Wired editor Chris Anderson’s theories about the Long Tail have been the source of considerable controversy almost since the day his first Wired magazine piece on the topic was published in 2004. The initial criticisms of his thesis centered on whether there was such a thing as a “long tail” at all — in other words, whether digital distribution of music and other forms of content have allowed little-known songs, movies, and so on to prosper where they might otherwise have been ignored. Later attacks, however, have focused on how the Long Tail theory functions in certain markets, and whether or not the existence of such an effect actually helps anyone in those markets create a workable business model.

The most recent criticisms came a few days ago, at a mobile telecom conference in London, where an economist named Will Page — who works for the MCPS-PRS Alliance, a British copyright licensing-fee collection agency — spoke about research he conducted into music-buying behavior. The results of this research, Page said, didn’t conform to the “power law” distribution described by Anderson’s theory, but instead followed a more common “log normal” distribution (if you really need to find out more about a topic only a statistician could love, you can check here and here).

The bottom line is that Page reportedly argued the data didn’t support the existence of a Long Tail for music buying (a claim that The Register pumped up into a post about how the entire concept is flawed, and how this is “bad news for Californian technology utopians”). Anderson, for his part, says the data appears to have come from research into mobile music-buying patterns — since mobile music provider Mblox was a partner in the study — and that he has already admitted mobile behavior is subject to different effects (music-industry theorist Gerd Leonhard makes some excellent points about other reasons why we shouldn’t necessarily believe the numbers, as does Yankee Group analyst Benoit Felten).

Why does this debate matter? Because Anderson’s theory suggests that content providers should expand their catalogs of music and movies to include more obscure titles, as a way of appealing to consumers with broader, Long-Tail type interests. By extension, the theory also suggests that musicians, writers and directors who are outside the mainstream might be able to pursue their creative dreams and still make a living. If there’s no Long Tail, then all bets could be off, and the Top 40 mentality could once again rule over content-related industries.

There have been previous attempts to bury the Long Tail, including one launched by a former research partner of Anderson’s, Anita Elberse, who wrote a piece for the Harvard Business Review about flaws in the theory based on data she collected. In that case, the former Wired editor made a fairly convincing argument that, far from torpedoing his conclusions, much of the data actually helped enhance the theory. Page’s study may not do that, but it is a long way from a smoking gun.

Contrary to what some might think, Chris Anderson didn’t invent the idea of the “long tail” — similar theories about the effect of diminishing production and distribution costs on digital media were being discussed at least a decade before he wrote his Wired article, and many of the central concepts have been around since the mid-1940s. Whatever its flaws, it is still a powerful way of expressing the changes the web has wrought in content-related markets of all kinds. Whether content producers, distributors and creators want to adapt or not is a different question.

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Posted by Mathew Ingram on GigaOM  |  Permalink  |  11 Comments
Tags: Chris Anderson, The Long Tail, Wired

‘Long Tail-Schmong Tail, Chris Anderson’s-free-will-be-the-death-of-me.’ Or some such, griped founder Hank Williams over at Silicon Alley Insider yesterday in “Free” is Killing Us–Blame The VCs”:

Venture capital has totally distorted the market. VCs are investing billions of dollars in companies with instructions to get big fast and to worry about advertising revenue later. As a result the competition is for users and not for paying customers. Unfortunately, to fix this, many more companies need to die.

Put Hank’s way, I wanna party like it’s 1999 all over again. So this prompts our

Question(s) of the Day: * Is it good or bad that the bucks are going right out of Busine$$? * Is it the VCs fault? * Should ‘free’ be the future? * Or, is Hank’s scenario better?: “With less “free” floating around, a more regular supply and demand dynamic can take hold, [and] customers will have to pay for the things that are important to them and non-quantized growth dynamics can return.” AND * Did you get into this startup business to make money selling your product/service, or would you be content to merely make it by selling your (VC-funded, eyeball-oriented free-product hawking) company?

Tell us what you think.

