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Tag: Economist

Ye Olde Social Media

I’ve written before about my love for the Economist. One of the reasons I stated before were their irreverent titles/illustrations/covers. As a social media aficionado, I had to share this amazing cover. This will hopefully tickle you as much as it did me 🙂 [apologies for the poor resolution, this is the best quality cover I could find on the Economist website – the main blocks of text that you can’t see are, on the TV: “news breaketh”; on the wall, from left to right: “Pitt the Younger on Tumblr”, “Gratis Wye-Fye”, and “Marie Antoinette’s Blog: New Cake Recipe”; pamphlets towards the bottom right from top to bottom: “Wikye Leakes Latest: Josephine Bonaparte’s emails”, “Tea Party Gazette: Bachmann Doth Rock”, and “Chronic Times”]

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On a more substantive note, the special report on the future of news which inspired the cover was quite interesting and I’d recommend any one who’s interested in the future of journalism and the news business to take a look.

(Image credit – Economist)

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Replicating Taiwan’s Success

I’m always a fan of stories/articles highlighting the importance of Taiwan in the technology industry, so I was especially pleased that one of my favorite publications recently put out an article highlighting the very key Computex industry conference, the role of the Taiwanese government’s ITRI R&D organization in cultivating Taiwan’s technology sector, and the rise of Taiwan’s technology company stars (Acer, HTC, Mediatek, and TSMC).

Some of the more interesting insights are around two of the causes the article attributes to Taiwan’s disproportionate prominence in the global technology supply chain:

Much of the credit for the growth of Taiwan’s information technology (IT) industry goes to the state, notably the Industrial Technology Research Institute (ITRI). Founded in 1973, ITRI did not just import technology and invest in R&D, but also trained engineers and spawned start-ups: thus Taiwan Semiconductor Manufacturing Company (TSMC), now the world’s biggest chip “foundry”, was born. ITRI also developed prototypes of computers and handed the blueprints to private firms.

Taiwan’s history also helps make it the “best place in the world to turn ideas into physical form,” says Derek Lidow of iSuppli, a market-research firm. Japan colonised the island for half a century, leaving a good education system. Amid the turmoil of the Kuomintang’s retreat to Taiwan from mainland China, engineering was encouraged as a useful and politically uncontroversial discipline. Meanwhile, strong geopolitical ties with America helped foster educational and commercial links too. Western tech firms set up shop in Taiwan in the 1960s, increasing the pool of skilled workers and suppliers.

It also provides some interesting lessons for countries like Russia who are struggling to gain their own foothold in the lucrative technology industry:

  • image Facilitate the building of industrial parks with strong ties to R&D centers of excellence. Taiwan’s ITRI helped build the technical expertise Taiwan needed early on to gain ground in the highly competitive and sophisticated technology market by seeding it with resources and equipment. The government’s cooperation in the creation of Hsinchu Science and Industrial Park near ITRI headquarters and two major universities helped erect the community of technologists, engineers, and businessmen that’s needed to achieve a self-sustaining Silicon Valley.
  • Make strategic bets on critical industries and segments of the value chain. Early on, ITRI recognized the strategic importance of the semiconductor industry and went out of its way to seed the creation of Taiwan’s foundries. This was uniquely far-sighted, as it not only allowed Taiwan to participate in a vital industry but it also helped create the “support network” that Taiwan needed for its own technology industry to flourish. While semiconductor giants like Intel and Samsung can afford the factories to build their own chips, small local companies are hard-pressed to (see my discussion of the foundry industry as a disruptive business model). Having foundries like TSMC nearby lets smaller local companies compete on a more even footing with larger companies, and these local companies in turn will not only grow but also provide the support basis for still other companies.
  • Build a culture which encourages talent (domestic and foreign) to participate in strategic industries. This is one example where it’d be best not to imitate Taiwan. But, as the Economist points out, the political turmoil in Taiwan until the mid-80s made politically neutral careers such as engineering more attractive. In the same way that “culture” drove a big boom in technology in Taiwan, the environment which fostered smart and entrepreneurial engineers helped bring about the rise of the Silicon Valley as a global technology center (with the defense industry playing a similar role as Taiwan’s ITRI). Countries wishing to replicate this will need to go beyond just throwing money at speculative industries, but find their own way to encourage workers to develop the right set of skills and talents and to openly make use of them in simultaneously collaborative and entrepreneurial/business-like ventures. No amount of government subsidies or industrial park development could replace that.
  • image Learn as you go. To stay relevant, you need to be an old dog who learns new tricks. The Taiwanese technology industry, for example, is in a state of transition. Like Japan before it, it is learning to adapt to a world in which its cost position is not supreme and where its historical lack of focus on branding and intellectual property-backed R&D is a detriment rather than a cost-saving/customer-enticing play. But, the industry is not standing still. In conjunction with ITRI, the industry is learning to focus on design and IP and branding. ITRI itself has (rightfully) taken a less heavy-handed approach in shepherding its large and flourishing industry, now encouraging investment in the new strategic areas of wireless communications and LEDs.

