The Long Tail - Stretching to make Free Profitable

One of the economic concepts explored previously by this website is that of the Long Tail. It is one of a number of concepts being studied in an attempt to understand how sustainable development and businesses might function. If businesses do not maximize profits by selling with exclusivity to their richest clients or mass marketing to the fairly affluent middle and lower classes, how to they keep in business? Is there a "market" to be found at the bottom billion or does that require a non-ending program of government handouts whether at the local or global level? Bottom-line question can a business model be created out of giving things away for free?

CHRIS ANDERSON, the editor in chief of Wired magazine, and the author of "The Long Tail" and "Free," which will be published in July, explores the concept of The Economics of Giving It Away in this WSJ.com article.

In a battered economy, free goods and services online are more attractive than ever. So how can the suppliers make a business model out of nothing?

Related Posts:

• Surviving Ideaicide And Other Perils Of The New Economy
• Can Any Of This Make A Difference?
  
• Riding the Long Tail

Surviving Ideaicide And Other Perils Of The New Economy

Some of the recent posts for this weblog have been dealing with the creative-destructive aspects on the Web 2.0 business environment, Kevin Kelly's insights for the creative side and commodification for the destructive. Another post dealt with the new Artisan Economy.

What this post is taking a look at are some of the aspects of the social/business environment in which all of this is suppose to be happening. This is to serve as a reminder that having a laptop does not instill instant creativity or guarantee a smooth road to success.

As this New York Times BUSINESS article on February 3, 2008 By JANET RAE-DUPREE tells us in Unboxed: Eureka! It Really Takes Years of Hard Work

As humans, we want to believe that creativity and innovation come in flashes of pure brilliance, with great thunderclaps and echoing ahas. Balderdash.

Not only do we have to work hard on our own ideas, we have to maintain an openness to conflicting ideas, going back to what F. Scott Fitzgerald advised. This Los Angeles Times article provides a more indepth perspective.

The modern world is an ever-changing mass of contradictions. Reconciling them is fundamental to success, whether in business or in life.

The need to keeping conflicting ideas in balance is hard enough, but one also has to do so in an environment of increasing complexity. As small business expert by Ivana Taylor review of The Complexity Crisis — Why Keeping it Simple is Not Stupid at Small Business Trends' tells us.

Looking at the current business obsession regarding product proliferation, the long tail, and flat worlds complexity the argument goes has run amok among businesses, both big and small. John Mariotti, former president of Rubbermaid Office Products and Huffy Bicycles, lends perspective and clarity to complexity in his new book The Complexity Crisis. Why too many products, markets and customers are crippling your company and what to do about it.

"Businesses must compete in more complex global markets than ever before. Most companies are seeking double-digit growth in markets growing in single digit rates — or not at all. This quest for growth has led to runaway complexity caused by the proliferation of products, customers, markets, suppliers, services, locations, and more. All of these add costs, which go untracked by even the best accounting systems. Complexity also fragments management focus, wastes time and money, and ultimately reduces shareholder value. The problems grow, but they remain under the radar of management attention. Complexity is arguable, the most insidious, hidden profit drain in today's business world."

What is of greatest interest is how, even succeeding in meeting the above challenges, you keep your ideas alive. One source of inspiration has been referenced before, the Change This Manifesto. This time the pointer comes from Brand Autopsy's johnmoore on 2/1/08 Ideaicide Prevention is Everybody's Business.

"Ideas are usually rejected out of turn for being too 'something' — too fast, too unproven, too far beyond the corporate image. 'Too something' is a reactionary description used to take the edge off ideas that are strong, bold, and a little scary at first sight. Your challenge is to help people discover a means, harmonious with the culture, to accept your concept."

Alan Parr & Karen Ansbaugh Ideaicide: How To Avoid It And Get What You Want * ChangeThis Manifesto *

I am not sure that this has to happen necessarily in a corporate setting. GroupThink, which I suspect is a primary cause only needs two to be contagious. Government is also particularly susceptible to this aliment.

Finally, in this type of environment the chances of unhampered non-stop success are slim and none. As the The Entrepreneurial Mind told us back on 1/30/08 Failure Stinks!. Fortunately, Dr. Cornwall provides a pointer to Bounce.

