation that failed to turn up any of these actions – actions the company now acknowledges were perpetrated by at least some employees.

This is an ugly litany, but it is not a new one. For over a decade it has been something of an open secret that some major pharmaceutical firms have been pursuing some variant of the pay-for-prescribe model. Doubtless, over the years many of those companies were counseled to cease such practices by employees and advisers. (There is some speculation as to why GSK was singled out as the monkey that would kill the chicken, but I’ll leave that to others.)

But one wonders whether, under the circumstances, GSK had a choice. It is a China business truism is that once a company has been through the market entry obstacle course and has begun generating (often spectacular) profits here, the pressure to sustain and grow that flow of cash is enormous. News about a company’s business in China moves the share price, and the prospects for business in the PRC is a key topic at a growing number of quarterly earnings calls. And the question is never “how” a company is doing business in China, but “how much.”

Capital, like justice, is willfully blind.

In a market where doctors make a pittance, where hospitals are overwhelmed yet constrained from charging reasonable rates for  care, the medical profession aches for streams of revenue that will keep the wheels on, if not line the otherwise threadbare pockets of underpaid physicians and administrators. Pharmaceutical companies foreign and domestic offer a ready source of cash, inciting a practice so pervasive that any drug firm unwilling to pony-up is simply not in the game. Add those pressures together, and a company could find itself fairly pushed down a slippery slope.

Having invested heavily for years in people and facilities and immersed in an industry where “everyone does it” and apparently gets away with it, it is easy to see why a company like GSK might be tempted – nay, compelled – to engage in behavior considered unethical or illegal elsewhere. At that point, the only alternative was to pack up and leave. This, it seems, was never an option.

And that is precisely the point.

GSK and several other multinational pharmaceutical firms look set to undergo a public revelation of the ugliest parts of their China businesses. That these revelations will damage the companies prospects in the world’s largest market is a given. All that remains to be seen is how far the Chinese government is prepared to go in sanctioning these companies for their past behavior.

Those events will take their own course. What must concern us now is a more urgent question: what other industries in China hide similar practices?

Already in the past week the Chinese government has taken to task the handful of international firms supplying infant formula to the Chinese market. The charge: price-fixing. Never mind that local companies in the same industry, by taking production shortcuts, have earned a reputation for sickening and killing children with their product, and that parents able to afford it in desperation have taken to buying imported formula often smuggled from abroad.

In so doing the government has sent a powerful message not once, but twice: no industry or company, however vital to the well-being of the Chinese people, will be allowed to engage in illegal and unethical business practices, and the foreign firms will be punished first and with greatest vigor.

In so doing, the government accomplishes three aims: it slows or stops practices likely to enrage the populace; it sends an unequivocal warning to its own local industry; and it cripples or eliminates foreign competition for its own local firms.

To every other multinational company in every other industry in China, ask not for whom the bell tolls. Xi Jinping’s administration has put the world on notice that no matter what local firms do, unethical and illegal business practices on the part of multinationals in China will no longer be tolerated, and in fact they’re coming for the foreigners first.

It is time for an immediate and thorough self-examination for the kinds of business practices that will not withstand government or public scrutiny. The time to clean up is right now, even if it cost contracts, relationships, and hard-won business. Failure to do so only puts off the reckoning and ensures that the cost will be much higher when that reckoning comes.

And there is one more lesson for the leaders and directors of any company that does or would do business in China, perhaps the most important of all.

A company entering the China market may well decide how much it is willing to spend in time, resources, and capital to attempt success there. No board worth its name would underwrite a leap into the PRC with a blank check: at some point, the cost is higher than it is worth. There would be no shame in such a decision, if for no other reason than the list of companies who have given up on China after finding no long-term payoff is long and distinguished.

But it is rare to find a company that has set an explicit limit on how far it is willing to go ethically to succeed in China, to say “here are the things we will absolutely not do in order to win in this market,” and gain board and shareholder support for that initiative. The readiness to define how much a company is willing to invest in the pursuit of success in China, but the failure to define how far it is willing to go to do so is what ensnares good companies like GSK in a web of worst practices.

