Anderson's Long Tail

Chris Anderson launched in 2004 the Long Tail hypothesis in an article in Wired Magazine, which he reworked into the book The Long Tail: Why the future of business is selling less of more. It is based on the graphical representation of a Pareto distribution. Vilfredo Pareto was an Italian economist who saw that in 19th Century Italy 20% of the population controlled 80% of the country's wealth (this is why it is also known as the 80/20 rule). George Zipf saw the same phenomenon in the use of words. The most commonly used words (such as "the") account for the largest proportion of use. The frequency of words is inversly proportional to its rank in the frequency table. When you display this graphically you get what is known as a Powerlaw distribution. The high use of a limited amount of resources can be found in the "Head", while the low(er) use of a huge amount of resources can be found in the "Long Tail".

Anderson noted a similar distribution in online shops like iTunes (music) and Netflix (movie rentals). In bricks-and-mortar retail stores the amount of available items are limited because of real world limitations to shelf space and distribution issues. In the digital realm, the cost of an SKU is virtually zero. This means that the less mainstream items can also be placed in inventory. His research showed that in these cases selling a little of a lot can also contribute to profit. Simply put, business is ruled in most cases by a given level of scarcity. Thus the most viable business model is one that focuses on selling as much hits as possible, whilst avoiding losses. Anderson postulates that when confronted with more choice, people tend to buy more and with more variety. Niches become more important and generate revenue. In order not to be swamped by the multitude of niches good filters are absolutely mandatory. Filters are not the same as the traditional cultural gatekeepers.

Even though I'm not sure how pervasive the concept of the Long Tail is in the world-wide economy, I am convinced that (for now) in certain sectors and/or for certain ways of doing business it is a force to be reckoned with. Long Tail economics is an important new business model. The classic examples of Amazon, iTunes and Google have shown its viability. Anderson states his case in a convincing well written way. For anyone interested in how the internet is changing our way of living, this book is a must read (together with Weinberger's books). It is a perfect introduction to a new way of thinking about business. The natural follow-up read is Wikinomics, which provides a complementary insight. In short: heartily recommended.

Wikinomics

Don Tapscott and Anthony Williams' Wikinomics, how mass collaboration changes everything tells us how the internet and the digital culture is changing how we are interacting with each other, with the world, and how we are doing business. It is the natural follow-up to their The Digital Economy.

The basic premises of the book is that in thanks to the web 2.0 era the possibility to share information has encouraged a growing number of people to work together and to make better use of worldwide supply-chains. The large, established corporations have not always responded well to this, and most of them are not quite ready yet to change their business models. The authors however encourage companies to become what they call an "enterprise 2.0". The main attributes of such an enterprise are being open, peering, sharing, acting globally.

Being open implies being transparent (to a certain level) towards the world. On the one hand this means that you do not hide skeletons in your closet, on the other hand the authors state that opening up part of your system (which is not core business) can be beneficial. The common example of the latter is the opening up of applications and infrastructures by Amazon, Google and Facebook (but also the outsourcing of innovations by P&G).

Peering concerns working together in an open-source fashion to incrementally improve a given product. IBM has been able to extract considerable innovations from investing in the Linux community.

Sharing information and resources speeds up the process of innovation. The tricky part here is to share important information which do not count as trade secrets. In the beginning of the book, the example is given of a gold mining company in Canada, which couldn't find an important source of gold. Tests had shown that their must be a vast gold vein somewhere on their grounds, but their top geologists couldn't track it down. In the gold mining industry it is considered not done to share geological data. This is exactly what they did, and soon enough the new gold reserve was found thanks to the help of a huge amount of external contributors.

Acting globally is not deciding as a company what you will be doing and then doing this globally. Collaboration should be done on a global scale. Involve all the players in your supply chain. Share the gains and losses, and develop the product together.

All of this doesn't just happen by itself. It needs to be managed properly and done for the right reasons at the right time. Just opening up all your knowledge for the sake of opening up is not the answer either. Coca-cola can share the way they produce large quantities of cola, but they don't need to tell the details of their secret formula. Work together where it is beneficial, share information where possible and keep the secrets of your core business to yourself.

Tapscott and Williams flesh out their basic idea by detailing the components and prerequisites for the creation of an enterprise 2.0, to which they add a large amount of examples in the business world. All in all they make a convincing case. Part of what they are describing is already happening, part might be on its way. What is sure is that the information revolution and globalization is changing our world. The old business models are slowly outliving their usefulness in their current forms. The path sketched in wikinomics (although I'm not really a fan of the word) seems reasonable and well thought out. Only history will tell if it will all play out like that, but I for one hope it will. A culture, and a business, based on an open mentality can only make us evolve faster as a species. In a way capitalism, with the aid of the internet, has succeeded in creating the building blocks for a more egalitarian society in a way that communism never has.

Cluetrain Manifesto

The Cluetrain Manifesto started out as the website http://www.cluetrain.com/. Four men (Rick Levine, Christopher Locke, Doc Searls, David Weinberger), who only knew each other in the third degree, ended up having a conversation one day in 1999 about why the media coverage was all wrong about the internet and why business in general didn't get what it is all about. At one point one of them quoted an acquaintance from a big company that was in trouble: "The cluetrain stopped here four times a day for ten years and no one ever took delivery." The website went live in March 1999 and started a discussion about the relation between business and its customers via the internet.