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Posted by Carleen Hawn on GigaOM  |  Permalink  |  0 Comments
Tags: Chris Anderson, free, Hank Williams, Long Tail, Silicon Alley Insider, Wired

Adobe has decided to jump on the free consumer service bandwagon with the release of its new Photoshop Express online photo organizer and photo editor. Because Adobe also will store the photos (up to 2 gigabytes), it’s also the first big test of Adobe’s custom-built hosting infrastructure.

In a conference call to demo the Express software (which is really sweet vs. what’s on offer from the photo-editing software that comes with a digital camera, Picasa, or even displaying photos via Flickr) Doug Mack, VP of consumer and hosted solutions, said Adobe had built out a hosting infrastructure to support Express starting a year ago. He declined to go into the costs of the system, but said Adobe would be offering even more hosted applications in the future.

So I called Adobe for more information. Spokesman Geoff Baum declined to offer me much additional detail. He did, however, say the web-hosting infrastructure was entirely separate from Adobe’s internal IT, and that it was built to be reliable and to scale for many users.

Photoshop Express will be the first big test of the hosting platform, but in the next six to 12 months “more premium services within the same Photoshop.com web environment” will also be hosted. I’m guessing that in addition to paying for more storage, the flagship Photoshop program and Photoshop Elements might also find themselves with online services.

Since building out a solid hosting platform isn’t cheap, Adobe has plans to make it pay beyond just charging a bit more for online storage. Baum said Adobe will make the investment pay through upselling services, potential advertising, and OEM deals with other companies, such as one in which a company licenses a component of the Photoshop Express software.

The services hosted on the newly built infrastructure may not be making money today, but it’s clear Adobe has gotten the web services religion and plans to integrate those services into its popular software packages. “This is an important direction for the company and something we wanted to control and scale as necessary,” Baum said. “[Not outsourcing] it is mainly an indication that hosted services are important to what we’re doing.”

It’s an ethos that I hope will play out across Adobe’s other software programs, especially given the potential for competition from companies such as iScribd. When Adobe launched its hybrid rich Internet application development platform AIR, CTO Kevin Lynch told Wired:

“The other effect is hosted services. Software is moving from being packaged, where you develop for a particular operating system and put it in a box, to being developed and distributed over the internet and being designed to run across operating systems. That’s where all the innovation has moved to. Software isn’t as OS-specific anymore, it’s moving to rich Internet applications. It’s a sea change in how software in general is being built.”

Adobe is clearly preparing for that sea change within its own product portfolio.

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Posted by Stacey Higginbotham on GigaOM  |  Permalink  |  16 Comments
Tags: ADBE, Adobe, iScribd, Kevin Lynch, Structure, Wired

The latest cover story in WIRED, called Free! Why $0.00 Is the Future of Business (authored by Editor Chris Anderson of The Long Tail fame) has sparked a long list of blog posts on every aspect of ‘free’. I’d like to list some of my favorite ways of offering something to the market for free. Of course, lots of start-ups are focused on selling advertising directly or through Adsense, but there are other options to consider. The list isn’t complete of course, so please feel free to comment with other ideas!

Offer products for free and extract data from its use to sell The best example I think is Newsgator. Newsgator offers several RSS readers and services (Newsgator, NetNewsWire, FeedDemon) and used to charge for them – they had actual revenue by charging for their products! Recently however, Newsgator decided to offer all readers for free. That way they gather a lot more data, which they will aggregate and offer as ‘attiontion data’ to publishers, journalists and other people interested in buzz. A risky way of transforming a business, but also one that could inspire a lot of other start-ups to rethink their sources of income.

If you want to learn more about this concept you should head over to the podcast section of Educators Corner by the Stanford Technology Ventures Program, where Mitch Kapor talks about his new start-up Foxmarks. Foxmarks enables users to synchronise different lists of bookmarks for free and plans to develop business cases on top of the many millions of bookmarks they aggregate through their product.