And that is the lesson for all of us: if we do not draw a line in the ethical sand, stating in advance that our success in China will not be won at the cost of our ethical bottom line, we are effectively licensing the people building and operating our offices and operations in the PRC to do anything in the pursuit of financial gain.

Whatever your ethics, the Chinese government is now making clear the practical costs of pursuing such a path. If there is a future for foreign enterprise in the PRC, it belongs to companies who are prepared to live and die by a better standard of behavior, not to those who follow the lead of the meanest actors in the market.

The New Public Affairs

Enroute HND – PEK
Dodging thunderstorms
0811 hrs.

A lot of the talk in the public relations industry relates to how much the media business is changing, and what that means to a craft that has traditionally placed a heavy emphasis on informing and (hopefully) influencing journalists. That focus remains viable in markets like China and India, where the media – especially traditional media – retain tremendous influence. In places like America and in Europe, that influence is in decline.

One aspect of public relations that is going through a huge change, however, is what we like to call public affairs. Despite a racy name that implies exhibitionistic behavior, public affairs is the term applied to the craft of understanding the government decision process and effectively influencing policy on behalf of a company or organization.

Whether through direct lobbying or indirect communications, the idea of a company or a special interest group influencing policy does not go down well among the citizens of free and open societies. Events of the past several years have cast this process as a bit underhanded, and perhaps nefarious, and much of the reason for that is that the practice of public affairs was formed at a time where some degree of behind-the-scenes sausage-making was expected in governance. A lot of people simply didn’t want to know about the ugly process, they were interested in the result.

But in the wake of two economic downdrafts in the past decade, alleged commercial-governmental collusion on a vast scale, the failure of regulatory institutions to act in the public benefit (particularly in the US and Europe), and growing public expectations of procedural transparency (thank you, Internet), the process of governance is now a public sport. Public affairs, as practiced, has to catch up. Discretion is no longer the better part of valor: it is suspect.

Updating this practice is going to demand some radical steps and a lot of discussion. In order to start the process, I suggest we alter our approach to government relations worldwide to conform to the following guidelines:

1. Transparency to the greatest possible extent. This means standing up in public and telling the world exactly what you are telling the government, and why. The agenda must be in the clear and open to both scrutiny and debate, as should be the tactical approach the company is taking. This also means that public affairs becomes more than a matter of speaking to government officials about company input on policy: it means involving the public as well.

2. Behavior and actions that withstand public scrutiny. The public is going to find out what you are doing to influence the process. Just ask Big Tobacco, Big Oil, Enron, and the Nuclear Power industry. In addition to making clear what you intend to do, conduct yourself in the process as if an overweight socialist documentary filmmaker from Detroit was following you around with a camera. Forget chummy dinners and back-room deals. When you are influencing public policy, you are going about the public business, and you need to behave accordingly.

3. Avoid behavior for which others have received opprobrium or censure. If someone else has done it before and gotten in trouble for it, why are you taking the risk?

4. Stop playing moneyball politics. Yes, the Citizens United decision in the United States has given corporations an unprecedented opportunity to influence the political process with money, and the opportunity for money or favors to influence the process exists in nearly every market in the world. Don’t do it. Let me say that again: don’t do it. Just because something is permissible doesn’t make it right in the eyes of your publics. The more you use money to influence the process, the more liability you are building in the bank of public opinion, and in each market a reckoning will come, rest assured. Find another way that does not hang a sword over your company’s head.

5. All of this means you will have to create a new set of tactics and techniques for conducting government relations. The way to start the process is to find a way to align your interests with those of the public at large, and keep them there. This will not be easy, but we have ample examples in the history of business to prove that it is not only possible, it is the best way to do business.

Let the discussion begin.

Disinformation Wants to be Free

Hutong West
Afternoon sunshine
1250 hrs.

One of the book projects for which I have been gathering string for years is a book on disinformation, so I have been following the issue of corporate disinformation and deception in China with great interest.

One of the core questions I have to deal with (both intellectually and as a professional) is whether corporate disinformation is ethical or permissible at any time. Despite Japanese maxims that business is the moral equivalent of war, there are some things that might be acceptable on the battlefield that are less tolerable in the marketplace. In a day of the internet and corporate transparency, I have yet to frame an ethical case for a company to deliberately misinform its publics.