The manifesto consists of 95 theses put forward as a call to action for all businesses to become a part of the networked world. The similarity with Martin Luther's 95 Theses on the Power of Indulgences is obvious. In 1517 Luther nailed his manifesto to the door of the Church of Wittenberg in reaction against what he perceived to be wrong with the Catholic Church at the time, unwillingly starting the protestant revolt. In the same spirit, the authors wanted to express their thoughts on what was/is wrong with business-as-usual.

The essential idea behind the website, and later the book (online and in print), is that markets are conversations. Back in the day when the 'market' was actually a physical place where you went to, people were discussing wares and news. The items for sale were a product of someone's labor and/or craftsmanship. This all changed with the advent of the Industrial Revolution. Labor became compartmentalized and a new elite came to the forefront. Mass production gave rise to mass markets and eventually to mass marketing. Companies evolved into monolithic entities defending their secrets like a fort. The result of all of this, is that 'business' became psychologically separated from 'people'. Markets are divided into demographic targets on which common denominator advertising is unleashed. This has worked well in an environment where the media outlets can be controlled, i.e. newspapers, magazines, TV ads. And then came the internet. People are getting more and more connected over the boundaries of the physical world. If a marketing campaign tells you that the product in question is the best thing that has happened to mankind since the invention of speech, you will go on the internet to find out how much of the marketing BS is really true. The point that the authors are trying to make, is that businesses should talk to people again, admit that they make mistakes sometimes and then fix'em. If you let your employees get connected, amongst themselves and with the rest of the world, their overall knowledge will increase and thus that of the company itself. The internet is not TV with a pay button. Be honest. Break down the walls of Fort Business.

The message that Cluetrain brings, sounds very appealing. They have a valid point. A lot of companies still use websites that look very good, but hide what you're actually looking for. If the answer to a question cannot be found in a FAQ, try to find another way of contacting anyone (although admittedly, American websites are usually more filled up with flashy BS than European ones). When the company itself fails to deliver information you will go online and find it for yourself. The big divide here is a question of philosophy, which we can also find in the open source vs. proprietary software discussions. The first group basically believes in the power of people and propagates a positive view of humankind, while the latter sees customers as a necessary evil, made up mostly of thieves and freeriders. The record industry is losing money because of illegal downloads, but at the same time myspace is creating new celebrities. A company that has understood the power of a community is Ninja Tune Records. They have an active forum, filled with music lovers and avid followers of the label. People cry that downloading is killing music. It's not. It's killing record companies. Just like new energy sources have killed the coal industry in Belgium. Life changes. If you want to stay with the program, do what successful companies have done. Change your business model and use what the world offers you.

Since the publication of the manifesto a lot has changed, and other things have remained the same. Online advertising still looks very much like typical mass media advertising. It's a bit different with games, since it is good place for product placement. On the other hand, within some businesses, the problem of connecting people within a company has been alleviated somewhat through a proper ICT alignment and the use of knowledge management systems like really useful intranets and groupware. Still, a great deal of work needs to be done and, more importantly, mentalities have to change. No doubt this will happen over time. Today, technology changes very fast and the way we are living with it. This however is only physical. Mentally, people change a lot slower. The internet as we know it, only exists for about 15 years. Historically speaking it's still a baby. We are experiencing a revolution. Not of the kill-the-king-long-live-the-new-leader variety, but a revolution nonetheless: the fourth information revolution (not to be mistaken with the concept that states we're evolving from industrial to more service jobs). The first one was the invention of speech, the second writing and the third book printing. During the previous one, the European continent (with the invention of the mechanical press by Gutenberg during the 15th century; the Chinese were well before us) was characterized not only by a more rapid way of dispersing ideas, but also by better roads and safer means, thus quicker, of travel. The same thing has been happening since the fifties of the previous century: holidays for the working class, affordable cars, TV, telephones, computer science, the internet and cheap airplane tickets. And the end is not near for some time to come. Conversely, all of this is mainly true for the Western world. The poorer countries (as well as digital illiterates in general) will need to find a way to bridge the digital divide. Non-democratic countries have been able to censor and monitor the digital world. Utopia is not around the corner. But, then again, it never was.

Essentially, the manifesto has a positive view on the world and how it's changing. The object was to get people to think about our changing world. As I said, mentalities need to change and that takes time, but also awareness. Right now, most people who are working are 'digital immigrants'. We have learned how to work with computers at a later age, while 'digital natives' are growing up with it. There is no telling how they will affect the rules of business.

New studies

It has taken blood, sweat & tears to get it done, but I am finally enrolled at the Free University of Brussels (VUB). As of today I am officially on my way to become a knowledge manager. The course is called Master after master in Business Information and Services Management (BI&SM). Sounds impressive, huh. I have done all my studies at the VUB (Master in Contemporary History and Master in Archival Science), so I am well aware of the inherent chaotic functioning of the institution. In general, this has always worked to my advantage. Now (since the Bologna changes) it was a bit less funny. The internal mail lost my application papers. As a result I had to apply for a late registration. Which took forever. The most annoying part was the lack of information. It took more than a month before getting any word on what was going on (including numerous e-mail reminders and the help of the head of my faculty). But, that's all water under the bridge now. I am registered. Now I can concentrate on the stress for the upcoming exams and writing a clear definition of what my master thesis will be about.

On a side note, The BI&SM used to be called Master in Business Information Management (BIM). They added the "Services" only recently. The professors still talk about the bim-people though when they want to differentiate between us and the students of another master with who we share some classes. This always reminds me of a track by C-Mon & Kypski (although it has absolutely nothing to do with it):