Jury’s still out on lesson #5 (which is why I didn’t mention it) – have some sort of relation to me – after all, I was born in Taiwan and currently live in the Silicon Valley… 🙂

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Tails of the TV

A few months ago, I posted on why the Long Tail hypothesis that technology would reduce the importance of general “hits” in favor of the “long tail” of niche products was wrong and how businesses should respond. In the Economist’s recent coverage of the television industry, they note how this has played out when it comes to how American studios have done overseas:

A few years ago there was much talk of localising television shows. Stung by charges of cultural imperialism, which were particularly loud in France, the big media conglomerates encouraged their foreign subsidiaries to develop their own programming. Although some still do so, it is no longer the rule. MTV India, for example, is dominated by local acts but MTV Poland is a vehicle for international music.

These days MTV International is run “more like a global multinational”, says Bob Bakish, its president. It produces local content where there is demand for the stuff. But it is also a co-ordinated distribution engine for American programming. Series like “Jersey Shore”, an oddly compelling show that trails Italian-American youths around beaches and bars, are now released simultaneously outside America. When Michael Jackson died, MTV quickly assembled a reel of the singer’s performances and dispatched it around the world.

imageHow could American hits possibly outcompete localized content? In my last post, I discussed some of the consumer-oriented reasons why this was true. First, an abundance of choices encourages consumers to make sure they watch the same content as the others in their social circles. Secondly, the same technology which makes it easier for people to access the “long tail” also makes it easier  to access and engage with hits through websites, chatrooms, online “webisodes”, in-show music, related graphic novels/magazines, smartphone apps, games, social media, etc. This sort of multi-platform content strategy even has a Hollywood buzzword to go with it: transmedia.

But, consumer-oriented reasons aside, there is also a fundamental business reason for the dominance of Western television overseas: those studios with the biggest hits are also likely to have the wallets needed to pay for better directors, better cameras, better editing, and better special effects. Combine that with the impact of Moore’s Law on television quality and you have an enviable virtuous cycle which most businesses dream of getting:

Get hold of a copy of a drama made by Hollywood for American broadcast TV—“CSI”, “Glee” or “Heroes” will do fine—and, at a random moment, press the pause button. What do you see? Handsome actors, no doubt. But also a well-composed shot that resembles a photograph, with the actors well positioned within the frame. The shot will be well lit, too. Now do the same for a show made by a foreign broadcaster. The result? Probably less impressive.

Finely crafted television like this is expensive. It costs more than $3m for an hour of drama that is good enough to pass muster on an American broadcast network. The visual acuity of Hollywood’s best shows is a big reason why they can compete against home-grown products that are more culturally relevant. Their advantage is growing as households across the world invest in bigger, sharper televisions.

I don’t think this changes any of the lessons I discussed in my previous post (build a strong PR machine, find ways to cross-sell/bundle, build an efficient and repeatable content creation engine which can survive a few failures but capitalize on a hit); it only raises the stakes – if you don’t have the PR, the bundle, and the repeatable formula: your hits won’t be nearly as big and your failures will be all the more painful.