So I was interested in how Agenda Beijing dealt with the issue in its interview with corporate espionage specialist Bruce Wimmer.

[Agenda Beijing:] Would you recommend companies to employ offensive tactics as well?

[Bruce Wimmer:] Yes.  Companies need to be able to detect and neutralize the attacks.  In boxing or martial arts that would mean not just deflecting the attack but countering with attacks that might neutralize the threat.  This could involve passing disinformation, legal actions and working with various government and law enforcement agencies.

I can see Wimmer’s point, and he is not alone in believing that there might be circumstances where passing deliberately incorrect information is acceptable. He wants to use it as a way to catch a thief, and I think it would be an excellent method to throw off competitors.

But I am not sure if Wimmer has run into the problem I have discovered, which is that once information is passed, it cannot be contained. Even if you were surgical in delivery, ensuring that your intended audiences and nobody else received the initial transmission of that information, that audience would almost certainly pass the information onward. If the disinfo was credible enough to be believed by hackers or your competition, everyone would believe it. The competitor or hacker could pass it onto a credible third party source, who himself could say he got it from a credible source, then everyone would believe it was true. Some examples, neutered to protect the parties in question:

  • Using a proxy, one Chinese dairy allegedly passed on disinformation that the products of a competitor dairy were causing toddlers to grow breasts. The target audience, consumers, reacted perfectly, and the competitor’s sales took a hit. Unfortunately, that information also found its way to authorities, whom upon investigating discovered that the disinformation was false, and the credibility and business of the originating company took a hit;
  • A market leader in a high-tech gets wind that a competitor is planning on introducing a product using an innovative technology. The market leader passes word to that competitor that, in fact, the market leader already has such a product, and is about to launch it. The competitor stops development, but then announces it is doing so because it understands the market leader is planning such a move. The originating company is then left in a quandary: deny the move, and look like a market follower (the impression it had sought to avoid), or confirm it is pursuing the product despite its earlier decision to ignore the technology. (I can count at least three instances of this occurring, and one company that crashed and burned as a result);
  • Motivated by worrying scientific data, Congress is considering legislation that would affect the future of an industry. The industry pays for the development of studies that impugn the original data and the scientists who gathered it, then pass that information to Congressional staffs. The disinformation leaks and is publicly discredited, effectively discrediting the industry and any legitimate case it seeks to make against the legislation.

The lesson is simple and should not be forgotten: disinformation cannot be confined to a single target audience. Every time a company sets out to deceive (however pure the motive), that information will get out. No company or industry can withstand the hit to its credibility and public trust that such a campaign engenders. We are nearing the day when a nation cannot, either.

Eight Questions the WSJ Could Have Asked KPMG China

Managing in Asia: KPMG Audit Chief Benny Liu Faces China Risks – WSJ.com.

As a public relations professional myself, I want to congratulate the KPMG PR team on their coup in today’s Wall Street Journal. In an interview with the Journal‘s Duncan Mavin, Benny Liu, the head of the Audit practice at KPMG China is given an singular opportunity to deliver his messages in what was clearly a very friendly discussion.

This interview could have been much more challenging for Liu. At a time when Chinese companies that are listed offshore are facing uncomfortable questions about the accuracy of their accounting, you would expect a newspaper that is ostensibly an advocate for investors to come down on a senior China auditor with some very hard questions. Alas, those question were not forthcoming. Not today, anyway.

But the recent wave of scandals around U.S.-listed Big Four-audited Chinese companies suggests that the time will come when harder questions will be asked. Mr. Liu and his PR team would do well to prepare for such questions as:

1. What measures does your firm have in place in your China practice to ensure that auditors and their reports are not influenced by the pressure to retain and please the client?

2. Has your firm ever altered its audit reports on a Chinese company under pressure either from the client or from a senior KPMG executive?

3. Has your firm ever reprimanded, transferred, or terminated an employee in China because of a refusal to alter an audit report to reflect more favorably on a client?

