Feeds:
Posts
Comments

Archive for the ‘economics’ Category

You may have seen it on news shows…

Athletic Clubs with cardio programs where members jump up and down as if using a jump rope but don’t really have a rope to jump.  Why?  The club doesn’t want people to feel bad if they can’t jump rope like others in the class… …or feel bad if they mess up in front of people not messing up.

How about the no tryouts, no exercise, no activities pep clubs that provide a uniform, trophy at the end of the season and certificate saying they are, “PEP FANtastic!”   Really, this is no joke and it is not a knock-off of the ABC TV show “The Middle” where daughter Sue is the easy-to-recognize enabled student with no clue how to compete… and she is not taught how by parents or teachers or the church or synagogues, or her horoscope.

So, should schools do the about the same thing in math, history, chemistry, business, accounting and insurance as the athletic club does for its members?   How about a prize for attempting to clean up the oil spill in the gulf or attempting put a man on the moon!  “What?”, you say, “That wouldn’t make sense???!!!”  Of course it doesn’t make sense!  But that’s what is being done in education due to myopicos like Alfie Kohn.  Ya, the one and only who writes as an education ‘expert’ for The Huffington Post blog….

Competition is what is.  It starts with the struggle out of the birth canal. For many it ends with seeing who can live the longest with the most toys, or experiences, or charities, or wives, or single malt Scotches. We learn to eat, to live, to work and to mate and there is a competitive component in every second of it.  Those that don’t compete never learn skills that they can use in life later on to provide for their families, communities and the world.  And then we wonder why we are with competitive academics in the world, or why there are more and more 3rd world foreign-borns in colleges and universities, engineering schools, MBA programs, Ph.D. programs, medical schools, etc.  [No, that is not bigotry; it is that they get it!] The answer is competition.  They are serious about it and we (whoever that means) aren’t serious about it.

Perhaps it is a vestige of our ‘Man-is-superior-to-all-the-rest-of-the-animals; we don’t compete like they do!’ shtick. How’s that workin these days.  Are we winning any competitive wars you’ve noticed?

In fact, we’re frequently going in the opposite direction due to the early years being filled with the ‘help’ being offered from the very beginning.  Businesses from McDonald’s to McDonald-Douglas spend billions every year teaching their employees how to compete at different levels.  University of Phoenix makes a living for a lot of investors in grades for profit involving students companies send them who can’t compete; write, read, organize, manage or lead.  If we were doing such a great job they would be out of business.

Community Colleges have many students that don’t know how to compete.  They haven’t competed up to the point of college and now competing for jobs is almost foreign to them, not because of the jobs, but because they didn’t get the subtle or the explicate competitive approaches or experiences that are learned early on.  The ‘help’ provided is to not let them come into contact with any consequences.

What is ‘entitlement’?  It is what adults do to their children and what students learn that ensures that they do not have to compete to get what they want; they do not have to attend to what works and that they can get the same credit for ‘trying’ as for succeeding.   They say it is for the children but it isn’t; its for them, the parents.

FFPS and similar organization institutionalize the entitlement.  Learning to ride a bike you can get hurt.  Get hurt??? No, we’ll cover you in Velcro pads so if your training wheels don’t protect you and you fall, you’ll not have to connect with any unpleasant consequences.  Bad nightmares; bad marriages, bad jobs, bad DUI???  Shameful; you shouldn’t have to suffer.  We’ll get you in a program where you are given the drug propranolol to eradicate the experience, or dampen the bad history or events.   The louder the communities yell about the child, student, or young adult, the more and more it becomes about everything else but those groups.

For the things valued in life, there is way too many ‘self-referential’ content today and it is working to our dis-service, from families to the halls of Congress.   That being said, for every virtue listed to reduce competitive activities, there is an equal and larger set that most of us see as a product of competition.

For the things valued in life, there is way too many ‘self-referential’ content today and it is working to our dis-service, from families to the halls of Congress.   That being said, for every ‘virtue’ listed to reduce competitive activities, there is an equal and larger set of virtues that are a product of competition.