(Image credit – transmedia diagram)

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Just a bad situation

The recent Economist piece on the situation in North Korea is simultaneously a good read and also incredibly depressing. From my read, the following chart is pretty much the “million dollar slide” which explains why the situation in North Korea is so grim:

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The figure highlights the bind that the US, South Korea, Japan, China, and Russia find themselves in:

  • Massive human suffering demands some sort of action. To quote the Economist: “[Missionaries allowed in the country] say they can see with their own eyes that the level of hunger has become considerably worse in the past few years—in a country where famine led to the deaths of some 1m people, or nearly 5% of the population, in the 1990s. For instance, one man who works there says the number of orphans has surged recently as hunger has claimed their parents’ lives.”
  • North Korea may be on the verge of collapse/civil war. If the collapsing economy weren’t enough, North Korea watchers suspect that the dictator Kim Jong Il’s recent health problems and an uncertain succession means there could be significant internal turmoil once Kim dies. Worse, that turmoil could spill outwards as demagogues finally decide to attack the pretend “South Korean threat” the North Korean government has used for years to justify their power.
  • It is almost inconceivable how much it will cost/how long it will take to “rehabilitate” North Korea. The economic gap is so enormous that its been estimated the cost of “absorbing” North Korea into South Korea would run near $1 trillion for over 40 years. Not to mention, neither China nor South Korea seem willing (let alone able) to take on the waves of North Korean refugees that a collapse in the North Korean regime would bring about.
  • There are no real plans on what to do if/when North Korea fails. How would you handle refugees? How would you handle which military forces are to preserve law and security? How would you handle which parts of the North Korean state to preserve, which to abolish, and which to reform? How would you handle the nuclear materials and huge amounts of arms that are there? If you thought the post-war planning in Iraq was bad, you ain’t seen nothing yet – and this problem touches not just South Korea and the US, but China, Japan, and Russia as well.

You can’t possibly want the current regime to continue, but the alternative seems just as bad. One hopes the international community figures out a way to safely navigate the two extremes.

(Graph credit – Economist)

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Reading for value

My buddy Bill shared an article on Google Reader about the demise of Newsweek which linked to this New York Times article (does anyone else find it ironic that one newspaper experiencing financial problems is calling out another publication’s financial problems?):

American newsweeklies were built on original reporting of Large Events, helping readers make sense of a complicated world, but it is a costly endeavor with diminishing returns during an era of commodified and chewed-over news. Both The Economist and The Week were built, rather Web-like, to “borrow” the reporting and then spread analysis on top, thereby making a sundae without having to crank the ice cream maker.

And in this instance, the foreignness of the brands gives the reader an intellectual sheen that once Olympian domestic brands can’t. The Economist and The Week not only make you smarter at cocktail parties by giving you a brief on the week events, but name-checking them will make you sound in the know. Mention Newsweek and people will wonder whether you’ve been going to the dentist a lot lately.

Don’t you love British wit? 🙂

I’m an avid reader of The Economist, and Bill’s shared article got me thinking of why it is that I read The Economist (and many of the other things in my reading list) rather than the numerous other publications out there:

  1. It makes me look smarter. Okay, lets cover the least important (albeit still true) reason first, so I can get it out of the way and focus on the more substantive stuff :-).
  2. It’s analytical. I’m an analytical guy. If there’s one thing consulting has taught me, its that a reasoned conclusion requires both quantitative and qualitative analysis. I’m not satisfied with soundbytes, and I’m not satisfied with superficial reasoning. But, I probably don’t have the time to follow each thread/claim to its origin, nor do I have the time to crunch through all the numbers. Enter The Economist. How many other publications do you know who’ve created an index for measuring purchasing-power parity based on McDonald’s Big Mac? Or run their own quantitative models on the Greek economy to project how the Greek debt situation might look 5 years from now? Or are even in the business of selling macroeconomic analytical data?
  3. It’s opinionated, but still balanced and rigorous. A lot of newspapers strive to be “unbiased.” I think that’s the wrong approach. There are few articles in The Economist which I would say are truly unbiased. And much to its benefit, I might add. When done correctly, having an opinion means doing the necessary research and analysis and thinking. It means carefully considering opposing views. What distinguishes The Economist’s approach is, even if I disagree with the opinion they conclude with, I am given plenty of the background needed to disagree. What newspapers should focus on is not to provide “unbiased” coverage, but balanced (as in carefully presenting all sides of an issue) and rigorous (going beneath the soundbytes).
  4. It’s timely enough. As a weekly, The Economist can’t exactly provide the up-to-the-minute coverage that cable news networks provide (although a lot of that can be remedied if you just check their website). But, frankly, unless you’re a day-trader or a diplomat, I fail to see why you would ever need to know everything on a “as-it-happens” basis. And, if the tradeoff for not getting the news “as-it-happens” is missing out on hours of repeated soundbytes and the very trite cable news network commentary, then I am more than happy to make that tradeoff.
  5. Original content/coverage. Related to the previous point, although it may not be as timely as a cable news network, the Economist also goes places most cable news networks don’t go. It’s the one place I know I can go to get decent analysis of happenings in the Middle East, Africa, Latin America, Eastern Europe, and Southeast Asia – parts of the world that the cable news networks and major newspapers ignore in favor of endlessly hyping up soundbyte-ridden coverage of more “popular” news items. Also unlike many news sources, they’re also one of the few I can reliably turn to who provide decent science coverage in a way which is respectful of scientists and what they actually found rather than what the newspaper thinks the public is interested in the scientists finding.
  6. It’s witty/doesn’t take itself too seriously. Let’s forget, just for a moment, the witty phrasings/titles that are all over The Economist. Take a look at these covers, and tell me that this is a magazine that takes itself too seriously:

