ZendCon Session Notes - Keynote - The Economics of Abundance
Presented by Chris Anderson, Wired
Attendees received a free copy of Chris Anderson's The Long Tail book.
Tim Bray: "As the cost of something decreases, it effectively becomes free."
A number of advances have been made as a result of wasting resources.
Waste Transistors: we go from a CLI environment and the thinking that the computer should be using its resources only on real work, to drawing icons and simple GUIs, to the fancy GUI environments of Mac OS X and Windows today, which make computers more accessable and easy to use.
Waste Storage: as an example, Gmail: "Over 2779.907662 megabytes (and counting) of free storage so you'll never need to delete another message." Gmail's mail storage counter, located on its home page, increases by the second.
Waste Bandwidth: Online video, which leads to YouTube, which leads to user-produced video with network TV-sized audiences.
3D printing - for the first time in history, complexity is free - printing three gears is just as expensive as printing one.
Scarcity vs. Abundance
Scarcity - physical world - limited shelf space
Abundance - online world - unlimited virtual shelf space
Wal-Mart vs. amazon: there's no cost to add additional products that would sell in very few numbers; unexpected products can sell very well.
Blockbuster Video vs. Netflix: shelf space limits the DVDs Blockbuster can make available, but Netflix doesn't have this limitation, so they can make available items that aren't "popular".
Tower records vs. iTMS (with a photo of a going-out-of-business Tower Records store)
Entertainment: mass-market television vs. user-produced videos distribtued on YouTube.
The Long Tail
The Long Tail is a Power Law: a small number of products sell well and have high availability, but many products sell little and aren't readily available.
Blockbuster Video: if a product doesn't sell 1.5 - 2 times per week, or isn't expected to sell that often, they don't offer it. It's not worth the shelf space it uses, in that case.
"The New Growth Market: Products you can't find anywhere but online"
Rhapsody: 40% of its total sales of music isn't available at Wal-Mart (3m vs 55k tracks)
Netflix: 21% of the DVDs they ship aren't available at Blockbuster (65,000 dvds vs 4,000 dvds)
Amazon: 25% of their books aren't available at a physical bookstore(3.7 million book titles vs. 100k at B&N)
Online sales: fastest growing sector overall
Three Forces of the Long Tail
1) Democratize the tools of production. Result: More stuff
2) Democratize distribution. Result: more sales outside of the hits
3) Connect Supply and Demand. Result: drives business from hits to niches
Case Study: Software
Cost of production of software has incredibly decreased - which increases the number of people who are able to obtain the tools, this increasing production.
Costs of distribution (from tape, to disks, to internet downloads, then to plugins, and then web services that don't actually require any downloads).
Costs of finding software (from user groups, to software stores, shareware.com, etc.)
Software timeline:
1980s: shareware, Hypercard
1990s: Excel templates, Java apps, ActiveX
2000s: Firefox plug-ins, hosted apps
Now: hosted app marketplaces, mashups, and embedded hosted web apps, so you don't have to actually download any software at all.
We now have lower "risks and costs" of obtaining and running software now. (Obviously, this is discounting potential security risks or malware.)
Salesforce AppExchange - 350+ niche apps
Example: Evacuee management (on salesforce)
Characteristics of Long Tail software
1) Small pieces, loosely joined (e.g. the Web)
2) Focused on a few features, not everything for everyone
3) Bottom-up, not top-down (user input vs. a boardroom deciding what will be popular)
4) User contributions
5) Flexible, evolving
Theory: the natural shape of any marketplace is a power law Power laws are straight lines on a log-log scale.
Movie box office sales: follows a power law until the number of movie screens runs out, and there is a sharp drop-off, as unpopular files just aren't shown at all. Distributed physical demand - so you can't put a movie on a screen if there isn't a sufficient amount of local physical demand.
Netflix DVD rentals: follows the power law - no physical bottleneck. The graph that Chris showed has the beginning of the curve (huge box-office hits) with a lower slope than the tail; I'm wondering if this is because those movies were so popular that people bought the DVDs, so they didn't need to get them from Netflix, and in sufficient quantities as to affect the graph.
Sourceforge: 61,974 projects that fall into a power law by downloads - not just making this available, but making them findable
Joe Kraus: "The focus has been on dozens of markets of millions, instead of millions of markets of dozens."
