Saturday, July 08, 2006

Geek Dinner

Last night's Geek Dinner was interesting, with a huge attendance of around 80 people. We started off in the back room of The Bottlescrue pub near Holborn, but there were soon so many of us we all decamped to the terrace outside to enjoy beer and banter whilst awaiting our speaker.

Our guest speaker, Chris Anderson, arrived a little later than planned due to transport problems, but began speaking around 8:30pm to an attentive audience eager to hear his take on The Long Tail theory of market forces. Here is a resume of my notes:

He began by commenting that Capital One credit card in the States was one of the first companies to embrace The Long Tail principle. Originally, they would offer low-rate credit cards to customers considered to be low risk, medium rates to medium risk people and no credit card to high-risk customers. Once they embraced the long-tail principal, they soon learned to slice the market into thinner slices - with a sliding scale of rates dependent on the customer's circumstances. Soon other credit card companies followed. Insurance is a similar market which has not really been tapped so far - partly because the greater risk customer is unwilling to pay the required premiums to acquire cover.

The key to Long Tail theory is that One Size Doesn't Fit All - scaling down is they key. In these days of easier supply chains, it's much easier to service the niche market as well as the "hits" end of popularity. The Bottom-Up pyramid model for marketing is different in that it advocates making one product so cheap that anyone can afford it, whereas the Long Tail is about selling fewer units of more things.

The natural shape of consumer demand is more niche-heavy than you would expect, if consumers can find what they are looking for (eBay and google are good examples of facilitating this). A question was put that "does Google have a monopoly and does it restrict the market for people finding niche products (especially with AdSense incorporated). Chris thought the answer was "no".

TV is one of the most expensive production costs/sales ratio of any product. In times past, a programme might only have been broadcast a couple of times, but now syndication of archive material is the Long Tail of the broadcast chain. Similarly, on-demand services are allowing consumers more choice in what they watch (niche programmes) and when. One example given was the ability to watch Cricket in the US over the internet - unheard of a few years ago.

The BBC is one of the leaders in the UK of making use of Long Tail principal. They have spent millions of pounds digitising archive material without knowing what the demand for it might be, but are now beginning to reap the rewards. Chris thinks is it worth looking to them for leadership and Best Practice in the area. Reuters and ITN are also jumping on the bandwagon for archive distribution. [As an aside, Mark Thompson, BBC Director-General gave two speeches in the Spring which are quite relevent to this debate, and he coined the phrase BBC2.0 in one, which seems appropriate. They were the RTS Baird Lecture given in March 06, and the RTS Fleming Memorial Lecture in April 06, both available to read from the BBC's Freedom of Information website].

A question was put that, in the light of the Media being propped up with Advertising via trusted brands (in TV, radio and in print), it's impossible to measure their effectiveness at present. How long does the current business model have before it collapses? Chris thought that, even though the advertising & media industry is very conservative, it could be a generation before this business model ceases to be operable.

The next question considered "what's in it for content producers". Chris highlighted the opportunities to distribute cult, low-budget films online, without having to have the marketing budgets of the big studios; this goes for music too. A band such as the Arctic Monkeys started distributing in the niche markets, then became a grass-roots hit, then might decay in popularity over time (shows the Long Tail can have precursors too).

Not only does the Long Tail prevail in terms of hits vs niche markets, it also prevails over time - in other words, today's hit can become tomorrow's niche.

Someone asked "where does the tail fall off" - well of course, with a power law, the answer is never. There will always be a market for the niches, no matter how small. Where the cutoff comes in terms of viability depends on your motivating factors - commercial reasons for a product are very different from consumers reasons - and you cannot always anticipate the "value" of something - it's not always measured in economic terms, sometimes things are done for reasons of expression, reputation etc. The Long Tail is perfect for these instances which would not necessarily be viable in purely economic terms.

The market for Hits and Niches co-exists, and in the long term that won't change. New Hits achieved via word-of-mouth can still be achieved. However, these bottom-up hits are likely to get bigger, while the conventional top-down hits get smaller.

Someone asked what the most interesting markets were currently applying the Long Tailed phenomenon. Chris cited the growing trend in the USA for Micro-brewed beer - now there are around 40 varieties of specialist beer where there used to be only 4 big players. He also mentioned The Pentagon investigating Long Tailed Warfare - but did not elaborate too much (maybe he would have had to kill us?)!


Ian Forrester said...

Wow! You must have been writing notes or something?

Caz Mockett said...

I don't do shorthand, I do scribble - which if I read soon enough afterwards I can usually decipher :-)

johnflood said...

Nice presentation of the book, leaving lots to think about as well.