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The interesting thing is, without even thinking about it, the list of news-y blogs/web feeds I follow (right-hand-side column of my Links page) has steadily fallen more in line with the 6 reasons I mentioned above. Of course, the list could always use some pruning/adjusting (and as anyone who’s seen how much I share over Google Reader or on Twitter, they can tell I have a lot that I could cut from my list), but I think this set of 6 criteria is as good as any for helping people to manage their information sources.

What other criteria do people use in finding good sources of information/news to follow?

(Image credit – cover 1) (Image credit – cover 2) (Image credit – cover 3)

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Sushi and soft power

image When I was in college, I had the fortune of sitting in on a talk by Joseph Nye, a famous Harvard professor who helped popularize the concept of “soft power” in foreign policy. The idea in a nutshell is that traditional conceptions of power in foreign policy (or “hard power”) around force, coercion, and payment fail to capture all the dimensions of power that are at work on the international stage. According to Nye, it’s not just about who has the biggest army or richest bank account, it was also about who had the “softer” skills in place to motivate other countries to act without coercion through the appeal of their ideals, culture, and institutions.

While Nye was a very engaging speaker, I have to admit that, at the time, I didn’t really grasp what he was talking about. Back then, I felt that “soft power” was a a luxury by-product of “hard power.” Of course, countries like and respect you — you’re rich and powerful! It was the viewpoint of a college student who believed in objective measures of success and power, and who was not a fan of the importance of “softer” influences.

image It wasn’t until later in my college career that I developed a better appreciation for Nye’s idea. What I hadn’t understood was that soft power wasn’t about getting other nations to like or respect you through strength and wealth. It wasn’t even about winning the Miss Congeniality award in international circles (as some liberals I know have seemed to interpret it). It was far more subtle (and one could even argue, insidious). Rather than compelling China to open up a new trade corridor by threatening them with economic sanctions or military attack, soft power aims to achieve that trade corridor by creating a demand from the Chinese people for US  products or by encouraging the elite in China to want to see their country more open to contact with the US or even  by encouraging the international community to view trade with the US as a sign of economic progress. In other words, the soft power approach is a psychological one where the appeal of one’s culture and image act as the motivating force

An article in this past week’s Economist on the rise of sushi as a cuisine in Syria highlights an example of this sort of soft power influence:

For a country with no particular predilection for fish, sushi is slowly but surely conquering Syria’s capital, Damascus. Ever more foreign-food restaurants have been popping up, from Indian to Italian. But sushi, now deemed the height of sophistication, is becoming de rigueur for the capital’s middle class.

Proud and nationalistic, modern Syria has not been known for welcoming outside influences, be they political, economic or culinary. A decade or two ago Damascus offered just a handful of restaurants serving typical Syrian cuisine. But that is changing as Syria opens up to the world. The sushi boom is partly a product of economic liberalisation, which has most visibly led to a proliferation of luxury services targeting the better-off.

But as more Syrian expatriates return, they are pushing new trends and demanding the services and cuisine they have been used to outside … “The mindset is changing,” says a beady sushi restaurateur. The Syrian outlook is expanding. Flatbread and hummus may no longer do. And is Baathist socialism still tasty?