Offer the main product for free, charge for complementary products This is the main thinking behind some of the recent acquisitions of open source products like MySQL. When you offer a product for free (MySQL), if you’re lucky, you’ll see a growing demand in your complementary products (like the servers that SUN offers).

Google is another great example: they need more pages to plave relevant ads on, so news, e-mail, search results, book pages, product search are great ways to serve more pages to more people and thus having more space to put ads on. For an excellent article on this, head over to Strategy+Business for The Google Enigma by Nicholas G. Carr.

Free for consumers, businesses will be charged Your free product might enjoy great user numbers and then one day a company comes by with more sophisticated needs. Great! You’ve developed a product with value to users, and with value to companies. This means you have found a means to grow revenue without the need of plastering your free product with ads. So based on what do you charge businesses? You’ll notice businesses will have other needs. They might require more security, a more robust backup or options to export their data. Or they might want your product to be implemented in existing systems, or need other customizations. Offer some options for free to get the companies coming, charge for other options to make a business, and you have a great way of generating and growing revenue.

Of course the line between consumers and businesses won’t always be exactly clear. My advice: when in doubt treat them as consumers. Don’t charge unless you’re sure they’re representing a company by expressing additional needs, otherwise keep your product free for them.

Single users for free, multi users will be charged It looks a lot like the business edition, but that one can be expanded to multi user accounts in general. Only this time, don’t focus on business needs but on multi user needs. When you have a product which provides value to single users but has more value when used by more users within one account, you might consider charging for the options that enable your product to go multi user.

One quick word of advice: be careful with this option. If you decide to offer the multi user options only when your customers pay for them, you might be cutting away one or several potential ways of your product to ‘go viral’. You should be aware that offering multi user options that make your product more valuable for every single user could mean you might have a potential great way to grow your user base at your hands. If these options happen to have a viral effect and might be able to drive more users to your product, you should think twice before locking them up in an account that you charge for.

Charge for one product, develop others for PR value This one requires that you already have a product that people want to pay for or that you have other ways of extracting value out of it. Since you’re already making money, all you need to do is reach out to more potential users. Of course you can pour money into some Adwords/Adsense, but it might be worthwhile to think of a more sustainable and creative way to make your business known. One way is to come up with new services.

If offered for free they might attract an interesting new base of users and enhance your reputation. A great example are the platforms that companies like Facebook and Salesforce offer to other developers. These examples also serve other purposes since they’re closely tied to the main products of these companies, but they’re also great ways to drive more people to their respective main products.

Another example are companies offering consumer sites as a showcase of their technology. The source of revenue will be implementing the same technology within companies or within other web projects, so their own site is a creative way to connect with potential customers.

One piece of advice when developing your business model Especially when you target consumers, never ever charge for something that enhances the main experience of your product! I meet many start-ups that want to offer for instance a platform to put information on (i.e. reviews, listings) but want to charge for uploading pictures, video, the option to insert a longer version of their story, widgets of their own information etc. That’s almost always wrong: what you’re doing is crippling the experience and telling them not to go all the way in using your product. Figure out another way to generate revenue, but don’t limit the potential great experience your users can have when using your product.

Jeroen Bakker is cofounder and CEO of the web development and e-learning company, Paragin. He’s also a cofounder of Infovester, which aims to help professionals cope with information overload by harvesting, indexing and filtering the information they need in their daily job. He has written for The Next Web, a blog and a conference put together by Web2.0 entrepreneurs in Europe. He’s also involved with Remindo.

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Posted by Jeroen Bakker on GigaOM  |  Permalink  |  5 Comments
Tags: AdSense, Chris Anderson, facebook, FeedDemon, google, Mitch Kapor, MySQL, NetNewsWire, Newsgator, Nicholas G. Carr, Salesforce.com, Stanford Technology Ventures Program, Strategy+Business, The Google Enigma, The Long Tail, The Next Web, Wired

In a few weeks, online bookmaking site Blurb will launch a new community called BlurbNation, a section of the Blurb site where people can connect with a professional designer that will take their photos, stories, recipes or any other images and pull them together into a book. Such a move is aimed at expanding Blurb’s business beyond the 90,000 books it printed in 2007 — and to take it out of the red.

