I was fascinated by the many issues and implications around the shuttering on May 21 of Disney’s MMOG (massively multiplayer online game) the Virtual Magic Kingdom. Most companies would kill to build a high-profile interactive social community with in excess of a million faithful users, but here was Walt Disney Parks and Resorts abruptly closing the three year old game site, apparently thumbing its nose at loyal fans  and taking a lot of heat online and off for their trouble. What were they thinking?

I first heard about the outcry on CBC Radio’s excellent weekly program on all things digital, spark (you can get the podcast of the show that originally aired May 7 here and on itunes). The Wall Street also ran a good summary story about it last week.

Disney isn’t saying much officially, but naturally a lot of others are. In fact, Disney’s only statement, really, when it announced the closing on April 7 was that the free site was originally created as only a temporary promotion to mark the 50^th anniversary of the opening of its first theme park, Disneyland in May 1955. The life of VMK, as it quickly became known to aficionados, had been extended several times since owing  to its immense popularity,   but the time had finally come this spring to move on to other promotional activities.

Critics piled on accusing the company of among other things crushing the dreams of the 8-to-14 year old primary VMK user base (although many adults were also apparently playing) and disrespecting the feelings of the community it had invited and encouraged to build the experience.

There is something to both those argument.  An academic speaking on the spark program made the point that if a real theme park shuts down the regular visitors would, of course, be disappointed, but probably not too emotionally invested in it. In a virtual theme park like VMK, where big parts of the experience are the social interaction and consumer generated content that are created by the visitors themselves, the users have a more intimate stake in the place. As such you could argue they deserve more of a say in its fate.  Morally, at least.  Legally, of course, every user signed away any ownership rights to anything they did or co-created in the VMK in the fine print of the user agreement they had to accept to get in the first place. 

Just as interesting, I think, is the fact that Disney’s success at making VMK a safe community for kids online has severely hindered the company’s flexibility in graciously closing the site. Because exchanging e-mails or phone numbers or really anything that would fellow VMK users  to identify each other off line was strictly verboten,  there’s no way for kids to ever find or reconnect with their VMK friends once the online park is shut. (Now we can ponder whether virtual friends whom we don’t know basic information about –like their names, where they live etc. - are really friends, but the answer from those who spend a lot of time immersed in MMOGs is unequivocally yes.)

So why would Disney provoke it loyal VMK users and violate just about all the conventional wisdom about building and maintaining vibrant social communities online? And, the abruptness of it all doesn’t quite add up either.

 Certainly, VMK had to be a very costly proposition to maintain, especially with all the human supervision needs that a place for kids requires. And, it is true, promotions are generally aimed at achieving short term goals.

But, thinking about online communities in terms of tactical promotional tools is extremely short sighted. And when something takes on a life of its own like VMK did, that’s gold. Why would you abandon it?  And assuming even if VMK wasn’t building overt sales and traffic for the real theme parks, aren’t the data and consumer insights from something like this more than worth the effort?

Speaking after his keynote presentation at the mesh 08 conference last week keynote. Club Penquin co-founder Lane Merrifield dropped some hints that there was more at play in the end of VMK. Club Penguin, of course, is the Canadian built site targeting a similar demographic that Disney purchased for $700 million last year.

I asked Merrifield if Disney executives had consulted him on the closing and what he thought of it all.  He was very careful in his response, but did say that Disney, in effect, had wanted to keep the VMK property going, but its partners in the project had engaged in some heavy-handed gamesmanship about its direction and fate. Disney was stoically taking the bulk of the PR hit for a decision that it wasn’t completely in control of, he suggested.

Disney’s partner in VMK, by the way, was the Finish Sulake Corporation, best known for creating the  Habbo online multiplayer community/game sites aimed at teens.

So maybe a big lesson, aside from be thinking about your exit strategy for social communities when you start them: be sure about your partners.

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 1:31 PM EDT

Share This Post

Post Comment | Permalink

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 1:46 PM EDT

Updated: Monday, 23 June 2008 2:07 PM EDT

Share This Post

Post Comment | Permalink

Kaplin, a former White House staffer, broadcast journalist and MTV politics and technology producer, predicted that as online show creators begin to draw audiences in the tens of millions for their programming they will be in the driver’s seat as traditional broadcasters inevitably seek them out to work their magic. See her comments here.