  • self-composure

  • self-reliance

  • self-control

  • self-assured

  • self-analysis

  • self-abnegation

  • self-development

  • self-evolved

  • self-enriched

  • self-judgment

  • self-mastery

  • self-reflection

  • self-restraint

  • self-trust

Here is just one option provided by the FFPS web site…

FFPS [Fun, Fair, Positive Soccer]

…to provide every youth soccer player with a positive experience. They saw the main problem as parents who put too much pressure on the kids to perform and the programs that emphasized winning as the main focus. They developed a system so the kids could play and enjoy the sport without demands from adults to win or perform. They modified the rules and designed a process of 5 aside rules, equal play with a unique equal substitution system, balanced teams, and parent training to ensure that it would be fair. The parents would behave and be positive so it would be really “Made For Kids”.

We wouldn’t want the kids to actually perform as in ‘do’ something…. Why not just take the nets and goalie away and have the kids run up and down the field….  I know that might look more like baby sitting but then again, no one would have to explain why the other team had more goals than your team did.  Don’t drink the Cool Aide…

Geeze!

Read Full Post »

Higher order conditioning (you know, the stuff we’re really good at) involves the paradigm where previously successfully conditioned stimulus (CS) operates as the unconditioned stimulus (US) for further conditioning.  And, like classical conditioning in general, high-order classical conditioning is often linked to known biological predisposition of the organism trained.

But the implication of traditional classical conditioning are less obvious; a real hit in the head to those that insist that life should be about using ‘common sense’.

Take the instance of McDonald’s being sued (2010) to stop giving out toys with happy meals (used to entice kids and adults when paired with bad food) at least, one would claim in such a court fight.   Toys which are also reinforcers that keep the people coming back, (operant conditioning) not necessarily for the food but for the ‘free’ giveaways.   Is that really any different than places providing good service, clean restrooms, good food, social amenities, or cigarettes  being the delivery mechanism for nicotine, etc.?

Well, some obviously think so.

The food, an Unconditioned Stimulus (US), is paired with a toy, a Conditioned Stimulus (CS) and a potential reinforcer for the children (yea, a new toy to have and hold) and the children (yea, a new toy for them to have and hold and keep them satisfied or quiet, whichever is the case).  The parents buy the food (US) and get the toy (CS) at the same time and they become linked. There is also the gambler’s bet operating in this type of example.  The conditioning that takes place is rarely some part of the awareness of anyone other than the people in the delivery business, thus, proving once again, that you do not have to have awareness to be conditioned or to avoid conditioning.  The awareness is a irrelevant.

Soon the family or the child attends McDonald’s and is not hungry for the nuggets, burger or shake, etc. and wants just the toy!   Not going to happen so the spending entity — grandma, parent, older person… buys the kid’s meal to appease the kid (enablement) and someone ends up eating the extra food or the food that the kid didn’t want but was purchased to get the new (surprise) toy.   Great!  The kid isn’t going to get more rotund but the adults are because they are now stuck eating the kids meal and their meal… after all there are poor people starving somewhere in the world.   (huh?)

Anyhow, some parents and food focused groups are saying that they want McDonald’s to stop the practice which “hooks” the parents and the kids on going to McDonalds.  McDonalds’ is protesting the suit.

Basically, we are all conditioned and that example is no different than other types of conditioning.  Making is less or more obvious is not the substantive question other than for the media.  The real issue is better food with less fat for children from a distribution place that many are conditioned to eat at.  But that is not the prima fascia case being made. Any changes in delivery mechanisms will require changes in fast food services content [food] which, in some cases, neither the children or the parents (and certainly not the fast food distributors) want to consider.

The result is conditioned helplessness of the parents..  Something to consider when selecting a restaurant next Friday night… or a business where repeat customers are part of the planned strategy…

Read Full Post »

To start, the goal is not to be an ‘elite’ athlete…

Fourth in a 5-Part Series for http://www.SocialMode.com

(1)   Sports, like businesses or social movements have goals and costs.

(2)   The best way to advance is through the “Do”.

(3)    Focus on long-term benefits as well as short-term gains

(4)   It is not ‘automaticity’ per se that leads to high proficiency.

“Automaticity” is the perception that someone is in the ‘flow”; they make what they are involved in look automatic.

Competitors train to do stuff right; winners train so they can’t do it wrong.

