Kingmaker
Who can make a hit?
Zipf's Law is the inevitable distribution of items into a curve that follows the power law. For example, the letter "e" appears in English far more often than the letter "u". For just about every human thing we look at (record album sales, votes in political campaigns, income) there's a distribution with hits and with non-hits. Click on the picture at right to enlarge.
Chris Anderson helped us understand a huge implication of the power law curve in his classic The Long Tail. The relevant notion follows…
In any physical store, the store owner has to make bets. She needs to buy inventory, to choose this over that, to make decisions in advance about what's going to sell. With Christmas coming, the owner might need to make these decisions five months in advance, with no chance to re-order if there's a hit and nothing but the trash bin available for what doesn't sell.
The relentless physics of the situation, then, means that retailers needed the ability to not just pick hits, but to make them. And so they invented the speed table and the pile of stuff at the checkout. They perfected the end cap display and the free standing insert as well.
Years ago, getting our products on the table next to the check out at Target and Lechmere was enough to make the year at the software company where I worked. Two big retailers picked our product and that was enough.
Retailers want to be kings and they want to annoint kings. They want the lever to decide what sells and what doesn't, because it earns them power of pricing and profit (if the retailer can make your product a hit, she can extract better terms. If all she does is sell what sells, then the manufacturer is in charge).
Thanks to the long tail, the digital world ignored this thinking. The iTunes store, and Netflix, for example, take the position that, "We're going to sell everything, and a lot of it. We don't care which thing, because it's all the same to us. Just put everything in the store and the market will sort it out."
As a result, they have far less promotional power. They didn't build a lever. The app store doesn't make a hit, it contains hits. Most long tail retailers are staffed around this idea and have a culture that reflects it. They'll sell everything/anything, because the longer the tail, the better.
Marketers, of course, want their product to be the hit, and they're always in search of someone who will make that happen. They understand that the long tail sellers will do well because they sell everything, but marketers don't care about everything–they care about their thing.
And so sites like LivingSocial and Woot) built online levers, permission assets that allow them to become the new kingmakers. If they pick your product and alert their audience, you have a hit, at least for a short while (and sometimes at great cost to the marketer, which turns into profit for the kingmaker.)
Seeing the success of retailers who are able to make kings, sites like Netflix are trying to figure out how to transform themselves. Finding the lever, though, isn't trivial. The cultural shift from ubiquity to selection is difficult.
The challenge for online retailers (and perhaps for your company) is to build the attention and trust and leverage you need to make kings, to earn attention and trust and make hits. While it's digitally enticing to be the indifferent-to-choice long-tail retailer, the fact is that marketers will always be willing to pay a premium to someone with the ability to generate a hit.