Kaplin, whose New York-based double Webby-award winning video sharing web site enables independent producers to create their own TV shows for the Internet, made the comments during the panel on the future of online video at the mesh conference 08 in Toronto May 21. 

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 1:53 PM EDT

Updated: Monday, 23 June 2008 2:10 PM EDT

Share This Post

Post Comment | Permalink

 The Internet has boomed over the past decade owing largely to the unprecedented free flow of communications and content. But the Net’s ability to foster individual and business creativity, especially in Canada, are potentially threatened by several current pushes here to unduly restrict, directly and indirectly, the online freedoms we take for granted, says Dr. Michael Geist, the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa and arguably the country’s foremost expert on technology law.

Geist spoke at the mesh conference 08 in Toronto May 21 on the power of the web to unleash new forms of public advocacy here and around the world (video and audio highlights can be heard at his blog).

But Geist also addressed the looming new round of federal copyright legislation –which was to be introduced late last year, but put on hold apparently in large part because of advocacy efforts lead by Geist- that, if, as expected, it closely mirrors U.S. rules, could dramatically reduce what companies and individuals can do with content online. As well, he touched on the growing practice of Internet Service Providers like Bell, Rogers and Telus of “shaping” and “throttling” the web traffic of their customers. This, in effect, has corporations taking for themselves the right to decide what  people can do and say online and as such raises a host of free speech issues. As well, he says, even the recent announcement that the CRTC will revisit its hands-off policy of web regulation in a new review this summer will likely unleash calls from various groups for tighter controls and regulation online.

Following his talk, I spoke to Geist about these issues. See and hear the interview here.

Post script: Industry Minister Jim Prentice finally introduced the new federal copyright legislation, Bill C-61, which contained most of the elements Geist has predicted, on June 12.

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 12:00 PM EDT

Updated: Monday, 23 June 2008 12:34 PM EDT

Share This Post

Post Comment | Permalink

That’s totally the wrong approach, Bhargava insisted. It’s like throwing your hands up and just giving up.

You still have to control your brand, make key decisions about what you want to stand for and who you want to speak to. You do need to learn to “share control” with consumers. But that’s a far cry from ceding control entirely.

I go to a lot of these kinds of conferences and read a lot lately about this issue. I can’t recall such a common sense challenge to the mantra of the customer is totally in control in the digital world. It was refreshing. And I’m sure the perspective would be a big relief to marketers whose guts have been telling them to resist the chorus of advice telling them to give up control.

Bhargava, by the way, is the Washington DC-based senior VP, digital strategy & marketing at the Ogilvy 360 Digital Influence Group. He also writes the well regarded Influential Marketing blog and has just published the book Personality Not Included: Why Companies Lose Their Authenticity and How Great Brands Get It Back (McGraw-Hill). Think we’ll be hearing more about this book.

It was a pretty good panel all round actually.

Shortly before Bhargava’s comment, Maggie Fox, head of the Social Media Group had floated that marketers really only control about 25% of their brand image (conceding it would have been better if she could remember the source of this stat), and that things like consumer word of mouth, media and even employee communications have huge impacts. I don’t see that statement as necessarily inconsistent with Bhargava’s, even if you might debate the per centages.

However, Michael Garrity, president and CEO of the CommunityLend –a Toronto start up in the social lending field that plans to go live in August-  got the biggest laugh of the afternoon by stressing that the best way to build a brand on the web is to “not suck.”

Seriously. The product or service stands or falls on its merits, and no amount of banner ads, blogger relations or Facebook communities can save a bad product from itself.

It was essentially the same point that Lane Merrifield, founder of Club Penquin –which everyone knows, after being founded and nurtured in rural B.C.,was sold to Disney last year for $700 million- made in his morning keynote conversation. Merrifield, in fact apologized to those who’d come hoping to hear the magic recipe for marketing a massive community like Club Penquin (12 million users, 700,000 paying subscribers). They’re only now interviewing for their first marketing director. His best advice: do a great product and do it better than anyone else.

So near the end of the branding on the web panel when moderator Mark Evans commented that Club Penquin had built its brand without spending anything on marketing at all, it occurred to me that that simply wasn’t true. They spent a ton on product development. And in the end Club Penquin’s marketing was the quality of its product.

If the Web has changed anything, it has taken away the ability of marketing to “fake” a brand. The ultimate key to success in branding on the Web is having a product that markets itself. And that doesn’t happen by accident. And for sure, as Bhargava would have it, marketers also still have total control over their product development. (Not that it couldn’t hurt to share some control there either-but that’s a conversation for another day.)