In business and in sport the level of skill at which automaticity is attained is constantly changing.  When the rate of that change slows too much, in sport and in business, things start to get dicey.

Most people never develop beyond their hobby levels of expertise because that is the level at which they are able to do things ‘automatically’. We’ve all seen those people in business.  We’ve also seen them in different sports. Their comfort level is large and ever present.

For club golfers, swimmers or competitive tennis players, their levels of expertise for ‘doing stuff right’ in their sport are sub-par, as it were.  To truly excel, there is always some part [life, sport, relationships] that is not automatic yet that needs attention.

When you raise the bar in each component area, you’ll move from an automatic state (large comfort zone) to a non-automatic state (‘zero’ comfort zone).  Some can’t hack the loss of comfort.  Others find it’s OK to have small comfort zones because you are betting they are only temporary.

It becomes a balancing act between  that automaticity important in the “now” is the elite level to be reached you were working toward.   One elite athlete I know said to me,

“The day I take the elevator rather than walk up ten floors is the day I’ll have decided to give up being World Champion.”

So most of us settle short of an elite status (business /sport); for club performance, for less, for sub-par.   Thus, we rationalize not reaching our highest potentials in one area when we come to value our current level, or “other” events or circumstances. That too is OK because you know what you are doing. That is life.

When we settle in business, others may identify it as ‘lost opportunity costs” and that may not be OK.  But know that the number of mountains to climb – literally and figuratively – are enormous and, clearly, some are more fun to climb than others.

You get to decide.

Read Full Post »

The case for behavioral strategy

Left unchecked, subconscious biases will undermine strategic decision making. Here’s how to counter them and improve corporate performance.

MARCH 2010 • Dan Lovallo and Olivier Sibony

Once heretical, behavioral economics is now mainstream. Money managers employ its insights about the limits of rationality in understanding investor behavior and exploiting stock-pricing anomalies. Policy makers use behavioral principles to boost participation in retirement-savings plans. Marketers now understand why some promotions entice consumers and others don’t.