4. What does your “risk management” department do, exactly? In layman’s terms?

5. Have you personally ever intentionally overlooked or failed to report client accounting practices that do not conform to GAAP? Have you ever done so for a company that was listed or was about to be listed in the U.S.?

6. What do you feel should be done to auditors and firms who overlook, ignore, or fail to report illegal, unethical, or ineffective accounting procedures practiced by their clients?

7. Is there a need for a independent professional accreditation body for auditors in China? Why/why not?

8. What would you change about the auditing profession to ensure that investors and the public are better protected?

This is not to pick on KPMG China: any big-four auditing firm with operations in the PRC would do well to keep this list of questions close, build on it, and be ready with something more than a holding statement when – not if – these questions come up.

Stop Shunning Beijing’s Foreign Correspondents

Me Reading the Financial Times

Image via Wikipedia

In the Hutong
Good grief, Thursday already?
1317 hrs.

In a recent profile of Michael Lewis, arguably the leading long-form journalist of our age, New York magazine’s Jessica Pressler quotes her subject on the gulf between journalists and the people and organizations they cover:

It is amazing how much contempt there is for the professional media that surrounds any given enterprise,” he says. “I find it all the time. Silicon Valley entrepreneurs think the tech journalists are all stupid. The sports people think that about the sports journalists. They don’t say that to the sports journalists, because they want the sports journalists to be nice to them. But the level of contempt is very high.

As someone who is called upon to bridge the gap between companies and the media who cover them, I can attest that this contempt, mixed with more than a little fear, is a problem here in China as well. In defense of the companies, part of that contempt is self-inflicted: any journalist who cheapens himself and his trade by taking payment or expensive gifts from a company he covers earns his full measure of scorn and contempt, and splatters his fellow journalists in the process.

But it is not always justified, in particular in the case of the global media. There are hacks in every crowd, to be sure, but China has been blessed with a crop of some of the most astute, erudite, and talented people ever to face a daily deadline. I challenge anyone to impugn the intelligence or abilities of people like Andrew Browne at The Wall Street Journal; Tania Branigan of The Guardian, Louisa Lim of NPR, James Kynge (formerly of the Financial Times), Charles Hutzler of the Associated Press, Barbara Demick of The Los Angeles Times, or anyone working behind the veil of anonymity at The Economist, including their most recent addition, Gady Epstein. And for every one I mention, I am skipping a half dozen of equal or greater talent, as well as those who have been here and left, like the brilliant James Fallows.

Granted, engaging with foreign correspondents can be painful at first: there is much to explain about one’s business and industry, because most of these reporters are by necessity generalists. One executive complained to me that it was a lot of trouble to explain the basics of their business to someone who had not bothered to do the research ahead of time. My response to him was that as bright as these folks are, they are also under the constant gun of a deadline and cannot always afford to do the research ahead. But a stupid question is a golden opportunity: when a foreign correspondent asks you to explain your business in your terms, it doesn’t get any better than that. And nowhere do those opportunities crop up more often than here in China, especially Beijing.

A generation ago, the “best and the brightest” young stars of international journalism made their careers covering the Vietnam War. Today, many are making or sustaining their careers by covering the rise of China. If your company is not taking advantage of that opportunity, (and plenty of both Chinese and foreign companies are blowing that one terribly,) what excuse do you have?

Jack Ma’s American Journey

Jack Ma, Founder of Alibaba Group

Image via Wikipedia

In the Hutong
And…We’re Back!
1151 hrs.

Amidst all of the recent speculation about Alibaba, Jack Ma, and his intentions toward Yahoo!, the real story keeps slipping below the fold: Jack Ma’s pledge to spend a year living in the United States. It is hard to discern whether that was a genuine promise or a trial balloon, but let’s assume that Jack intends to carry through on it.

Mr. Ma deserves praise for what cannot be an easy move. He appears to understand that if you are going to do business in one of the most complex and competitive markets in the world, you had better know that market in your guts, and not designate some subordinate to do that understanding for you. It is long past time for American and European CEOs to start doing the same in China. We are waiting for the first one to do so, and that little problem is a factor in the challenges that foreign companies face here.