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 1:24 PM EDT

Share This Post

Post Comment | Permalink

MIT anthropologist Grant McCracken gave a decidedly non-linier talk during the opening evening session at the Institute of Communications Agencies Future Flash 2.0 at Niagara-On-The-Lake last Wednesday.  Of all the presentations I’ve heard in the past week –and believe me, between our own In:fluencia Digital Interactive Marketing Conference featuring Chris Anderson and Paul Gillin and the Canadian Marketing Association ’s annual convention, I’ve got an overload of good presentations percolating in my brain right now- this one was perhaps the most salient. That’s as much because of the plethora of intellectually challenging ideas McCracken unleashed in his hour or so, as to the polar reactions to it I encountered during the social that followed at the Jackson-Triggs Estate.

The Canadian-born McCracken spoke to 80 or so senior Canadian ad agency executives and a few guests about “marketing for the new media and the new consumer.” His style and content seemed to channel Marshall McLuhan –with a bit of Dustin Hoffman’s Rainman in the mix­­- in that there were a lot of accessible probes and observations that, added up, seemed a bit chaotic and confusing. Some people find that stimulating. Some find it off-putting.

Some typical take aways, culled from my rather disjointed notes nearly a week later (did I mention the venue was a very nice winery):

•         McCracken talked about how a lot of the IT-focused people at MIT are bugged by Twitter and how’s it used for seeming trivia, or “exhaust data.” All this brain power and technology, their reasoning goes, and people use it to tell each other they’re going to the store or the bathroom now.  But McCracken noted that in anthropological terms the efforts by people, especially by teens and young twentysomethings, to stay in constant contact with their social networks through things like SMS, instant messaging, Facebook and Twitter, are akin to the gruntings and mutterings of primates (or the tweets and twitters of birds). It’s called phatic communications, and it’s all about saying “I’m here, you’re here, we’re all fine.”

•          In a sense, McCracken said, we’re “all Korean now” in that we in North America are now “always on” via cell phones and other PDAs –something that not long ago was unique to South Korean culture. And our contacts never die; indeed, they multiply. With things like Facebook and Linked In we’re now able to stay in touch with everyone we’ve ever known with as much energy and efficiently we might have used to keep in touch with our dozen or so closest friends and associates in the recent past.

•        McCracken observed that the new consumer see themselves as producers, as well as consumers, of content. They’re collaborative and experimental. And in that context, the old “stand and deliver” model of marketing is obsolete, he said. In fact, the day of the finely crafted in stone USP (unique selling proposition) is done.  The new consumer is looking for dialogue and exchange, not a heavily-scripted one-way monologue shouted at them.

What should marketers specifically be doing in this new world?:

• Reward the “editors” and “curators,” for one thing. These self appointed connectors can be your allies in spreading your message if they are motivated and enabled.

• Enable “distributors,” or as McCracken put it more bluntly: “shoot the lawyers.” It’s now an open source world, and anything that impedes passing on content that in the past we’d try to control through things like ridged intellectual property rights rules will cause messages to be ignored. You have to “release control” and “give to get,” he said.

• Enable social networks, especially using mobile devices. The IT guys may not like it, but “tiny bursts” of content (whether “exhaust data” or not) makes the social networks hum. Make lots of them, and design them to be adaptable.

McCracken had much, much more to say, but I long ago passed the point where this post constituted a “tiny burst” and you get the drift.

But, as I said up top, for me the most interesting thing was the reactions of people at the ICA event. Almost to a person the ad agency executives I encountered got a starry-eyed look and were effusive in their praise of McCracken’s presentation. Not so much the reaction from Association of Canadian Advertisers president Ron Lund.

Lund’s gut response when the presentation was over was “and… so what.” Yes, Lund said, what McCracken had to say was pretty cool and interesting… but what can you actually do about it? How do we act on this stuff?

I’ve always found Ron’s down to earth approach refreshing. There is something to be said for remembering that when someone is dazzling you with their brilliance, the fact that they’re saying things you don’t quite understand might not be because you are the one who doesn’t “get it.” And remember, as ACA head he is the voice in Canada of the C-suits in the traditional marketer sector, which is populated with people who have –and by their job functions are required to have- a similar skeptical “show me” attitude toward all things new, including  the emerging new interactive marketing paradigm.