Yet very few corporate strategists making important decisions consciously take into account the cognitive biases—systematic tendencies to deviate from rational calculations—revealed by behavioral economics. It’s easy to see why: unlike in fields such as finance and marketing, where executives can use psychology to make the most of the biases residing in others, in strategic decision making leaders need to recognize their own biases. So despite growing awareness of behavioral economics and numerous efforts by management writers, including ourselves, to make the case for its application, most executives have a justifiably difficult time knowing how to harness its power…

~~~~~~~~~~~

Here is the thing…

The subject of the article is the categorization of ‘biases’.

Like the other media forms, if you run out of new terms to use in business, your presentations die an agonizing death of disuse.  This paper provides a fine example of what lack of clarity and  misapplication of  the vernacular does: http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/The_case_for_behavioral_strategy_2551?gp=1

Put ‘Behavioral’ or ‘Neuro-‘in front of almost any expression, term or concept and it would appear that it is born anew.  Throw in a set of myths, superstitions or “common knowledge” as those found in the metaphysics of the ‘subconscious,’ and cognitive biases, then make up some new words, like “debias” and you have the makings of another mechanism that supports ignorance of behavior [corporate or personal] from slippery sound bites.   Lovallo and Sibony have done a story for the acclaimed McKinsey Group and packed it with metaphors, similes and analogies but missed the behavioral part of their article, that is:

  1. EMPIRICISM –
  2. OPERATIONAL DEFINITIONS  –
  3. SHUNNING OF MONOCAUSALITY –
  4. MEASUREMENT OF BEHAVIOR OF INDIVIDUALS, COMMITTEES, OR COMPANIES SUBSEQUENT TO ANTECEDENTS OR AS CONSEQUENCES

Biases are not new, empirical, behavioral or operationally defined and therefore constitute a rehash of psycho-babble that

  1. Doesn’t address how biases come to exist OR influence behavior like selection of options or decisions
  2. Doesn’t address how biases are maintained OR why they are negative, irrelevant or harmful
  3. Doesn’t address what to do to reduce their effects in business for some company benefit

McKinsey Group should move on and get some behavioral assessment partners to mull business approaches with these gentlemen.  With stuff like this being offered to the management of companies that can afford help, is it any wonder that businesses sometimes seem to be clueless on what is going on with customers, vendors, or partners?

Read Full Post »

Tuesday, May 11, 2010

THE SEMESTER IS OVER AND NOW WHAT?

This is not a political endorsement but a process endorsement.

It starts something like this: Under pressure, few of us are as calm as President Obama appears to be.

How does he keep his cool? Someone might ask, “Does he meditate? Does he practice yoga? Has he tried any of the hip therapies that have promised everything that the media has pushed since his election? How about brain exercises? Those are ‘cool’ right now… What kind of medicinal herbs, salt-free diets or protein shakes is he provided that the rest of us need to know about?”

Along with 92,000 other people packed into the University of Michigan’s football stadium last weekend, President Obama deliver a remarkable speech very calmly to the Michigan’s graduating class of 2010.

Volcanoes are erupting, oil vomiting from the ocean, rivers flooding, car bombs smoldering in Times Square and the birthplace of all nation-states collapsing in Europe while wars of our own making are raging along with division and derision of the American people on what to do and how to do it. The whole world seems to be wrenching by the porcelain. Everyone’s ‘rules’ are being broken in so many ways. Yet, President Obama appears to be calm.

Attacks on him as a person, on the office of the President and on his policies are everywhere, any one of which could anger, embattle or create greater amenity toward those yelling, plotting or disagreeing.  Just writing about it spikes my blood pressure.  Yet, he’s been doing something we were taught is a good rule to have; he is listening.

While some contemplate their own navel, march to their small righteousness, stand firm in mystic convictions or ponder what therapies to experiment with next, he interacts with as many Americans as possible.  As pointed out elsewhere, every night President Obama reads ten letters from American citizens. He says, “This is my modest effort to remind myself of why I ran in the first place” he admits. He also admits that about a third of the writers call him an idiot or worse, which is how he knows he’s getting “a good representative sample” he concedes with his typical delivery smile.

If you turn on the news, read the printed media or listen to the talk while getting a Starbucks, you can sense why friends, family and strangers are on edge. Serious arguments about serious issues are bound to arouse emotions during these unique but fear-filled times. Obviously, we can’t solve our problems if we can’t hear the good ideas delivered in the cacophony of that fear. Our fears challenges the possibility to disagree with people’s positions without demonizing them or questioning their motives or patriotism.

The advice he gave to the newly-minted graduates of ‘Big Blue’: “For four years you’ve been exposed to diverse thinkers and scholars,” he said. “Don’t narrow that broad intellectual exposure just because you’re leaving…   Instead, seek to expand it. If you grew up in a big city, spend time with somebody who grew up in a rural town. If you find yourself hanging around with people of your own race or ethnicity or religion, include people in your circle who have different backgrounds and life experiences. You’ll learn what it’s like to walk in somebody’s shoes.”