Blurb, which was founded in 2004, launched its site in April of 2006 and is on track to turn in breakeven results this year, is both a digital bookmaker and an example of yesteryear’s big Internet trend: The Long Tail (It seems so long ago, but it was only three-and-half years ago that Anderson wrote about the idea in Wired). Since we move at digital speed, we’ve already discarded that trend (and possibly refuted it) for social everything. But true business growth doesn’t take place at that harried clip, it typically requires the five to seven years allotted by VCs for their investment time frames.

00 Those time frames are there for a reason. Blurb CEO Eileen Gittins Blurb says the company exceeded its revenue expectations by 40 percent last year. (In 2007 she told Time she anticipated sales between $5 million and $10 million for the year.) And in the quarter following its launch late last year in Europe, sales from the continent have climbed to account for 17 percent of total overall revenues from a mere 2.5 percent.

To me this is a nice reminder to avoid focusing solely on the trend du jour, but also to keep in mind that much of the world runs at business speed, and that it’s the people out in the rest of the world that break a technology site into the mainstream.

Blurb makes books, nothing terribly technical about it, until you think about how impossible it would be, before the Internet existed, to source, edit, design and print 90,000 different titles in a single year. Its biggest customers are corporations trying to create memorable advertorials, though artists and average Americans also pull together their own works of art. Blurb competes with other online publishers LuLu and Xlibris, but has the lead in high-end photobooks.

The cool thing about marrying the digital medium with one that began in 1040 with the first Chinese printing presses (sorry Gutenberg), is that when it comes to user-generated content, Blurb may end up making UGC profitable before YouTube does. Profitability isn’t everything and I’m not sure how Blurb could ever reach more people than YouTube, but it’s nice to talk to an online service that can make money in the here and now.

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Posted by Stacey Higginbotham on GigaOM  |  Permalink  |  2 Comments
Tags: Blurb, Chris Anderson, Eileen Gittins, Wired, YouTube

1) Revenues & Up-selling in a Recession: Related to Larry Chiang’s post this week on the topic, now read Level up for features instead of freemium?, in which Andrew Chen writes: “Everyone is familiar with freemium models – that is, make it free for most people, but in exchange for the advanced features, make people pay for the package.”

1a) Also see this Ostatic post that asks, Recession: A Boon for Open Source?

2) Business Models & Economics : We’ve written about the power of running your business on “mostly free apps”. Now read this month’s WIRED cover story, Free! Why $0.00 Is the Future of Business, by editor Chris Anderson. See also TechDirtDaily’s worthwhile essay on why the nay sayers are just whining: Saying You Can’t Compete With Free Is Saying You Can’t Compete Period

3) Funding & When to Sell?: This is evergreen question was addressed by VC blogger Fred Wilson after rumors that Digg is looking for an exit now, not later. If you don’t want to run your business for 7-10 years, Wilson writes, then “sell when the buyers are knocking down the door.” He also invokes a long-held stockbrokers’ rule of thumb: that money is made on ‘the buy,’ not ‘the sell.’ (PS: He thinks Rose should sell.)

4) Strategy & Innovation: Web3.0 newbies will get a great crash course by scrolling through this 14-slide presentation on What’s Next on the Web? Web Technology Trends for 2008 and Beyond by ReadWriteWeb Editor Richard MacManus, given at the Media08 event in Sydney. Make sure you click an extra time on slide #14, for more RWW resources, including additional slideshows on, 2008 Tech Trends & Predictions, and Web2.0 Business Models.

5) Creativity and Idea Management: This post from Life Optimizer is called How to Find Good Ideas for Business & Life.” Best tip is #2: “Bring a capture tool wherever you go…” See also: 4 Simple Ways to Never Lose Your Ideas.