Now, obviously, this is a long shot from true economic and political liberalization or even friendly relations between Syria and Japan, but with the rise of China and the Middle East, soft power influence like this will become increasingly important tools in the foreign policy arena for the soon-to-be-questioned dominance of the US.

This isn’t to say that the US should stop investing in economic and military might — not only does the rise of a potentially hostile China and Russia suggest otherwise, but the perception of American weakening could also be a big blow to its “soft power” credibility — but it requires the US to pay greater attention to things which continue to give it a moral and cultural upper-hand:

  • Allow more foreign students/scientists to study in the US. The US has one thing where it has an undeniable lead: its schools. That most of the world’s major politicians, scientists, and businesspeople have spent at least some time in the US being educated is a testament to that. It also represents a great channel with which future world leaders and businesspeople can be influenced by American values and and culture. Why the US government doesn’t promote this further is beyond me.
  • Make it easier for skilled foreigners to get visas. This is another no-brainer to me. If there are foreign workers who would like to come to the US to voluntarily learn about US culture and ideals, get a taste for US products and services, and make US friends and, along the way, contribute to American enterprise, then why don’t we encourage them?
  • Remove barriers to cross-border collaboration. There are many foreign companies and organizations who’d love to team up with and learn from their American counterparts. This represents not only a chance to earn goodwill with foreigners, but creates productive relationships which could make it less likely that a foreign government will move in a way to jeopardize those relationships.
  • Enhance the impact of NGOs that perform humanitarian work overseas. Non-Government Organizations (NGOs) like those funded by the Bill & Melinda Gates Foundation are capable of doing a lot of good in foreign countries and thus generating a lot of goodwill towards the US, provided they are run effectively and can overcome bureaucratic hurdles. If the US government can find ways to lower these hurdles and encourage greater impact and effectiveness, they not only help NGOs do better humanitarian work, but also help create more goodwill for the US.
  • Encourage trade. The vast majority of foreigners will neither work in, nor be educated in, nor be touched by cross-border collaboration or humanitarian efforts, but they can still be touched by US soft power through trade. Being encouraged to tailor their products/services to American desires helps educate foreigners about American ideals and culture (not to mention helps to give consumers more choices and lower prices), and buying high-quality American products and brands helps create a greater desire for further contact and trade with the US. After all, one does not have to meet an American to associate the US with wealth and high quality brands.

None of these is the “silver bullet” which guarantees the US will always get what it wants in the foreign policy arena, but collectively, they help maintain the US’s strong cultural standing and influence in the world as its “hard power” relative to rising giants like China and the Middle East diminishes.

(Image credit)

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Russia dreams of Silicon Valley sheep

image The Economist has an interesting article on the Kremlin’s latest push to modernize Russia’s economy and kick-start a wave of innovation which would supposedly lead to a “Russia with nuclear-powered spaceships and supercomputers.”

Far-fetched as this premise sounded, the article raised many thought-provoking questions on whether or not (and how) Russia could hope to build an innovation hub similar to the US’s Silicon Valley. One tidbit I found very interesting was that this isn’t the first time the Kremlin has tried something like this. Apparently, the Soviet Union, had attempted something similar in the past with very interesting political ramifications:

In the 1930s leading Soviet engineers arrested by Stalin laboured in special prison laboratories within the gulag. After the war, when Stalin required an atomic bomb, a special secret town was established where nuclear physicists lived in relative comfort, but still surrounded by barbed wire. Subsequently hundreds of secret construction bureaus, research institutes and scientific towns were set up across the Soviet Union to serve the military-industrial complex. They also spawned a technical intelligentsia. In the 1980s it was this class of educated people—permitted more freedom and better food than the rest of the country, but still poorly paid and not allowed to go abroad—that became the support base of perestroika [former Soviet Leader Mikhail Gorbachev’s attempt to liberalize/open up the Soviet Union which ultimately resulted in its collapse].