My advice to you at the end of this class is as robust and just as meaningful contextually: Listen. Suspend disbelief that anyone could accept ideas that you don’t have. Avoid emotional fits; they’re all exhaust. Then, question what you think you know, what your teachers, authorities, gurus, priests or potentates tell you is the ‘absolute’ or the ‘new’ truth. This process has no known short-cuts, is hard & can be lonely but will keep you going when others bog down from rhetoric.

This is not a political endorsement but a process endorsement.

Contorted, twisted and purloined from a P. Warner Post in The Huffington Post : May 9, 2010

Read Full Post »

The iPad, like the iPod, iPhone, and iMac isn’t a revolution in computer science, design interface, consumer packaging nor ui. It’s a revolution of the economics of those things. Now that there’s a device on the market now at 500 bucks and an unlimited data plan for 30 bucks a month it’s almost assured that the iPad type of computing and media platform will be popularized and maybe not even by apple. The hype of the technology will surely drown out the economic story for some time but in the long run the implications of the price of this technology will be the big story.

Sure we have sub 500 dollar computers and media devices. they have never been this functional or this easy. Apple has just shown what is possible so now the other competitors will have to follow suit. It really doesn’t matter in the grand scheme if it’s apple or htc or google or microsoft or Sony who wins the bragging wars each quarter – the cat is out of the bag – cost effective, easy to use, and fun computing for everyone is possible in a mass producible construction.

There are some interesting side effects coming out of this. If a business can’t make huge profits from the hardware or the connection or the applications where will the profit come from? (I’m not saying companies won’t mark good profits I just don’t think it will be sustainable – especially for companies used to big margins.)

Obviously the sales of content matters. Books, movies, games, music and so on. This computing interface makes it far more easy to buy content and get a sense that it was worth buying. If the primary access channel is through a browser I think people aren’t inclined to pay – we all are too used to just freely browsing. On a tablet the browser isn’t the primary content access channel.

The challenge for content providers is that quality of the content has to be great. This new interface requires great interactivity and hifi experiences. Cutting corners will be very obvious to users. There’s also not really some easy search engine to trick into sending users to a sub par experience. That only works when the primary channel is the browser.

If advertising is going to work well on this platform boy does there have to be a content and interaction shift in the industry. Banners and search ads will just kill an experience on this device. Perhaps more old school magazine style ads will work because once your in an app you can’t really do some end around or get distracted. Users might be willing to consume beautiful hifi ads. Perhaps the bigger problem is that sending people to a browser to take action on an ad will be quite weird.

Clicks can’t be the billable action anymore. Clicks aren’t the same on a tablet! (in fact, most Internet ads won’t work on the iPad. Literally. Flash and click based ads won’t function)

Perhaps the apps approach to making money will work. To date the numbers don’t add up. Unless users are willing to pay more for apps than they do on the iPhone only a handful of shops will be able to handle the economics of low margin, mass software. So for the iPad apps seem to be higher priced. More users coming in may change that though.

In a somewhat different vein…. Social computers will be a good source of cold and flu transmission. If we’re really all going to be leaving these lying about and passing them between each other, the germs will spread. Doesn’t bother me, but some people might consider that.

Will users still need to learn a mouse in the future?

Should we create new programming interfaces that are easier to manipulate with a touch screen. Labview products come to mind?

What of bedroom manners? The iPhone and blackberries are at least small…

And, of course, the porn industry. The iPhone wasn’t really viable as a platform. This touch based experience with big screens… Use your imagination and I’m sure you can think up some use cases…

I do think this way of interacting with computers is here to stay. It’s probably a good idea to think through how it changes approaches to making money and how we interact with each other. I’d rather shape our interactions than be pushed around unknowingly….

Happy Monday!

Read Full Post »

I find simple equations sometimes help frame an opportunity.
In the case of software and media companies I have a very basic formula to gauge an opportunity that goes something like this…
M = Maximum possible number of users (consumers or members) a business could capture if they had 100% of the market
C = Average Cost to acquire a user
D = Research and Development cost to develop initial software or media property
L = Lifetime value of the user (can use advertising CPMs, licensing fees, subscrition rates and lengths)
S = seed money or capital to attempt the business
R = Likely Top Market Share Attained (typically not more than 15%)
=>
M * L = Maximum Revenue Lifetime of the Business
D + (C * M) = Maximum Cost to Deliver Maximum Revenue
=>
MaxRev – MaxCost = MaxProfitLoss
You can repeat this exercise with R instead of M to get the realistic model.
