Defenestrating Thoughts from the Bivouac

A few months ago I read Chris Anderson’s The Long Tail since it was recommended by many friends. While it wasn’t the earth-shattering, flip traditional economics upside-down book as some people claimed, it still presented some new-to-me ideas. I say “new-to-me” because apparently these ideas been out there a while, and this was one of more recent renditions. When I was discussing this book with my dad, he mentioned that he heard the same concept of long tail retail presented at a conference about 20 years ago.

The long tail is the common name for the “power-law tails”. Basically, in the graph here (stolen from Wikipedia), the green part of the graph represents a group of items that have a very high amplitude, while the yellow (the long tail) represents the group of items with a low amplitude. The key here is that the frequency of the low amplitude items can, in aggregate, be greater that the head of the distribution.

Let’s use music as an example. Imagine that you graph all CDs sales by artist, a mainstream artist like Bon Jovi sells lots of albums, so he would be in the green part of the graph. A lesser known group, like Bambi’s Apartment, is part of the tail of curve, since they would have fewer sales. Anderson’s theory is that if you take all the sales of all the lesser known bands, it is more than all the sales of the popular ones.

It used to be if you wanted to buy anything you would need to go to a store. The store acts as a middle-man and “pre-filters” your choices. Since the store has only limited shelf-space, they will only stock what sells a lot. So it would be profitable for them to stock a Bon Jovi CD, since lots of people want them. For Bambi’s Apartment, it would be not as profitable, so it would not be stocked. As a result, nearly everything we brought was mass market.

Now with online commerce, much of that limitation is gone. We can find a lot more variety of products online compared to in the stores. This opens up a whole new set of the products that we didn’t have before. The old 80/20 rule says that 20% of the products account for 80% of the revenue. The items available in a store represent the “20%”. Now with online commerce, we have access to the remaining “80%”.

This change in shopping is very similar to the introduction of the Sears catalog. Around 1900, the Sears catalog was over 300 pages, offering customers far more selection and value (usually 50% cheaper) than any retail store could.

The important points with online and the old catalog sales model is that a lot of the additional costs of retail are essentially zero. Obviously there are no physical stores to build or salesmen to hire. The merchandise is shipped either direct from the manufacture or from a large central factory, so there isn’t a need for regional warehouses and a team of MBAs to manage the whole pipeline.

If your national inventory is in one central warehouse, it now becomes profitable to sell lower volume items. Suppose there was a CD that would sell 1 copy a week nationally. If you are Target there is no way you would stock this item, since you would need one in every store so that you can find that one customer. Plus this would take already limited shelf space away from an item that does would sell more. But if you are Amazon.com, you can have one CD in one of your warehouses and be able to cover any potential consumer. So selling these long tail items is now profitable.

All these barriers (retail space, middle-man overhead, etc.) represented a barrier to entry for new products. Stores wouldn’t want to take chances on something that wasn’t already proven to be successful. Now as this bottleneck between supply and demand decreases, not only do you get more sales on long tail products, but you also get demand moved from the head to the tail . This is because consumers can now buy niche products in place of mass market products. For example, in the past if you needed to buy a CD, you would need to choose from one in the store, now you can buy something else online, instead of the one in the store.

This idea also generalizes to almost all industries. The immediate examples are Amazon (retail goods), iTunes (music) and Netflix (video rental). In advertising you have Google, which provides a venue for small businesses to affordability and efficiently advertise in the online market. These businesses are in the long tail of advertising buy because the traditional print and media advertising business is too expensive and inefficient for small businesses.

So in a nutshell, that’s the idea of the Long Tail. It seems to be one of the big buzzwords right now. If you are going to be writing a mission statement, I would definitely include the words “long tail”. In fact, here’s a freebie mission statement: “Realize upward revenue stream dynamics through utilization of the long tail paradigm shift, valuing the customer, and leveraging our core competencies.” :-)

Though the book is very repetitive at times, it still presents some really important concepts and seems to be a bellwheter in the business world right now.

As you probably heard, Crissy and I are extremely pleased with how all of our wedding pictures came out. Maggie Stolzberg, our wedding photographer, is not only a very talented photographer, but a pleasure to be around and work with. Lots of our wedding guests also told me how much they liked her.

Even though I knew that Maggie also was very, very happy with how the pictures came out, I was surprised to see that some of our pictures had made it into her online portfolio. While two of the three aren’t the one’s that I’d necessarily choose, — I do really like the one of Sridevi, with her “little sister hair style” :-) — they are pretty good ones.

It used to be whenever I saw photographers displaying their work in malls, I wonder what it would be like to have your pictures displayed as an example of the artist’s good work. And now I (sort of) know. :-)

Today is Milton Friedman Day, honoring the great economist who was “the most influential economist of the second half of the 20th century, possibly of all of it (from The Economist, subscription required).” While at the time (post WWII) his support of the free market was considered radical and fringe, his views are now mainstream. In addition to changing the policies of US and UK governments, his ideas were studied underground in Soviet Russia and have played an important role in transforming the economies of countries like China and India.

He argued that if economic freedom is introduced in countries, political freedom will tend to result. A great example of this is Chile, which went from being ruled by Pinochet to peacefully adopting democracy.