Barry Moltz's long awaited second book, titled Bounce, has finally arrived. From his (Barry Moltz's) website:

Conventional business wisdom tells us that there is always something to learn from failure. Not true--sometimes it just stinks! Failure that offers no real learning value becomes a big jolt to the basic business belief system.

Barry's gift is that he uses humor to offer lessons that all entrepreneurs can learn from. During his last visit to Belmont, Barry offered some glimpses of what he planned to explore in his new book. Just like with his first book You Need to be a Little Crazy, this book is a must read for entrepreneurs at any stage of their development.

Barry demonstrates that developing the resiliency to 'bounce" through these cycles determines who ultimately will succeed. Using real life business examples, he shows that with true business confidence, we can face our fears, let go of shame and failures, use all our choices, be better risk-takers, and define our own brand of success.

Troubadour Troubles - Economic, Legal, Moral? You Pick

The industry most mentioned throughout the Fair Use/Copyrights debate is the music industry. This is not a black and white issue and we lose something of value if we go to extremes in either direction. However, I do believe that the world is changing and we have to choose to fall behind or find new pathways.

Below are excerpts from those whom I believe have correctly identified that direction. What is provided here are only web-bites and for a deeper understanding the original posts should be read. The challenge and advice to those musicians wishing to avoid the 'starving' appellation is raised by Brand Autopsy.

What's a Troubadour to Do?

via Brand Autopsy by johnmoore (from Brand Autopsy) on 1/19/08

Mega-selling recording artist Natalie Merchant doesn't have a recording contract with a major label these days. The digital download era has rendered many top-selling artists, like Ms. Merchant, unattractive and irrelevant as it relates major labels releasing newly recorded CDs.

Writing in the New York Times, John Pareles tells us, "Ms. Merchant is back to the age-old economic model of the troubadour. People who want to hear her latest songs will have to see her perform them."

Wired Magazine gets additional advise for Ms. Merchant and other twenty-first century troubadours from David Byrne.

David Byrne's Survival Strategies for Emerging Artists — and Megastars

What is called the music business today, however, is not the business of producing music. At some point it became the business of selling CDs in plastic cases, and that business will soon be over. But that's not bad news for music, and it's certainly not bad news for musicians. Indeed, with all the ways to reach an audience, there have never been more opportunities for artists.

The best advice though on helping modern musicians survive in the post-modern world of new marketing comes from -

Music lessons via Seth's Blog by Seth Godin on 1/7/08

Things you can learn from the music business (as it falls apart)The first rule is so important, it’s rule 0

• 0. The new thing is never as good as the old thing, at least right now.
  
  • 1. Past performance is no guarantee of future success
    The music business had a spectacular run alongside the baby boomers. As a result, the music business built huge systems. It was a well-greased system, but the key question: why did it deserve to last forever? It didn’t. Yours doesn’t either.
    2. Copy protection in a digital age is a pipe dream
    There’s a paradox in the music business that is mirrored in many industries: you want ubiquity, not obscurity, yet digital distribution devalues your core product.
    3. Interactivity can’t be copied
    Music is social. Music is current and everchanging. And most of all, music requires musicians. The winners in the music business of tomorrow are individuals and organizations that create communities, connect people, spread ideas and act as the hub of the wheel... indispensable and well-compensated.
    4. Permission is the asset of the future
    Today, of course, permission is an asset to be earned. The ability (not the right, but the privilege) of delivering anticipated, personal and relevant messages to people who want to get them.
    5. A frightened consumer is not a happy consumer.
    I shouldn’t have to say this, but here goes: suing people is like going to war.
    6. This is a big one: The best time to change your business model is while you still have momentum.
    The sooner you do it, the more assets and momentum you have to put to work.
    7. Remember the Bob Dylan rule: it’s not just a record, it’s a movement.
    He understands at some level that music is often the soundtrack for something else.
    8. Don’t panic when the new business model isn’t as ‘clean’ as the old one.
    If there’s a business here, first few in will find it, the rest lose everything.
    9. Read the writing on the wall.
    Industries don’t die by surprise. It’s not like you didn’t know it was coming. It's not like you didn't know who to call (or hire).
    10. Don’t abandon the Long Tail
    Instead, in an age when it’s cheaper than ever to design something, to make something, to bring something to market, the smart strategy is to have a dumb strategy. Keep your costs low and go with your instincts, even when everyone says you’re wrong. Do a great job, not a perfect one. Bring things to market, the right market, and let them find their audience.
    11. Understand the power of digital
    You may believe that your business doesn’t lend itself to digital transactions. Many do. If you’ve got a business that doesn’t thrive on digital, it might not grow as fast as you like... Maybe you need to find a business that does thrive on digital.
    12. Celebrity is underrated
    The music business has always created celebrities. And each celebrity has profited for decades from that fame. Frank Sinatra is dead and he's still profiting. Elvis is still alive and he's certainly still profiting.
    13. Value is created when you go from many to few, and vice versa
    The music business has thousands of labels and tens of thousands of copyright holders. It's a mess. And there's just one iTunes music store. Consolidation pays.
    14. Whenever possible, sell subscriptions
    The biggest opportunity for the music business is to combine permission with subscription. The possibilities are endless. And I know it's hard to believe, but the good old days are yet to happen.