I like to make some guess as to how fast a business can get to that max so that I know the rev per year and what not.  Yes, this is a trivial calculation but I think it’s a really useful rule of thumb formula for sizing up an opportunity in software and media.
The key to this equation is estimated M accurately (usually means being very honest with your market).  It’s not too tough with todays tools and open data to get a good look at demographics, buying histories, competitors and so forth.
Note that I make no attempt to account for market valuations and all that.  That way of thinking is usually a chasing after the wind.
Why does this equation help?
Well, the main point is that it gives me a great sense of scope.  Many of the media properties and software products out there cost a ton of money and have mediocre maximum markets or very low lifetime value.  Many businesses are eager to create a killer app but don’t have a grasp of what the scope of a killer app really has to be and/or they grossly underestimate how hard it is to make something.
What I find with this equation is that there’s a sweet spot in media and software.  If you optimize this equation you find that you can’t make software or media that’s too esoteric or complicated to make nor can you make complete fluff.   If you want to make something that appeals to everyone on the planet (not possible) it’s going to cost a lot and the cost to acquire users will be very high… so with this simple equation you learn you’ll be at it for a long time.  On the other hand if you want to make a high end product for a niche, you’ll find that the overall opportunity might not be that big.
Again, this is hardly rocket science, sound economic theory or anything… simple napkin math.
What it doesn’t capture, but hints at is the gross mis-estimation a good deal of entreprenuers make – software and media is more art than science and can very quickly turn into something intractable.
A few other considerations I’ve accumulated over the years in and out of businesses:
  • If your media or software is uber mass market, the big guys are just going to make it and give it away.
  • If your project takes too long (a year or more), you’re going to have many more competitors working way faster than you before you ship.
  • A killer app or killer media property is often not the thing you set out to make, it’s usually the mistake, the tangent, the oddball idea.
  • More capital doesn’t improve the chances.  Capital only helps to scale once something is built, for MOST projects.
Perhaps you’ll find this useful as you move into 2010 and kick start your projects!

Read Full Post »

Wolfram|Alpha iPhone App

Wolfram|Alpha iPhone App

[full disclosure: I’ve been working with the Wolfram|Alpha team… so I’ll leave out a review or discussion on price justification]

The Wolfram|Alpha iPhone App is live in the App Store.  The blogosphere has its own impressions.  Argue price, features, business models, and whatever else that seems relevant in those lively communities.  On this blog and post I’ll give you my impressions and use cases.

Features that are unique and handy to the iPhone App:

  • History – it keeps a running history of your queries.  As a utility for doing many queries within the same domain, this is extremely helpful and time saving
  • Favorites – As with the history, it’s nice to set up your own list of queries you’ll do over and over again.  This becomes a sort of “homepage” for me.
  • better GeoLocation – because the Apps can get at lat/long the overall geolocating is stronger than via the geoIP on the website.
  • Refined Keyboard input – when doing a lot of math or long calculations it’s much easier to input queries with a fine-tuned keyboard.  Though not a limitation on the full website, the constraints of the default mobile keyboards made using the website challenging on a smart phone.  Not so in the app.
  • Direct Links to Source Information – this will go unnoticed by many… but having a hyper linked bibliography with this depth is extremely useful if you need to research deeply or go beyond the calculation.

Features that make this a killer mobile app for me:

  • Instant access to real time information about the most important daily data points in my life all in one app: weather, stocks, earthquakes (i live in la!) …
  • An easy to use calculator that saves me tons of keystrokes via unit conversions and cleaning up my sloppy input
  • deep data in many of my own hobbies, pursuits and professional domains.  Getting an individual app for each hobby is quite expensive, time consuming and frustrating to learn how apps work

Things that can be improved:

  • I wish I could set the Favorites tab to be my default opening screen with a search box on top.  This would speed up activation of the service
  • Offline use for very basic calculations when no compute data is accessed.
  • Ability to Add Notes – I’d like to be able to keep private comments and ideas right inside the app (and export later with links to the inputs/outputs)
  • Mashing with Wikipedia and/or other essay style knowledge sources – would be convenient to have backgrounders on some topics and be able to use the Wolfram|Alpha assumption/categorization to do some of the knowledge mining for me.

Post your impressions/use cases once you get the app.

Read Full Post »

Having myself dug through at least 30 companies traffic and sales data over the last decade I agree with these Wharton researchers.

The Wharton researchers also disagree with Anderson’s theory and its implicit challenge to the Pareto principle, or so-called 80-20 rule, which in this case would state that 20% of the movie titles generate 80% of sales. Anderson argues that as demand shifts down the tail, the effect would diminish. Using Netflix data, Netessine and Tan show the opposite — an even stronger effect, with demand for the top 20% of movies increasing from 86% in 2000 to 90% in 2005.

