I have never forgotten my profound shock of recognition one day in 1996 when I came across the concept of a hit industry typology. The concept was in a book I was reading titled Developing Business Strategies by the prominent American academic and author, David A. Aaker.
Ten years on I'm reminded of Aaker's book given the increasing buzz around Chris Anderson's "The Long Tail". This blog in 2005 became a book in 2006, and this month entered the New York Times list of top 10 bestselling books.
Anderson's thesis (and now hit book!) is that the Internet is changing reality remarkably, making the "hit industry" typology less relevant. Hits he says are now less dominant in our retailing, entertainment, publishing and media culture. With the Web offering wider choice, he notes demand is increasing for the "long tail" items. These continue to sell, even after they leave bestseller lists, and it seems for longer.
Anderson's views arrive at the same time as we see locally and abroad more and more statistical evidence of the Web 2.0 waves of change. Before discussing Anderson, let's consider the background history with Aaker's thesis.
To explain what a "hit industry" was, Aaker used terms and analogies from the oil industry. Remarkably, the terms and landscape of the oil industry also helped explain the market operations of the traditional entertainment and publishing industries. In the early 1990s it really hit home because I was struggling to understand the present and future of the "CD-ROM industry". It seemed the CD-ROM industry too was a "hit industry", with vastly more failed products than successful products. Before moving forward, here's a snapshot of what Aaker wrote.
Briefly, Aaker wrote there are three players or organisational types in the hit industry topology.
First there are those he termed the "drillers". They are product discovery, creation or development people eg oil drillers or talent (eg writers, photographers, illustrators, songwriters, scriptwriters, programmers). They have a culture of individualism, moving fast and taking risks and so their structures are flat and often amorphous. They are motivated by high incentives, eg dreams of the "great oil gusher". If you were setting key success factors for them, appropriate indicators would be - find, work with and keep key people and ship outputs to market quickly.
The second organisational type Aaker termed "pumpers". They are production control people eg companies which pump oil from the well to the ships to take them abroad. In entertainment they include record producers and boutique film production companies. In publishing it includes small magazine and book publishers who don't have their own in-house distribution facility. Pumpers have a culture of controlling production and costs and so their structures are centralised with tight controls. They are motivated by productivity bonuses. Their key success factor is to control operations and exploit the experience curve of employees.
The third organisational type is termed "distributors". They are marketing and distribution people. In oil they are the global oil distributors. In entertainment and publishing they are the select group of Hollywood movie studios or global record, book or magazine companies. Collectively, they have a culture of controlling marketing and their structures involve decentralised but ordered control. The organisations and their staff are motivated by sales commissions. Their key success factor might include - maintain and improve the control of distribution channels, inventory, promotion, positioning and pricing. It's not the stuff that thrills the "drillers"!
I was shocked because Aaker's simple "hit industry" typology explained so much! Now we need to read Anderson and check his vision against the emerging Web 2.0 reality.
Briefly, Anderson notes people are turning off the push media of television, music and newspapers and turning on and selecting from the Web. The point then is that as they do this they don't necessarily select hit albums, books, and software. Rather, Anderson says they also fossick through, buy, use or consume old music libraries, book publisher backlists (eg of out-of-print books) and film studio archives. In Anderson's words:
"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."
The beneficiaries of the Long Tail theory may be online distributors rather than publishers. In The New York Times review on 30 July 2006 of the Long Tail, Rachel Donadio wrote: "Indeed, so far, the winners in the long tail scenario aren’t publishers but the online booksellers and the databases that aggregate their titles, making books stranded on the dusty shelves of local used-book stores readily available to buyers around the world."
The traditional reality seen by Aaker versus the contemporary reality seen by Anderson vary in many details. At their core we see the difference between atoms and bits, "hit industry" versus "The Long Tail", or if you prefer, bricks and mortar versus clicks.