Yet if Mr. Ma believes that his expressed desire to live in America will soften the discomfort of the American public and the Committee on Foreign Investment in the United States will feel toward the purchase of Yahoo! by a Chinese company, he is too late. Assuring both Washington DC and Main Street USA that Alibaba is not the long arm of the Party and is trustworthy enough to be the custodian of a massive storehouse of information on American citizens will demand a lengthy campaign, not well-meaning gestures. A year under American law building visibility, accessibility, and trust is a good start, but no more, and any bid for Yahoo is likely to happen sooner than that.

Finally, before venturing into the North American wilds, both Alibaba and Mr. Ma would do well to consider an adjustment in their approach to the global media. I spend a lot of time with journalists who represent the world’s leading media outlets in China, and whenever the subject of Alibaba comes up, the response is always a shaking of the head. The word is that not only does Mr. Ma appear increasingly inaccessible to the global media, his international PR staff is allegedly not above haranguing journalists whose coverage of Alibaba is deemed less than supportive. If true, this is an approach that will make neither Ma nor Alibaba many friends in the United States. The primary coverage of the company is still going to come from China, and alienating foreign correspondents ill-serves the purposes of a company with audiences outside of the PRC. The global media can be allies or enemies in Alibaba’s leap abroad, an effort that will demand the help of all the friends the company can get. At the moment, that list of friends – inside the Beltway, across America, and in the fourth estate – seems a bit short for Alibaba’s ambitions.

Time to change that.

SPAMming China Old-School

Spam 2

Image via Wikipedia

In the Hutong
Settling back in
0916 hrs.

The San Francisco Chronicle is running a short, amusing piece by Bloomberg‘s Matt Boyle on how Hormel is planning on bringing SPAM, it’s canned pork product, to China. The twist: because of all of the other low-cost meat-product alternatives available in the market, they want to hawk SPAM as a “premium product.”

This is not as impossible as it sounds, but it will demand that Hormel completely rethink the way the product is packaged, priced, distributed, and marketed. To the company’s credit, they appear to understand that, having ostensibly changed the formulation of the product to “match Chinese tastes” and conducting a marketing program focused on in-store promotion and making SPAM part of a dining experience.

(I say “ostensibly” because I have worked with Western food companies in the past who had claimed to have reformulated their product for Chinese tastes, while in fact they did nothing of the kind, unless you count reducing portion size and substituting local ingredients as “reformulation.”)

There are a lot of reasons this might fail, starting with whether Hormel is ready to spend several years in the effort. The article mentioned that Hormel was driven to China by the drop in Japanese demand after the Tohuku earthquake, suggesting something less than the commitment to a long-term effort that this will require. Chinese might also shy from a canned product pitched as a premium, and local competitors could jump into the fray with more credible premium products. Worse, the article noted that marketing funds were limited, never a good sign when you are introducing a product that requires a change in habits if not a change in tastes.

If there is one reason to be optimistic about SPAM in China, however, it is China’s own issues with tainted food. If Hormel can explain to Chinese consumers why SPAM is not only of meaningfully higher quality but is also a safer product less prone to tainting or other issues, it will have a winner. Food safety is the real hot button in the industry today, and if Hormel can prove SPAM’s safety while selling the product experience, it can not only build a market for SPAM, it will also expand the market for its other products.

Otherwise, SPAM will follow a long procession of food brands that never quite made it here.

What China’s Online Companies Can Learn from the MySpace Implosion

This is icon for social networking website. Th...

Image via Wikipedia

The Patio, Hutong West
Hawks screeching overhead
1215 hrs.

In what has to be one of the best almost-postmortems of an Internet company I have ever read, Bloomberg BusinessWeek’s Felix Gillette’s June article on “The Rise and Inglorious Fall of MySpace” offers a set of insights that apply far beyond the doors of the benighted (and recently sold at a 94% write-off) social network pioneer. I have extracted three lessons that I think are particularly germane for online companies in China.