That said, new technologies are enabling consumers –and the rules for engaging them – to change at an accelerating pace. No, the jury’s not in yet on what to do about and with a lot of this stuff. But even if we haven’t figured out how to –or even if we can- use these new mediums and trends for marketing purposes yet, we do need to learn about them. It’s not Grant McCracken’s fault the new world is a complex place.

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 12:37 PM EDT

Updated: Monday, 23 June 2008 12:56 PM EDT

Share This Post

Post Comment | Permalink

Companies are missing huge opportunities for up-selling and even simple branding with the slew of transactional e-mails they regularly send to customers.

Even modest improvements to transactional e-mails can result in reduced call centre costs and increased average order sizes through cross- and up-selling, Ryan Deutsch, director, strategic services with StrongMail Systems of Redwood City, Calf. told the Canadian Marketing Association annual conference earlier this month.

Transactional e-mails are “anything that facilitates or helps a transaction or sale,” and can include order confirmations, etickets, billing notices, shipping notices and even password changes.  Many organizations aren’t even conscious of how many email contacts they have with customers, and certainly in most cases marketing departments are out of the loop on automated “machine to machine” messages from shipping, order processing or other IT-driven departments, Deutsch notes. In the case of one client he was working with recently, the organization had 80 different potential streams of communications with customers, and the marketing team was only aware of just two of them.

The average open and click through rates for transactional messages are much higher than for commercial messages like sales offers and newsletters. According to a study by ClickZ.com in the U.S., 26.9% of commercial e-mails are actually opened, while a whopping 70% of transactional messages are opened. The gap for click through rates is even more stunning: just 7.2% of commercial messages are clicked through, while 50% of transactional messages get clicked.

For that reason alone, companies should be sure they get the branding and cross sell messages right, Deutsch says.

Some organizations like expedia, itunes and Eddie Bauer do a great job of both the branding and promotional offers in transactional messages, Deutsch says. In the case of expedia, order confirmations always inquire if the recipient also needs to book a hotel room or car rental with their travel faire.  Itunes order confirmations often show items that others who purchased the same thing the recipient is about the buy also bought.

Still, too often transactional e-mails are bland plain text affairs that don’t even use branding that’s consistent with the overall marketing messaging, Deutsch notes. Sometimes that’s because companies fear running afoul of regulations governing e-mail contact.

There are indeed rules guarding against turning transactional messages into stealth ad messages. But regulations in the U.S. –which are largely the same in Canada- allow branding and selling on these messages as long as the transactional elements are front and centre and constitute about two thirds of the total message content. And there are few limits to creativity. The only real no fly zone is in using the message line for selling.

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 3:11 PM EDT

Share This Post

Post Comment | Permalink

Companies with conservative cultures should approach social media cautiously and in small steps. But they should definitely approach it. That was the key message from Tim Collins, senior vice president of experiential marketing with Wells Fargo & Company, brought to CMA’s National Convention this week.

With 100 million people watching YouTube daily, and tens of millions on sites like Facebook and conversion in their own blogs, your brands are inevitably going to get mentioned, so you need to be there to at the very least “listen and learn,” Collins said. “People are talking about you online, as the folks at Tim Hortons learned last week.”

Wells Fargo is one of North America’s oldest (established: 1852) and most trusted brands, and as a bank it is a very conservative business, Collins said. Yet, it has been something of a cutting edged innovator online, becoming the first U.S. bank to start blogging, the first brand period to set up a presence in Second Life and becoming one of the first companies to actively use YouTube.

Collins says the bank stuck to the marketing fundamentals in edging into the Web 2.0 space, approaching everything with the traditional goals of connecting with consumers and driving business results.

 Collins urged companies to start “small and safe” when entering the space. And he advised being sure to integrate whatever is done with offline marketing. Companies should look to leverage their existing assets. “No matter what your company is, you have assets,” he said.

In Wells Fargo’s case, it played up its heritage and history in the development of the American west in its first president’s blog. When it debuted in early 2006, the blog focused on the 100^th anniversary of the great San Francisco earth quake of 1906 and how the company helped its home city to recover.  Subsequent blogs dealt with other aspects of the company’s history.

When looking at what to do on YouTube, the bank observed that most video posts from financial services companies are boring and don’t have many views.  But, in an example of an asset the bank wasn’t even conscious it had, Wells Fargo also found that people were posting clips of “The Wells Fargo Wagon” song that had been featured in the 1950s Broadway musical, and subsequent movie, The Music Man. Collins noted that regional theatre and school productions of the show are still common in the U.S. Midwest –Well’s Fargo’s home turf-  and people were frequently posting versions of the song featuring friends and family on YouTube. 