The most overlooked part of the long tail is that it typically only applies to “power users”.  The researchers correctly note that even though retailers and media companies can offer endless digital goods, they actually need to find a way to introduce consumers to the long tail goods.  And new users/new consumers/new customers typically gravitate/are pushed into the top shelf items (yet again keeping the Pareto principle alive and well).

The Wharton researchers find that the Long Tail effect holds true in some cases, but when factoring in expanding product variety and consumer demand, mass appeal products retain their importance. The researchers argue that new movies appear so fast that consumers do not have time to discover them, and that niche movies are not any more well-liked than hits.

According to Netessine, the Long Tail effect may be present in some cases, but few companies operate in a pure digital distribution system. Instead, they must weigh supply chain costs of physical products against the potential gain of capturing single customers of obscure offerings in a rapidly expanding marketplace. Companies, they add, must also consider the time it takes for consumers to locate off-beat items they may want.

What’s more damning than all these reports and books is actually trying to run a business on the long tail.   I have a lot of experience in trying to do this from search engines to video sites to offline and online retail – the long tail isn’t viable to most businesses.  Consumers just don’t consume that way and products (digital or otherwise) aren’t all created equal (hits are hits for a reason…)

The Long Tail is a powerful marketing message.  It helps start ups justify ridiculous valuations. It helps search engines entice niche advertisers.   It speaks to power users who want to think they are cool.   It’s very much like what happens on Wall Street – economists and financial wizards invent a theory that SELLS their product or service.  These concepts are wrapped up as theory to legitimize them but in the end they are just a sales tactics.  A more advanced version of One Minute Millionaire type books (“buy this book and you can make a million dollars!… for me!)

Anderson did make some of these points in his original article.  He suggests that companies that are long tail and hit sales seem to be best.

By contrast, the success of Netflix, Amazon, and the commercial music services shows that you need both ends of the curve. Their huge libraries of less-mainstream fare set them apart, but hits still matter in attracting consumers in the first place. Great Long Tail businesses can then guide consumers further afield by following the contours of their likes and dislikes, easing their exploration of the unknown.

Let’s be clear though.  LONG TAIL doesn’t exist as a physical reality.  Consumers behave.  Retailers attempt to shape the behavior. … it’s about attending to various consumer behavior sets: the power users vs. new consumers vs. casual consumers.   If you only attend to power consumers  it’s hard to grow big enough to be a mass market leader (if that’s your goal).   If you focus only on hits and new consumers, you’ll never gain long term traction.  It’s pretty obvious why… the hits drive general consumer knowledge.  the long tail products have to be uncovered slowly.  Most media impressions go to hits (so the mass marketing is geared towards hits) because of the positive ROI against media spends.  The hits marketing is arbitraged into long tail products. and so on.  (for data proof just go look at the advertising spend globally…)

“Such is the power myth of the Long Tail. Its time has come gone.”

Read Full Post »

Business Week has a really great article about the value of basic research in R&D Labs to future economies.

Many of the classic scientific research labs, such as Bell Labs and RCA Labs (now Sarnoff Corp.), were started and funded by companies with virtual monopolies and very strong, predictable cash flows. They were able to embrace the uncertainty and serendipity of pure research in the context of their business. But such companies don’t exist today. With the increasing focus on shareholder value that began in the 1990s as global competition heated up, Fortune 500 companies could no longer justify open-ended research that might not directly impact their bottom line. Today, corporate research is almost exclusively engineering R&D, tending more toward applied research with a 3- to 5-year time horizon (or shorter). IBM, Microsoft MSFT, and Hewlett-Packard HPQ, for example, collectively spend $17 billion a year on R&D but only 3% to 5% of that is for basic science.

The End of Labs

The End of Labs

It’s not just a shame, it’s actually a very bad strategy in play right now and for the future.  I once remarked at company retreat I was at that often a company or industry matures so much that it’s only strategy is to invent just for the sake of inventing, with the idea that completely new revenue streams might evolve.  I was quickly slapped down by a major executive, “We need to work on things that can be commercialized now.”  I knew then the fate of that company would be mostly an arbitrage of wall street expectations.  And that’s exactly what it, and 1000s of other companies have become.  This is also why this particular recession is so painful – most companies have no institutional ability to innovate.  Two decades of chaising the near term exit, the 30% stock market rocket shot leave industry stagnant.

Know one knows what the next big idea is.  And no one will figure that out without basic research.  And by big ideas, I mean things like the printing press, the Internet, germ theory, genetics, the Wheel.  You know – THE BIG STUFF that powers generations of commerce.

Read Full Post »

« Newer Posts - Older Posts »