Russia’s rulers, however, seem keen on breaking this link between political openness/democracy and innovation:

Yet the experience of Mr. Gorbachev’s perestroika—which started with talk of technological renewal but ended in the collapse of the Soviet system—has persuaded the Kremlin to define modernisation strictly within technological boundaries. Hence Mr Medvedev’s warning not to rush political reforms. His supporters argue that only authoritarian government is capable of bringing the country into the 21st century. “Consolidated state power is the only instrument of modernisation in Russia. And, let me assure you, it is the only one possible,” said Vladislav Surkov [the Kremlin’s “chief ideologist” who put forth the current plan]

Is Surkov right about the lack of importance of democracy and political freedom? It’s hard to say for sure, but the success of the Asian tigers (esp. Korea, Taiwan, Singapore, and China) in this arena suggests that, at first glance, Surkov is right. Innovation and rapid economic growth do not require democracy so much as:

  1. effective and (relatively) un-corrupt governments
  2. free market systems which allow for consumer/business choice and property rights protection
  3. government investment in “innovation hubs” (e.g., Silicon Valley) where companies/universities/individuals readily share insights and collaborate

Of course, the flip side of the argument, is that its pretty rare for (1) and (2) to exist without democracy and at least basic political systems in place around due process and the respect for individual rights.

imageA successful attempt on (3) is difficult, regardless of the type of government authority (think of the countless failed attempts by cities, states, and countries to replicate Silicon Valley), but is especially difficult for “command regimes” in attempting to encourage innovation. It’s much simpler for an authoritarian government to find ways to double steel production (a la the Soviet Union’s Five-Year Plans) than it is for an authoritarian regime to encourage the trial & error, open exchange of ideas, and “disorganized” development which is necessary to drive innovative technology disruptions (which by definition can’t be “commanded”).

I’ve even heard it theorized that one reason the Soviet military elite allowed the perestroika which helped lead to its eventual collapse was their recognition that authoritarian regimes were not effective at encouraging the sort of innovation needed to build the computer technology which was giving (and still gives) the US its military advantage over the rest of the world.

But the harshest (and snarkiest) indictment of Russia’s short-sighted strategy here comes at the end of the Economist piece:

Mr Surkov is quite right when he argues that democracy would not stimulate technical innovation. The reason for this, however, is that under democracy a country with a declining population, a frighteningly high rate of birth defects, crumbling infrastructure and deteriorating schools might find a better use for taxpayers’ money than pouring it into Mr. Surkov’s Silicon Valley dreams.

Russia’s economy will likely grow quickly, regardless of the success of the Kremlin’s latest plans, by virtue of its resourceful population and economic convergence, but I suspect its future in terms of quality of life and innovation depends on whether it ever gets around to its much-needed political reforms.

(Image credit) (Image credit)

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Heads and tails

I just read a really interesting Economist article which, at first, I thought was very counter-intuitive.

image In the early days of television, there was very little in the way of network selection for the average TV-viewer. There were only a handful of stations and, regardless of how bad the content on a given station was, those stations would stay in business because they were the only stations around. Heck, even if the station’s programming was completely awful, there would still be plenty of people watching it simply because it was one of the only things that was on.

Flash forward a few decades. We now not only have many television stations, not to mention cable, satellite, and internet video. We have enough DVDs to last a lifetime. The web has made it so that anyone with a camera and an internet connection can broadcast to YouTube.

Given all this, what would you expect to happen to what people watch? If you’re anything like me, you would’ve concluded that the power of the internet to connect people with what they want and the abundance of new video content would have encouraged people to “spread out.” Why would you stick to a few “staple” networks, when you can now watch the SyFy channel for science fiction, CNN for the news, and YouTube if you want to keep LonelyGirl company?

imageWell, writer Chris Anderson seemed to agree and he popularized this idea in a book (and “theory”) he called The Long Tail (book cover to the right). In it he describes exactly what I just laid out, that because technology makes it easier for people to find the things which the majority of consumers aren’t interested in, the future of business would be less about selling a few popular items that “sort of” appeal to the “average person” and much more about selling a lot of the “the long tail” (pictured graphically below) of things which really appealed to a few people apiece. Or, to use the TV analogy again, the idea behind the Long Tail is that it makes more sense to create a bunch of small TV stations which focus only on a few niches than it is to have one big station that tries to satisfy everyone at once. This is, after all, one of the big ideas behind eCommerce sites like eBay. Wal-mart or Target can and will stock lamps which sells several millions of units, but because they can’t possibly stock every lamp, they won’t satisfy everyone. The Long Tail theory says that the real money to be made is in selling the millions of things which are only going to sell a few items apiece, but because those items are exactly what those people want, you can probably make a little extra profit off of each.