So instead of doing it’s own video, the company created a contest, and invited people to vote on the best performances filmed by other people.  The CGC contest was  “silly and safe” Collins says, but it gave the company an opportunity to learn about what works and doesn’t work with video online.

Wells Fargo took a similar “watch, listen and learn” approach to its Second Life initiative, stagecoachisland.com, begun in 2005.  Citizens of the island can interact and play all kinds of Second Life games, including some smart money management quizzes. As well, citizens  can get paid virtual money for doing virtual jobs and even take out virtual mortgages (no subprime mortgages, however) But the only overt Wells Fargo created branding on the island are ATMS with the bank’s name. It hasn’t been necessary to force the conversation, Collins said, noting that visitors have even taken to creating bank branches on their own accord.

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 3:25 PM EDT

Share This Post

Post Comment | Permalink

 Took in Toronto’s Case Camp 7  at the CiRCA night club a week or so ago, and it was an eye-opener on several levels.

First, there were almost 500 people–and not just bleeding edge digital agency types, I even spoke to someone from the Ontario government. They came out to hear the four short, sharp presentations of real life social and viral marketing in action–and to get in some major socializing and networking. Those numbers appeared to take even organizer Eli Singer, whose day job is director of social media at Toronto’s Segal Communications, off guard. There’ve been six other Case Camps in the past 18 months or so, including one in Second Life, and the growth has apparently been exponential for the handful that gathered around a couple of tables in a bar for Case Camp 1. Clearly, there’s a burgeoning hunger for knowledge and insight in the social space.

Case Camp is billed as an “anti-conference,” and with its free admission, very loose vibe and the nearly naked Amazonian mannequins flanking the club stage, this one surely was. Sue McVey, TD Canada Trust’s VP marketing planning, who presented the story of the bank’s Facebook program aimed at college and university students last fall, got off the best line of the night when she glanced archly at the boa-clad mannequins and quipped “I don’t think this is brand compliant.”

Singer acted as MC, and he had almost a Gong Show shtick going. Each speaker had just 15 minutes to do their case, and Singer had a big alarm clock on stage to enforce the timing (“If it can be presented in 45 minutes, in can be presented in 15,” he declared).

Actually ComScore MediaMetrix Canada’s Bryan Segal had just three minutes to present a snapshot of the entire state of social media in Canada–and he appeared to pull it off. Bottom line: Canadians are proportionately more active in social media than any other nation.

Despite the boho circus atmosphere, the substance of the Case Camp presentations were impressively grounded in real business issues–save for possibly one, which I’ll get to in a second. Aside from TD Bank, the RedFlagDeals.com founders told the story of their founding and remarkable growth and the Sick Kids Hospital Foundation shared their learning from a daily video blog they produced, with Segal, to augment the charity’s annual radio telethon this spring. 

But what got the crowd most fired up–and that fire has had an impressive and continuing echo in TO blogging circles–was the presentation of an “experimental art project” from Toronto screen writer Jill Golick.

Golick presented her creation, Story20h! as a work of fiction/online performance art featuring several characters who interacted with each other–and the “audience”–through their personal blogs, YouTube video posts, Facebook profiles and even Twitter. The story line appears to be a kind of bawdy Friends–essentially twentysomethings in heat. Frankly, this post-modern concept reminded me a bit of Matt Beaumont’s 2000 novel “e”, which told a story through “found” e-mail exchanges within a fictional ad agency, or even to stretch a bit further, Orson Wells’ infamous War of the Worlds radio play, which freaked out many eastern seaboard U.S. listeners in the late 1930s with its mimicking of the then still young radio news form to tell the H.G. Wells’ alien invasion tale.

Certainly, some Case Camp attendees seemed as spooked by Story20h! as those credulous radio listeners back at Halloween 1938. There was an audible ripple through the crowd. Several people leapt up during the question period to challenge Golick on the “transparency” of her actions, and point out that Facebook is pretty insistent on its policy of only “real” people allowed in their community. A couple of people muttering near me sounded like they were shocked to discover these wild people who had friended them weren’t actually real.