Attendees received a free copy of Chris Anderson's The Long Tail book.
Tim Bray: "As the cost of something decreases, it effectively becomes free."
A number of advances have been made as a result of wasting resources.
Waste Transistors: we go from a CLI environment and the thinking that the computer should be using its resources only on real work, to drawing icons and simple GUIs, to the fancy GUI environments of Mac OS X and Windows today, which make computers more accessable and easy to use.
Waste Storage: as an example, Gmail: "Over 2779.907662 megabytes (and counting) of free storage so you'll never need to delete another message." Gmail's mail storage counter, located on its home page, increases by the second.
Waste Bandwidth: Online video, which leads to YouTube, which leads to user-produced video with network TV-sized audiences.
3D printing - for the first time in history, complexity is free - printing three gears is just as expensive as printing one.
Scarcity vs. Abundance
Scarcity - physical world - limited shelf space
Abundance - online world - unlimited virtual shelf space
Wal-Mart vs. amazon: there's no cost to add additional products that would sell in very few numbers; unexpected products can sell very well.
Blockbuster Video vs. Netflix: shelf space limits the DVDs Blockbuster can make available, but Netflix doesn't have this limitation, so they can make available items that aren't "popular".
Tower records vs. iTMS (with a photo of a going-out-of-business Tower Records store)
Entertainment: mass-market television vs. user-produced videos distribtued on YouTube.
The Long Tail
The Long Tail is a Power Law: a small number of products sell well and have high availability, but many products sell little and aren't readily available.
Blockbuster Video: if a product doesn't sell 1.5 - 2 times per week, or isn't expected to sell that often, they don't offer it. It's not worth the shelf space it uses, in that case.
"The New Growth Market: Products you can't find anywhere but online"
Rhapsody: 40% of its total sales of music isn't available at Wal-Mart (3m vs 55k tracks)
Netflix: 21% of the DVDs they ship aren't available at Blockbuster (65,000 dvds vs 4,000 dvds)
Amazon: 25% of their books aren't available at a physical bookstore(3.7 million book titles vs. 100k at B&N)
Online sales: fastest growing sector overall
Three Forces of the Long Tail
1) Democratize the tools of production. Result: More stuff
2) Democratize distribution. Result: more sales outside of the hits
3) Connect Supply and Demand. Result: drives business from hits to niches
Case Study: Software
Cost of production of software has incredibly decreased - which increases the number of people who are able to obtain the tools, this increasing production.
Costs of distribution (from tape, to disks, to internet downloads, then to plugins, and then web services that don't actually require any downloads).
Costs of finding software (from user groups, to software stores, shareware.com, etc.)
Software timeline:
1980s: shareware, Hypercard
1990s: Excel templates, Java apps, ActiveX
2000s: Firefox plug-ins, hosted apps
Now: hosted app marketplaces, mashups, and embedded hosted web apps, so you don't have to actually download any software at all.
We now have lower "risks and costs" of obtaining and running software now. (Obviously, this is discounting potential security risks or malware.)
Salesforce AppExchange - 350+ niche apps
Example: Evacuee management (on salesforce)
Characteristics of Long Tail software
1) Small pieces, loosely joined (e.g. the Web)
2) Focused on a few features, not everything for everyone
3) Bottom-up, not top-down (user input vs. a boardroom deciding what will be popular)
4) User contributions
5) Flexible, evolving
Theory: the natural shape of any marketplace is a power law Power laws are straight lines on a log-log scale.
Movie box office sales: follows a power law until the number of movie screens runs out, and there is a sharp drop-off, as unpopular files just aren't shown at all. Distributed physical demand - so you can't put a movie on a screen if there isn't a sufficient amount of local physical demand.
Netflix DVD rentals: follows the power law - no physical bottleneck. The graph that Chris showed has the beginning of the curve (huge box-office hits) with a lower slope than the tail; I'm wondering if this is because those movies were so popular that people bought the DVDs, so they didn't need to get them from Netflix, and in sufficient quantities as to affect the graph.
Sourceforge: 61,974 projects that fall into a power law by downloads - not just making this available, but making them findable
Joe Kraus: "The focus has been on dozens of markets of millions, instead of millions of markets of dozens."