Perception is Reality

Social networks are sufficiently new that they are still a little scary to your average consumer, less so than space tourism, perhaps, but more so than a trip to the grocery store. Fears about privacy, identity theft, stalkers, pedophiles, and a host of unseen and unimagined dangers lurks in the subconscious of even the most adventurous user. As willing as we are to flock to something new, we will take flight like spooked ducks if our sense of security is credibly threatened, leaving a once-hot network foundering. As Gillette notes:

One of the reasons social networks are so combustible is that they have proven to be particularly sensitive to public perception. In February 2006, Connecticut Attorney General Richard Blumenthal announced that he was launching an investigation into minors’ exposure to pornography on Myspace. The subsequent media frenzy helped establish the site’s reputation as a vortex of perversion. “If you have a teenager at home, odds are they’ve visited the blog site myspace.com,” Hannah Storm warned CBS News viewers in 2006. “And there are fears that this popular social networking website, and others like it, have become places where sexual predators easily prey on children.”

Researcher [Danah] Boyd of Microsoft believes that alarmist press ended up crippling the company. “The news coverage of teenage engagement on Myspace quickly turned to, ‘Oh my gosh, there are all these bad teenagers doing bad things and this is crazy!’ ” says Boyd. “Quickly, it turned into a big narrative about how this was a dangerous, dangerous place.”

This situation brings to mind an editorial that serial entrepreneur and Mahalo.com CEO Jason Calacanis wrote in 2008, suggesting that Internet startups didn’t need PR people, and that the CEO can and should be the PR guy for a company. I am inclined to agree with Calacanis to the point where the CEO is the chief spokesman for a company with media, bloggers, analysts and the general public, presuming of course that the CEO is not a reclusive nebbish who gets flop-sweat in front of reporters (and there are plenty of those.)

What the MySpace case suggests, however, is that somebody on staff or on retainer needs to be spending his or her days anticipating and addressing potential scares and other reputation busters, because waiting for such things to happen and then responding is already too late. As quickly as MySpace reacted, reaction was not enough, and in a world with five-minute news cycles it never will be. Besides, a CEO has far more things to worry about. And how IS Mahalo doing these days, Jason?

If It Does Not Look Broken, You Aren’t Looking Hard Enough

The old expression that “a rising tide raises all boats” has an unwritten corollary that applies to fast-growing businesses: “a rising tide covers all rocks.” High growth can mask a huge range of fundamental problems, and smart companies like Amazon go and dig them out even when they aren’t real problems. They understand that failure to do so will only mean problems later, when the growth slows, the tide goes out, and the rocks start sticking holes in the boat.

MySpace did not. As Shawn Gold, former head of the company’s marketing and content efforts, told Gillette, “when you’re growing at 300,000 users a day it’s hard to imagine that you’re doing anything wrong.”

In retrospect, that sounds almost delusional, but you have to be in one of these organizations to realize how dead easy it is to overlook or ignore critical problems. Hubris is as easy to catch as a cold when things are really good and you are being lionized by media and users alike, and even those immune to the hauteur virus are likely to be so wrapped up in just keeping the wheels on such a fast growing organization that they set “important but non-urgent” problems aside.

Companies have to build such organizational debugging into their culture and allow time and resources to address those issues. MySpace, by the admission of both Gold and its founders, were more seat-of-the-pants, and they paid for it.

Leaders Must Be Users

MySpace co-founder Chris DeWolfe made a point he felt was critical to the company’s long, slow slide to the middle of the social network pack:

“After we left, the guys that took over were never Myspace users,” says DeWolfe, who now runs a startup called MindJolt. “They didn’t have it in their DNA.” According to a source familiar with the sale, DeWolfe is also a finalist to buy the company. DeWolfe declined to comment.

This might be so much positioning, or even a bowl of sour grapes given the rough handling News Corporation dealt to the MySpace founders when they were shown the door. Let’s resist the temptation to get all ad-homenim for a moment and look at his point.

The owner or executive of a media company has to be in the audience, and for social media he or she has to be a participant. There is simply no other way to understand or manage the business. The idea of a newspaper executive who cannot read or a movie mogul who won’t watch films is ludicrous. It is the same for online companies, and especially social media.

This is particularly relevant for foreign companies setting up online businesses in China. You do not want to put someone in charge who is not a user, or, worse, who because of a language or cultural barrier is unable to be a user. The experience for these companies, not the content, is everything, and if you cannot evaluate the experience you have no business being in charge.

