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    Thursday, October 12, 2006

    Tipping Point makes the Longtail: Consumer Electronics

    Sitting around thinking last night i made a strange connection. Having read the fantastic Longtail book, I was browsing my library at home reminiscing. For some reason i started making comparisons between the tipping point and the Longtail. The tipping point by the ever astute Malcolm Gladwell is about moments of statistical significance and what can trigger that. For example the case Roe vs. Wade decision actually decreased crime 20 years later as mothers in at-risk situations didnt have children that could potentially be at-risk to be criminals. Read freakonomics if you don't believe me. Gladwell is so eloquent as he dissects and freezes on a moment in time. The Longtail by Chris Anderson cites examples such as ebay and amazon which use sheer numbers to provide choice for niches. Brands that offer more niches capture more audiences.

    Being a videogame fanatic I am caught up in the current swirl of format wars along with the next-generation of console launches. While its fascinating to watch Microsoft battle Sony battle Nintendo, it has made several things clear to me about the consumer electronic industry in the United States.

    1. Companies run america (not politics, not consumers, not you)
    Day after day websites like Gizmodo and Engadget show the coolest cell phones from Asia. Yet 99% of those phones never cross the pond to America. Why? Several reasons. The largest being that the sheer number of phones is too great for our business model. In Asia consumers run the market, and companies are constantly trying to keep up. Cheap labor + cheap tech = lots and lots of new models. In America Sprint, Cingular, Verizon and T-mobile run the cell phone industry. Most cell phone users get their phones through the companies and are at the mercy of their contracts, their phone models, and their coverage plans. While America has a unique infrastructure, especially compared to Asian population clusters in cities, with the internet anything is attainable these days from anywhere. Why aren't consumers driving change in the cell phone market? Electronics are an anomaly amongst other markets. Look closely at the format wars. Microsoft and Sony want people to believe their format is the way to go in the future. HD-DVD is true HD for DVDs and Sony says Blu-ray is even better than that. Neither format has taken off and each company continues to push their format, despite consumer ambivalence to re-purchase content when their DVDs work fine. Big business clearly has the reins of America's electronic market and tells us when to jump. America has been setup that way for generations but the tide is turning.. Forced phones, forced formats, how is it in so many other facets of life (transportation, email, food) consumers dictate the market and not yet in digital content? It's difficult to answer, but the squirming of advertising and marketing firms amongst themselves demonstrates an ineffectiveness to generate consumer purchases. Traditional campaigns are deader than dead and even the word is played out. Marketers are using increasingly diverse ways to just reach their consumer. The broken advertising models demonstrate a lack of understanding by businesses on how to reach their consumers. Why? Because companies can no longer speak to consumers, but need to open a dialogue/relationship and listen. We may be experiencing one of the greatest periods of change in the consumer electronic industry since the birth of the computer.

    2. The tide is turning
    We may be encoutering the tipping point within the longtail of convergence of electronics. Signs are everywhere. Google acquired Youtube. Google has a rival video site that does the same things youtube does but generates significantly less traffic. Youtube is the latest web phenomena and one of the largest potential money generators since myspace. Consumers consistently source it for branded and copyright content, demonstrating a channel is what/where you want it to be. TV isn't necessarily on TV, a movie doesnt have to be seen in a theatre. Apple recently pushed its itunes movie network to now allow downloadable movies. Movies in a theatre? No, movies anywhere. Consumers are dictating WHERE they consume their media and HOW. It makes sense that entertainment and leisure would be the categories where this happens first. If you don't agree with me, check out the post on George Lucas. He won't produce another $200 million dollar movie again as he says he can produce 50-60 2 hour films which can be pay-per-view instead. When is the last time a movie topped $200 million and was a called a blockbuster? Keep thinking. So if consumers dictate these why don't they command video games or even the DVD format yet? Until this point we haven't had the technology capabilities. So if consumers are changing HOW and WHEN, what else are they changing thats causing this so-called shift?

    3. The evidence of the tipping point in the longtail
    The first place to look is the consumer itself. Culture today is driven by a group of 'betas'. These consumers are the DIY generation. They would rather use Flickr to share photos, myspace to meet people, customize their own cars, print their own shirts and sell them on threadless, and create movies for youtube. Technology lets them do all of this, relatively cheaply and it can reach anywhere. This is why the longtail arose. People now have the ability to act on their niche, so it becomes more significant. So the consumer is more proactive? Yes, and they are enabled by technology, but why don't they dictate that too? While consumers might never be creating their own cell phones or building their own ipods, they will take control of how they manage these things. That is right now as evident in the format wars. After a period of stalemate, the videogame industry is about to experience explosive growth. It won't be powered by DVD formats either but innovative technologies. NEC is creating chips that read both Blu-ray and HD-DVD to essentially eliminate the format wars. Other companies are working on this, seen as an attempt to not only capture market share but survive. Eventually all content will be online and the channel more homogenous. Xboxlive includes a new pay-per-play model for videogaming and Valve has been using Steam for years to stream content, bypassing retail. Companies are adapting to consumers want for ease of access. Channels won't disappear and TV wont die, but a medium will be reached where Blu-ray doesn't matter, HD-DVD doesn't matter but only where you store it does. This moment in time is the tipping point for electronics. Once content is pay-per-view channels, its only a matter of finding your niche in the longtail. Don't give me a disc, i can simply access it online. The tipping point trigger is accessibility. Its hard to get the phone physically because either i have to drive somewhere to pick it up or order it and wait for it to arrive. Instant information and access, means consumers can do command and receive anything without moving (how sad!). My hunch is that this is the major shift in the industry that it needs and will transform business and communication beyond belief. While its difficult to measure the exact moment, consumers initial rejection of the DVD formats is an indicator of a shift in the structure of electronics. While content has appeared to be headed digitally for a long time, you need to look back to betamax to see a wider rejection of format. Whereas now instead of rejecting one size for another, we are dictating formats. Will US consumers ever dictate phones? Possibly not for a long time, but once consumers dictate the online world and its connectivity, its only a matter of time.

    Please feel free to talk amongst yourselves and debunk my theory/rambling. email us @




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