Golick defended herself by saying that all the Facebook profiles of her characters admitted they were fictional creations, although she acknowledged that not every e-mail invite or twitter message in the exercise included that disclosure. “It’s not like I was selling anyone anything,” she declared in her defence. Although that defence was undercut just a tad by her making it mere seconds after showing a PowerPoint slide that advertised her desire to work with sponsors in the future.

Story20! was the topic of hot debate at the after party and after the after party online. The ultimate upshot however: Someone outed Golick’s creations to Facebook, which within a day had shut down their profiles. Which, of course, fed the online furor even more. (Links to many of the posts can be found at Golick’s own site and Eli Singer’s site where he expressed sadness at the lack of civility in many of the posts attacking Golick).

To me it was strangely sweet that people at a conference–even a hip grassroots conference- devoted to commercializing and monetizing the online space should get so bent out of shape over a little bit of online deception in some “entertainment” and “art.” On one level, you want to say, as William Shatner did in that famous SNL Trekkie spoof skit: “Get a life.” Don’t take yourself and the space so seriously. And, as I think it was Trapeze’s Andrew Cherwenka who said to me this week, anyone who allows themselves to be friended by strangers with even stranger life stories like Golick’s Ali and Simon, should hardly be shocked when things turn out to be not quite what they seemed.

But on another lever, the lesson for everyone, especially marketers who are trying to sell someone something, is total transparency is paramount. It’s the prime directive, to make another Star Trek analogy. Mess with it, try to deceive people, no matter what your intentions and motivations, and there will be hell to pay.

So there’s some real business learning in the arty experiment after all.

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 1:13 PM EDT

Share This Post

Post Comment | Permalink

As the editor in chief of Wired magazine, and the author of the seminal new-economy business book The Long Tail and the forthcoming book Free, Chris Anderson is an authority on emerging technologies and business models and the cultures that surround them. He will be the keynote speaker at the Infopresse/In:fluencia Digital Internet Marketing Conference May 15 in Toronto.

Anderson recently spoke with me about the long tail and how its logical extension, the “free” economy, is transforming businesses both online and off. The full conversation can be heard as a podcast here.  Some highlights from the conversation:

Q: The Long Tail as an articulated idea is now 4-5 years old, which is what 28-35 years in dog and internet years… is there something in the book or original magazine article that has turned out to be not quite what you expected?

A: Sure, as you might expect mostly on the side of errors of omission rather than commission. The original article which was published in 2004 focused largely on entertainment and media, you know music, DVDs, books, that sort of thing. The book, which came out in ’06 extended that to other things: software, services, manufacturing. And what’s happened ever since is that people now see long tails everywhere. Sometime they really are long tails, sometimes they just look like long tails, but broadly this notion of the ability of these new efficient distribution systems, mostly the Internet, to access niche demand is as true for food and drink and clothing as we originally spotted in entertainment media. It’s been the long tail of beer and the long tail of travel that’s been the big surprise over the last few years, and that’s actually going to be addressed in the paperback version of the book which is going to be coming out in a month or two, which is going to be called The Longer Tail.

Q: Free, which you are working on now for publication in spring 2009, is the logical extension of The Long Tail. Or is it?

I think it is. The world will decide if it is the logical extension or something else entirely. The ability to address niche markets, the ability to access latent demand for products of quote unquote minority taste was initially enabled when you got over the limits on shelf space. Be that physical shelf space in stores or virtual shelf space in things like television channels and radio stations. The Internet offers infinite shelf space, and the corollary to that is that its free shelf space. The only reason you can offer products that are probably of small appeal but very certainly unpredictable appeal is that it doesn’t cost you anything to do so. So free shelf space, free distribution, was what enabled the long tail to emerge over the last ten years.  The notion that “free” is different, that zero is a number unlike any other, that zero basically takes the “is it worth it” calculation off the table, is bigger than just the long tail. And it was just the recognition that there was really an whole economy built around free growing up online –products and services that are free to consumers and yet can be the basis of really profitable business models- that struck me as being fundamentally new, fundamentally unaddressed by traditional economics and worth a whole other book.

Q: You opened the Wired essay on the ideas around “free” in March with the example of Gillette’s business model, which was created about a hundred years ago. So in a way free has been around, so what is the difference between what was being done in that stage and now?

There are three kinds of free, two that are old one that is new.