Don’t Go There

The history of social media and the Internet is sufficiently short that we should be squeezing as many lessons as we can out of every case. We will be analyzing the MySpace story for years, but Gillette gives us an excellent starting point. This is a superb article that should be mandatory reading for anyone putting their money into an online company, particularly in China, where we enjoy a surfeit of engineering talent and suffer from a dearth of capable managers.

When Marketing is Useless

In the Hutong
The Summer of Blogging Begins
1420 hrs.

Yesterday on Weibo I suggested that while some companies in China were either muffing their marketing by not putting enough time, money, and CEO attention into the function, there are actually some companies for whom marketing would be a waste of money. Naturally, somebody asked “oh yeah, like whom?”

In about five minutes, the Hutong Party Secretary and I came up with a baker’s dozen Chinese companies that I would argue don’t need to bother doing anything but taking care of product/service quality and paying their salespeople well.

Air China – The nation’s flag carrier is slowly raising its service standards to match the expectations of Asia’s spoiled-for-choice air travelers. In the meantime, relationships, a growing lock on key hubs in China, and rapid market growth help ensure its planes remain full.

Capital Car (Shouqi) – As a customer I’ve never had any complaints about Shouqi’s service, whether in buses, vans, or taxis, but I also recognize that it owes its success at least as much to its semi-protected status as its management.

China Aviation Oil – The exclusive or preferred supplier of jet fuel at China’s busiest airports, CAO needs traders, salespeople, and guys who can pump fuel into jets. They don’t need marketers.

China Minmetals – China’s minerals conglomerate, pumping mined materials into China’s economic furnace. Procurement determines success, not marketing.

China National Railroad – Except for high-speed rail (for now), CNR manages to fill most of its trains despite zero marketing and a ticket purchasing system that harkens back half a century.

China Ocean Shipping Corporation (COSCO) – China’s state-owned and dominant steamship company. Not only does it not need marketing, it needs to keep those sorts of costs as low as possible as it fights the likes of Japan’s Mitsui OSK, Taiwan’s Evergreen, Hong Kong’s OOCL, and Singapore’s NOL in the commoditized Transpacific ocean freight business.

China Ceroils (COFCO) – If you don’t know this company, think of Archer-Daniels Midland backed by the power of the Chinese central government. Some of its processed food subsidiaries and real estate companies may need marketing, but the parent company surely does not.

Gehua Cable – Beijing’s dominant cable television service provider. Decent customer service, fair collection of channels, and no need for a marketing department.

Sinopec, Petrochina, CNOOC – Lining China’s filling highways with service stations and convenience stores, the problem for China’s oil giants is securing enough fuel to sell and getting the government to let them do so at profit-making prices, not pulling cars into their service courts.

State Cigarette Monopoly – When you have a corner on an addictive product, people will find you. Don’t bother with marketing.

State Grid Corporation - A power transmission monopoly. Your local utility buys from State Grid, or the town goes dark.

Tong Ren Tang Pharmacies – A Beijing institution, the familiar red and yellow signs mix traditional Chinese medicine, over-the-counter remedies, first aid supplies, and inconsistent service into an apparently successful business. The company could use an attitude overhaul at the counter and some better merchandising, but marketing is probably unnecessary.

By now you will have noticed that these companies share one or more of the following characteristics:

  1. They are either monopolies or near-monopolies in their areas.
  2. They are the dominant players in their markets, either by government decree or acquiescence.
  3. They offer reasonable enough products or services at reasonable enough terms and conditions that customers are not running away screaming.

Obviously, not every company can afford to rely entirely on their sales force to win business, and my bet is that at some point all of the companies listed above will need to get serious about marketing.

But there is a lesson hidden in these cases, extreme as they are. As marketers we too often make the self-interested assumption that our companies or clients need marketing. Maybe they do. It would serve us well, though, to question that assumption when taking on a new job, a new client or a new campaign, or even argue the opposite (“this company doesn’t need a marketing program.”)

At the very least, we will find that doing so frees us to toss the baggage that comes with our craft, get away from the “one of each” check-the-box approach to market, and get on with only doing the things that actually sell more stuff.