The Value of Information

I mentioned in my last post "The Long Tail," coined by editor-in-chief of WIRED magazine Chris Anderson. The article mentions:

For too long we've been suffering the tyranny of lowest-common-denominator fare, subjected to brain-dead summer blockbusters and manufactured pop. Why? Economics. Many of our assumptions about popular taste are actually artifacts of poor supply-and-demand matching - a market response to inefficient distribution...

The first is the need to find local audiences. An average movie theater will not show a film unless it can attract at least 1,500 people over a two-week run; that's essentially the rent for a screen. An average record store needs to sell at least two copies of a CD per year to make it worth carrying; that's the rent for a half inch of shelf space. And so on for DVD rental shops, videogame stores, booksellers, and newsstands.

Wal-Mart must sell at least 100,000 copies of a CD to cover its retail overhead and make a sufficient profit; less than 1 percent of CDs do that kind of volume."

How much are these brick-and-mortar stores missing out on? Take book sales: "The average Barnes & Noble carries 130,000 titles. Yet more than half of Amazon's book sales come from outside its top 130,000 titles. " Or DVD sales: The average Blockbuster carries fewer than 3,000 DVDs. Yet a fifth of Netflix rentals are outside its top 3,000 titles."

What is even more interesting than these increased economies of scale is what companies are doing with the sales data they are accumulating. Amazon.com tracks your purchase and even browse history - and offers suggestions for what you might like to by (even packaging items together for you at discounts), Netflix and Tivo both offer suggested viewings based on what you have watched in the past, and countless music services like Rhapsody, Napster, and Last.fm offer similar services in music.

One needs to look no further than Facebook to understand the true projected value of this kind of smart advertising. Microsoft's (albeit controversial) $15 billion valuation stemmed from their expectations that Facebook will be able to leverage all of the information they have about people form their profiles.

A recent article in Fortune magazine, entitled "Walk Softly And Carry A Big Checkbook," had this to say:

"Online marketers track actual behavior, so instead of buying a type of audience, they can buy a click, an inquiry, or even a sale. Every time consumers take such an action, it becomes part of their "clickstream," which follows them around the web. This information trail gives marketers an increasingly sophisticated idea about each of us, allowing htem to craft an ever more tailored online experience."

The management and manipulation of information to build marketing information and create ad revenue is what has driven Google's real success as well.

The same article goes on to talk about where this is taking things - marketers understand that as digital television becomes the standard in 2009, and more people watch shows on their DVR, fewer people will be watching commercials. How will ad agencies respond? GroupM entertainment, a subsidiary of ad holding giant WPP Group (WPP), has decided the best means of doing this is to be part of the content creation of the shows themselves, a strategy they are experimenting with in the show October Road

What effect will this have on the actual content of our favorite shows? We'll have to see....