The above are again only web-bites (web-bytes?) of Seth's post that I found particularly insightful, even more insight at the original post.

As far as my understanding of the issues issues of fair use, copyrights and artistic content go:

• If it is your material, then it is an economic issue.
• If it is somebody else's material, then it is also a legal issue
• If it is the RIAA's claimed material, then it is also a moral issue.

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Can Any Of This Make A Difference?

One of the questions of this ongoing web 2.0 experiment is whether all of this can make a difference in the real world? A post from CharityFocus Blog: Do Online Communities Lead to Offline Action? gives support to the idea that it can and does. Whether or not it will on the individual level is a whole other question.

"People always ask, "Ok, this online stuff is fine and dandy, but how does it improve our real world?" My meta-level response is usually that the Internet gives you the power to create long-tail networks that gives momentum to niche revolutions. Those niche ideas may or may not serve humanity well, but we'll collectively be better off when those voices are heard. "

• Social Activism: 64.9% of folks who participate in social causes online say they are involved in causes that were new to them when they began participating on the Internet. And 43.7% of online community members participate more in social activism since they started participating in online communities.
• Online Communities: 56.6% of online community members log in at least once a day!
  
• Member Interaction: whopping 70.4% of online community members say they regularly interact with other members of their community while logged in.

Riding the Long Tail

According to Seth Godin in his week 9 Meatball Mondae on the Long Tail, "(Almost) everyone wants choice". He rightly says that "choice makes some people stressed and unhappy", which is something that Barry Schwartz would agree with. But in true marketing fashion he goes on to state that, "it also makes lots of people happy. And now people have the choice."

My interest is more from the economics concept of creative-destruction that I have been reviewing lately.

Competition and the Long Tail From Wikipedia

The Long Tail may threaten established businesses.^[10]

Before a Long Tail works, only the most popular products are generally offered. When the cost of inventory storage and distribution fall, a wide range of products become available. This can, in turn, have the effect of reducing demand for the most popular products.

It is also of interest because it can be related to word frequency which relates to tagging and linguistic evolution which I have also been studying. According to the SEO-Blog,

"Word frequencies in natural languages such as English demonstrate the following property: In a given body of text there will be just a few words that are used very often and a large number of words that are used not so often. This property was noted by the Harvard linguistic professor George Zipf and the precise mathematical relationship is called Zipf’s Law." This is the basis for HitTail.com which this blog utilizes.

Seth then goes on to discuss the trends that are arising due to this change

• a. Online shopping gives the retailer the ability to carry a hundred times the inventory of a typical retail store.
• b. Google means that a user can find something if it's out there.
  
• c. Permission marketing gives sellers the freedom to find products for their customers, instead of the other way around.
• d. Digital products are easy to store and easy to customize.
• e. Digital technology makes it easy to customize non-digital goods.
  

It was Seth that provided me the term change-agent. Even though its hairsplitting the term change-agent organization is far preferable to my thinking over non-governmental organization. The macro-economic class I am listening to informs me that only 30-35% of technological or productivity innovation comes from new machines or inventions, the bulk comes from new ideas from the suggestion box on how to use those new resources better. What I am now contemplating is how social change-agents can utilize this information. Items b through d seem fairly apparent to me. Items a and e are a bit more problematic.