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Posted by Carleen Hawn on GigaOM  |  Permalink  |  0 Comments
Tags: Andrew Chen, Digg, Fred Wilson, Kevin Rose, Life Optimizer, Read/WriteWeb, Richard MacManus, TechDirtDaily, Wired

Recession-mongering got you down? Regardless of what the pundits and macro-metrics say, 80% of your time still should be focused on bringing money in the door. The “R” word might be hovering, but here are 7 ways to power through the economy’s speed bumps and grow your business anyway.

1) Leverage the power of free. Free stuff drives behavior but be to sure to use a second stage premium. For example, the first premium you can use to drive registration. The second stage premium (SSP) would be a reward for bumping incremental revenue. See also, Chris Anderson’s latest opus in WIRED magazine: Free! Why $0.00 Is the Future of Business. 2) Turn up low-cost marketing. A great idea is to present at industry get-togethers. Stirr.net here in Palo Alto, California hosts regular events that allow start-ups to showcase. In some cases, such as Crowd Factory run by Alex Mouldavan, you get supplemental media coverage via TV news.

3) Don’t cry for me Argentina. Don’t tear-up for the U.S. economy just because it has back-to-back bad quarters. Consider this: the U.S. gross domestic product (GDP) undermeasures the services component of the U.S. economy (the most relevant component to the tech industry) and hasn’t been updated by the GAO in 40 years. Quiz: how great a contraction is required, over two consecutive quarters, to call it a recession?: 0.8%; 5%; 12%; or 22%? Right you are if you guessed 0.8%! I think I lost 0.8% in productivity when my dog Baxter demands two walks.

4) Sell to save your client money. You have to realize that selling is a contact sport, and as a startup you probably don’t have existing business. This means to get it, you’re going to have to win it away from the client’s current vendor. This is easy, especially in a down economy, if your sales effort is focused on saving the client money.

Pay special attention to the following 5 Things that Put A Client Account in Play — these are universal, but occur more frequently in a down economy and that means more opportunity for you:

(a) change in control at the client level (a change in ownership of the client’s business; a big stock hit; etc.) (b) change in current vendor performance (c) loss of favor in vendor (d) change in purchasing manager/decision maker (e) change in cost/value to client Source: UCMS

5) Stop minimizing expenses. You’ve minimized long enough. OK, reward staff for money saving ideas that simultaneously grow. For example guerilla ad techniques that translate into registered users executed by your sales team should be rewarded.

6) Carrot & Stick Gambit. Give your clients a rebate, something they’ll like in a recession. That’s the carrot. The stick: require them to pay half of the discounted-fee upfront. For example, the customer acquisition cost to a credit card issuer (a bank) is about $45. So, when I first started UCMS, I charged $22 — a rebate the banks liked. It worked for me because I required First Chicago Gary Wheaton Bank to pay me $11 of that discounted acquisition cost up front. This is what I call Recession Financing.

Two other forms of domestic-Recession Financing are demonstrated best by Stanford GSB-alum, Andy Laats (I met him recently at a conference): a) borrow against accounts receivable; b) borrow against an international letter of credit. Andy later sold his business, Nixon Branded Watches to Billabong.

7) Build during a bust. Sell during a boom. Worse is to build during a boom and sell during a bust.

An equally important concept is what I call “Treasure Management for Founders.” This will be the subject of my next post.

Larry Chiang is the founder of duck9, which educates student borrowers on how to establish and maintain a FICO score over 750. He is a frequent contributor to Found|READ. His earlier posts include: 9 Techniques For Closing a Deal via Voicemail, How to Work The Room; 8 Tips On How to Get Mentored ; and 9 VCs You’re Gonna Want To Avoid, and 9 Things Stanford B-School Won’t Teach You.

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Posted by Larry Chiang on GigaOM  |  Permalink  |  6 Comments
Tags: Alex Mouldavan, Billabong, Chris Anderson, Crowd Factory, Dogster.com, Nixon Watch, Stanford Graduate School of Business, Stirr, Wired

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