I was rereading one of my favorite books last weekend, Reinventing the Bazaar: A Natural History of Markets, and came upon this:
Entire sectors of a modern economy are devoted to organizing transactions. The retail and wholesale trades and the advertising, insurance and finance industries exist not to manufacture things but to facilitate transacting… Innovating in any of these sectors means discovering a way to reduce the costs of transacting.
The point of marketing is to to spread information about products and services so that buyers can find sellers in a way that maximizes their welfare. Marketing has two goals: (1) match buyers and sellers as well as possible, and (2) do that as cheaply as possible.
A lot of the entrepreneurs I talk to are building things to help marketers find more customers, goal 1 above. It’s interesting, although I’d love to see more of an emphasis on matching buyers and sellers more efficiently, rather than just trying to get peoples’ attention.
But the blockbuster companies are the ones that make progress on goal 2. Innovating means discovering a way to reduce the costs of transacting. Someday, somebody will discover a way to do away with advertising altogether, reducing that particular cost of transacting to zero. That company will be bigger than Google.
[Addendum: More here.]