Good News in Digital Age

Putting the new wine into new wineskins: facts and trends in hi-tech & communications, publishing & mass media which help to fulfill the Great Commission

Friday, October 26, 2007

"Market Leninism" within companies

Ross Mayfield, CEO of the corporate wiki company SocialText, has a deeply insightful post on how web and open source technologies create more choice inside companies, and how that leads to better decisions. This is the best sentence in the piece, and you could build a PhD on quantifying and understanding the implications in it:
I often think of institutions as making the transition from Marxist Leninism to Market Leninism, although they at least believe in internal markets to drive down transaction costs, and external markets as the reality that keeps them in check.
It helps to have a little background in Coase's theory of the firm (about minimizing transaction costs) and that old business school quiz about why it is that democracy and capitalism can be the best systems for countries, while most companies operate on an internal system of Soviet-style command-and-control totalitarianism (short answer: countries exist for the good of their people while companies exist to achieve a shared purpose, which is determined by their leaders).

Ross's point is that social software is a way to bring more market-driven (which is not to say necessarily democratic) efficiencies inside companies. It doesn't happen overnight, however:
But that control instinct is deeply rooted, perhaps all the way to the psychological insecurities we all have as individuals. It is hard to trust that more democratic decision making processes can result in better outcomes.

Originally posted by Chris Anderson

The Long Tale - explanation

Here is the short but good quick explanation of the Long Tale concept. Presented originally here by the author of idea Chris Anderson, editor-in-chief of Wired Magazine.

The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of "hits" (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into one-size-fits-all containers. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly-targeted goods and services can be as economically attractive as mainstream fare.

One example of this is the theory's prediction that demand for products not available in traditional bricks and mortar stores is potentially as big as for those that are. But the same is true for video not available on broadcast TV on any given day, and songs not played on radio. In other words, the potential aggregate size of the many small markets in goods that don't individually sell well enough for traditional retail and broadcast distribution may someday rival that of the existing large market in goods that do cross that economic bar.

The term refers specifically to the orange part of the sales chart above, which shows a standard demand curve that could apply to any industry, from entertainment to hard goods. The vertical axis is sales; the horizontal is products. The red part of the curve is the hits, which have dominated our markets and culture for most of the last century. The orange part is the non-hits, or niches, which is where the new growth is coming from now and in the future.

Traditional retail economics dictate that stores only stock the likely hits, because shelf space is expensive. But online retailers (from Amazon to iTunes) can stock virtually everything, and the number of available niche products outnumber the hits by several orders of magnitude. Those millions of niches are the Long Tail, which had been largely neglected until recently in favor of the Short Head of hits.

When consumers are offered infinite choice, the true shape of demand is revealed. And it turns out to be less hit-centric than we thought. People gravitate towards niches because they satisfy narrow interests better, and in one aspect of our life or another we all have some narrow interest (whether we think of it that way or not).

Editor-in-chief of Wired magazine on integrating onto the social networks

As Chris Anderson writes in his blog devoted to The Long Tale effect (and to the book promoted thereby :-) )

Right now the world is focused on stand-alone social networking sites, especially Facebook and MySpace, and the fad of the moment is to take brands and services there, as companies build Facebook apps and MySpace pages in a bid to follow the audience wherever they happen to be. But at the same time there's a growing sense that elements of social networking is something all good sites should have, not just dedicated social networks. And that suggests a very different strategy--social networking as a feature, not a destination.
At the moment, my sites range from virtually no social networking (BookTour and this site) to heavy social networking (DIYDrones, which is built from the ground up on the Ning platform). Wired is on the minimal social networking side, with only our Reddit news submission and voting service doing much of it at all.

(BTW, by "social networking" I'm not including basic "chat amongst yourself" stuff like comments, wikis and voting. Instead, social networking to me means the tracking of individual preferences and behavior and giving users the ability to draw upon implicit or explicit connections between them and other users to do something useful).

In the case of Wired, social networking is clearly a feature that we should have more of. But we shouldn't move the brand onto a MySpace page or a Facebook app simply to gain access to the tools that could connect our readers to each other (which is not to say that we couldn't image a Wired Facebook app of some sort; we just haven't released one yet). Instead, it's mostly something we should build or buy and integrate into wherever it makes sense.