Chris Anderson: Less Is More
Filed under: Co-Creation, Innovation, Long Tail, Mass Customization 2.0, Retail, Social Networks |
Chris Anderson is the editor of Wired Magazine. He is also the guy who first observed, researched & documented the phenomenon known as “The Long Tail”. In early 2004, Anderson was asked to estimate how many of the 10,000 albums accessible via a Web-connected digital jukebox had at least one track played at least once per quarter. Sensing that traditional sales metrics, which would indicate an answer of about 20 percent, didn’t apply to this Internet-enabled example, he ventured an extreme-sounding guess of 50 percent. “I was, needless to say, way, way off,” he writes in his influential book, The Long Tail: Why the Future of Business Is Selling Less of More (Hyperion, 2006). “The answer was 98 percent.”
That revelation inspired Anderson to research the new rules of distribution and customer choice in the Internet Age. In a Wired article, then a blog, and now in his book, he argues that familiar sales charts are obsolete. From Amazon.com Inc. to eBay Inc. to NetFlix Inc., the data bore out his observations: The Internet allows companies to put a far wider range of goods in front of customers than a physical store ever could—and customers respond by buying not just the popular items bunched at the peak of the sales curve, but also the obscure products out on the long tail of the curve.
Moreover, those obscure products far out on the tail might only sell a tiny number of units, but when you add up all the individual items, they make up a large market. Long-tail products don’t replace hits, they replace the monopoly of hits enforced by the limitations of physical retail space. The long-tail phenomenon deals mostly with electronic media and deep-catalog businesses like books and DVDs, but Anderson touches on its impact on manufactured goods and commodities as well. In a recent interview with CIO Insight Magazine, Anderson spoke about the many long tails around us.
Our culture and economy is shifting from mass to niche markets. One size fits all was never a good model, but today, consumers have the power to reject it completely. The internet has allowed the customer to experience one size fits me and they increasingly expect and demand it.
Anderson comments that a growing number of industries as far ranging as heavy machinery to shoes now understand the long tail concept and are working it into their business strategies. In response, Anderson is extending his research by actively learning about those industries.
One observation is that applying a long tail strategy on a commodity business by introducing variety actually decommodifies it. Where have we seen this? The article suggests grocery stores (how many varieties of Coke and Pepsi have se seen in the last few years?). Most mass merchants and CE retailers started selling low-end guitars last year. I saw a few weeks ago where Target is changing the model this year by selling guitars autographed by various musicians. They have taken a commodity, added differentiation, and in the end, generated buzz, demand, and higher margins.
How will this play out in other businesses and what does it mean for physical retailers in general? Make no mistake, producers and retailers will have to answer the call of the long tail. It will soon be the cost of staying in the game. They will need to employ new tools to help them Sense & Respond to the desires of their consumers.
The rise of the Social Internet is making this easier for companies. People are actively sharing their ideas and opinions about products and brands all the time through blogs. That is a fantastic tool for companies. Instead of guessing or depending on feedback from a fraction of customers, they can access the relatively undistorted, honest feedback that is happening in the marketplace among the customers themselves.
The power has truely shifted from the organization to the individual and one of the bid enablers is the ability to search:
We are training a generation—the instinct to use Google to research a company is pretty hardwired in anyone under 30. Google measures links, the expression of respect and interest of other individuals. It’s kind of the ultimate filter for every issue. Your brand is no longer what you say your brand is. Your brand is what Google says your brand is, what individuals think your brand is. When Dell can spend hundreds of millions of dollars talking about its great customer service, and a couple of bloggers can make “Dell hell” show up on the first page of search results, the power has shifted from institutions to individuals.
The smart companies will embrace the long tail and partner with their customers to co-innovate, co-design, co-create. Essentially, enable the customer to have it their way.