The first is what we call cross subsidies. You know, you don’t pay now, but you pay later. You don’t pay for this, but you’ll pay for that. You pay one way or another. But it sort of shifts the payment from one pocket to the other. Razors and blades: you don’t pay for the razor; you pay for the blades later. Cell phones and minutes: you don’t pay for the cell phone but you pay for the minutes later. That’s just really the notion of shifting the time of payment and the way you pay. But it doesn’t necessarily change the overall amount that leaves your pocket. That’s the first kind of free, and that’s as you say a hundred years old.

Another old model is the media model: third party pays. Advertisers subsidize a product so that the consumer gets it for free or close to it. And in that case it’s a three party market. There’s the producer, the consumer and the subsidizer. And what we’re seeing online is an extension of the media model, which is the advertising driven model, to all sorts of new products and services that don’t traditionally fall within media: Search being the most obvious example. Basically everything Google does is paid for by the media model, which is advertising driven. That’s why Google doesn’t show up in your credit card bill. And yet Google is an extremely profitable company. Again not a new model, but we’re seeing extended to new businesses on the Internet.

The new model is the one where the cost goes to zero, not because its magic or slight-of-hand and you are paying later or because an advertiser is paying. The price goes to zero because the underlying cost falls to zero. This is sort of the Web 2.0 model. As you move goods and services online where the underlying costs of the bandwidth, the storage, the processing fall by fifty per cent every year, then you don’t really need to charge most people for the product at all. In basic economics there’s a rule that says in a competitive market price falls to the marginal cost. Online, the marginal cost of everything digital falls toward zero every year, which means the price must inevitably fall to zero. We can talk about all the different ways you would make money from something when you’re not charging the consumer at all. But that ability to be able to assume that the costs are going to fall to nothing at all is really unique to the last 10 years of Internet economics.

Q I can see how the notion of free works easily in entertainment and media products. I have a harder time- and I think most people do- with more tangible goods and services.  Tell me about how it works in other areas, for example with Ryanair in Europe.

A Ryanair is a kind of razor and blades model, which is to say most airlines are in the airline seat business.  They charge you for the seat. Ryanair, as a kind of newcomer in the market back in the early nineties, decided to take a more holistic view of the business. They’re not going to be in the seat business. They are going to be broadly in the travel business, which means they could be agnostic about where they made their money. And right now you can fly from say London to Lisbon for something along the lines of 10 Euros or five pounds. And the CEO of Ryanair has promised that someday soon that will be zero.

Where do they make their money? They make their money in rental cars and hotel reservations and advertising both on the websites and on the planes. They make their money from the cargo in the hold, which is why they charge you more for your luggage. They make their money from the sandwiches and drinks on board. They get subsidies from the locations that they fly to because they fly off the beaten path. And these tertiary destinations will charge a very low landing fee or even subsidize Ryanair to bring the tourists to them. And the way you get to zero, the Ryanair CEO has suggested, is gambling. You turn the airplane into a flying casino. In Vegas you get your drinks for free if you gamble. On Ryanair you get your seat for free if you gamble. The Internet lowers the cost of being an airline and that takes customer service and check in and a lot of the human costs out of the equation, so it allows them to lower the costs. But that doesn’t bring them to free. What brings them to free is cross subsidizing from the ancillary markets around the airline seat itself...

Q: What are some other examples of tangible, non internet based products?

We talked about lots of examples [of this] in the Wired article and will in the book. There’s the case of Prince giving away his CD in the Mail on Sunday in the UK to sell the concert. On phone services you can get directory assistance for free. It turns out that’s not even advertising-driven; you’re just training the speech recognition algorithms. You can get a DVR or a plasma TV for free if you sign up for cable TV services. If you bring cross subsidies into it, as we do because they are many creative ways to do it, the sky’s the limit. You can talk about cars for free. You can get a free electric car in Israel. You get the car for free and you pay for the electricity. You name it. Furniture. There’s almost nothing you can bring up that I haven’t already found somebody giving it away for fee.

In the In:fleuncia Digital Podcast, Chris Anderson goes deeper into how the Long Tail and Free business models work, his plans to publish free version of Free, how Apple gets away with defying  all the conventional wisdom of business in the 21^st century and how the Internet is changing religion and social movements.

Originally written for and posted on In:fluencia Digital, a beta site created with Editions Infopresse to serve the Canadian online and interactive marketing, communications and media communities. The site’s development is in hiatus.

Posted by sutter or mckenzie at 2:44 PM EDT

Updated: Monday, 23 June 2008 3:39 PM EDT

Share This Post

Post Comment | Permalink