After all, how many authors or singers have you absolutely loved, but knew they could never go “mainstream”?

image

As appealing as that idea was (especially to the snobs out there, myself included, who just wanted to assure themselves that the real money wasn’t in going mainstream but in going for the nobody’s-ever-heard-of-them CD/book/electronic/movie), reality has not played out quite that way.

While there is no doubt that the internet has expanded choice such that people now have access to the long tail, instead of seeing a diminishing “head”, the size of the biggest hits has increased dramatically. Take books as an example. From the Economist:

A study of the Australian market by Nielsen, a research firm, found that the number of titles bought each year (measured by ISBNs) has risen dramatically, from about 275,000 in 2004 to almost 450,000 in 2007. Niche titles selling fewer than 1,000 copies each accounted for nearly all the growth in variety. Yet their market share fell. In Britain, sales of the ten bestselling books increased from 3.4m to 6m between 1998 and 2008.

So, instead of seeing a migration from the “head” to the Long Tail, we’re seeing Goldilocks’s middle-of-the-road players getting crushed by blockbuster hits on the one side and the long tail on the other. This begs the question: why are hits doing so well when there’s so much else out there? Again, the Economist:

A lot of the people who read a bestselling novel, for example, do not read much other fiction. By contrast, the audience for an obscure novel is largely composed of people who read a lot. That means the least popular books are judged by people who have the highest standards, while the most popular are judged by people who literally do not know any better. An American who read just one book this year was disproportionately likely to have read “The Lost Symbol”, by Dan Brown. He almost certainly liked it.

Ironically, it turns out the technology which makes the long tail more accessible is even better at turning hits into even bigger hits. After all, the internet helps spreads word-of-mouth for hits and long tail products alike. If anything, the fact that technology today makes it so easy to choose between different things is going to drive people to look for hits if only so they have something to talk about with one another.

Unfortunately for content and product people, this makes business very tricky. It means you can take one of two routes to success: make a blockbuster hit or sell a lot of niche products which appeal a great deal to a few people each. The former is tough to do because its hard to know what will be a hit. The latter is tough to do because you’ll need to have a very lean cost structure to be able to profitably make a lot of products which are only selling a few units a piece. But, the worst part is that trying to split the difference between both is especially hard as the former requires a big budget for marketing and for getting the best writers/artists/coders and the latter falls apart because you need to make many different things.

How things will ultimately shape out is anyone’s guess, but my perspective is that the smart companies out there will do three things:

  1. Invest in strong PR and marketing muscle. If people seek hits because they want to be able to talk about things with each other, then the job of the product/content company is not just to make the best product possible, but its also to get people to talk about it. This means the smart companies will invest heavily in either a strong internal public relations/marketing group or a partnership with someone particularly strong in that area. This will be especially critical for the largest product companies/studios as having a strong PR/marketing capability will be an asset they can leverage across all their products, both those that need to be hits and those going for the long tail.
  2. Find ways to cross-sell. The economics of a long tail business are grim, because they involve keeping and developing a wide range of products that are each only going to sell a few items. How do you do well with that type of strategy? The answer is that you do everything possible to turn flops and long tails into hits. One approach is to take a page out of Amazon.com’s playbook: recommendations. Amazon has found a way to encourage buyers to not just buy one thing, but to buy several by using a sophisticated computer algorithm to find products which people tend to buy together. This lets a company use one product to many others: free marketing, in a sense.
  3. Be a lean, mean product-making machine. The only way to survive hits turning into flops is to make sure the hits don’t cost too much to make. The only way to make the long tail profitable is to make sure you have a lean operation in place which quickly and cheaply cranks out high quality ideas. Take some of the large social gaming companies like Zynga, maker of the very popular Facebook game Farmville. Don’t tell me that Fishville, Petville, Yoville, and Cafe World are completely original ideas :-). This is not to bash on Zynga, as I think the idea is brilliant and the quality of the games lies in the execution not necessarily in the originality of the concept, but in a world of hits and long tails, the best strategy is to find some core engine which you can re-hash and improve upon again and again. And few can question Zynga’s winning formula in that arena.

(Image credit – TV) (Image credit – Long Tail book) (Image credit – Long tail diagram)

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