In addition to having significant impact on the economies of the world, he pushed for very important domestic changes. His proposal to eliminate the draft in favor of a volunteer army was derided originally and now is nearly gospel. Any politician that wants to bring back the draft for the Iraq war is instantly derided as a nutcase.

He is also created the Permanent income hypothesis, which basically states that consumers’ consumption patterns are not determined by current income, but by their longer-term income expectations. The key conclusion being that transitory changes in income don’t change long run spending. It seems obvious now, but this idea came at a time where economists felt that people were immensely stupid consumers and needed the government to tell them what to buy and when.

PBS will be airing a documentary about the life and ideas of Friedman this week. I’ve set my “Tivo” and am looking forward to watching it. :-)

Like I said yesterday, I spent most of last week in the Bay Area on business. And I discovered a another potential downside with travelling: I have a backlog of TV to watch on my Tivo (really, I have a Windows Media Center PC, but no one outside of Microsoft knows what that is, so I call it a Tivo).

Even though it’s really just 5 or 6 hours of missed TV, it feels like a lot more and it gets to be more of a chore than a pleasure. I really don’t want to sit and watch all of it. While I don’t want be confused by next week’s shows, it’s not worth wasting the time sitting on the couch watching it.

So I discovered a great way to deal with the problem: watch the shows as fast as possible. So if the show is Prison Break, I just skip over the subplots that bore me. Or if it’s Beauty and the Greek, you can just skip over all the unnecessary pauses used to heighten the dramatic effect and repetitive parts. I already fast forwarded a little bit. But a few nights ago, I did it really aggressively and must have covered almost 5 hours of TV in about an hour. And I think I got the same value (which says something about the quality of those shows).

I’ll probably do this as much as possible from now. :-)

I spent most of the week in the Bay Area on a business trip (got back on Thursday). It’s really nice going down there, since the weather is usually nice and I get to see a bunch of friends. The only downside is that I have to spend time away from Crissy, but since she needed to go back to Missouri this week, the timing worked out.

Yesterday (Friday), it was a beautiful sunny day in Seattle. It’s such a rare event here, yet I didn’t even notice until Crissy asked how the weather was. I guess I just got used to the nice California sun. :-)

One of the many annoying aspects with discourse is how many times sound reasoning is replaced in favor of emotional manipulation or logical fallacies. I’ve mentioned framing, causation vs correlation, and recently false dilemmas. But one of the most used fallacies is the intentional blurring between the means and the ends.

The ends is the what: the end goal of the action. The means is the how: the action used to reach the goal. While a lot of people will see these equivalent in value, it’s not the case. Any given means will almost always have unintended consequences outside the scope of the ends, differing long term and short term effects, or simply just have better alternatives.

A good recent example is the minimum wage hike that is stalled in the Senate. The ends of this initiative are to help low wage employees, the means the are legislation to increase minimum wage. Proponents of this plan criticize their opponents of hating the working class.

This is, of course, disingenuous. There are many economists that believe a minimum wage hike won’t help and may even hurt the working class. Plus, why couldn’t you want to both help the working class and oppose the minimum wage hike. They aren’t mutually exclusive. (As an aside, I’m speaking more about the general public and not the senators, who are mostly likely doing whatever their special interests tell them.)

Let’s look at this from a different angle. Suppose that I’m carpooling with friends to Seattle (the ends) from the Eastside. We have two choices, taking the 520 bridge or the 90 bridge (the means).

Let’s say I’m planning to take the 520 bridge, and my friends says, “I don’t think we should take 520.” I don’t assume my friend hates Seattle, because my friend isn’t saying, “Let’s not go to Seattle.”, he’s saying let’s try a different way.

Part of the problem is that our leaders and media don’t want to present detailed and deliberate reasoning to support their positions, it’s much easier to rally people with a nice soundbite like, “Support our Troops”. And this style of persuasion is lucrative: look at all the “experts” on CNN or Fox News with their horrible books and speeches.

For the minimum wage, if we really needed to use legislation, I’d rather we decrease the payroll taxes for those workers. This way, workers get more money, and the increased cost is felt by the federal government, not directly by the business and consumer. If anyone is in a better position to absorb the financial hit, it’s the bloated government. :-)

I recently got a couple new pairs of shoes (one pair brown and one pair black) at the Mervyn’s going-out-of-business sale. I really like the shoes since they are comfortable and inexpensive. Plus, lots of people have remarked that they are stylish and I find that really amusing.

The only problem is that the shoelaces keep coming untied. Not just every so often, they actually untie themselves at least once an hour. If I lace them really tightly, I think they stay will tied. But I can’t tell, since I lose feeling in my feet and need to loosen them. It’s tough, but I guess this is the price I need to pay to have stylish shoes. :-)

Seriously though, I hope velcro shoes come back in style soon. Imagine how much time we would all save. But let’s hope the tend doesn’t go as far as having adult onesies.

I came across this article advertising a new book, Unspeak: How Words Become Weapons, How Weapons Become a Message, and How That Message Becomes Reality. From what I can tell, this book seems to be very similar to don’t think of an elephant. The very idea of “Unspeak” seems to be similar to “Framing”.

The basic idea is that you need to phrase your argument in a way that it sounds really good: for example, “The Patriot Act”. Regardless of its actual content, it seems like if you don’t support it, you hate your country.

But it can go a lot deeper than this. Consider Kennedy’s famous line:

“Ask not what your country can do for you — ask what you can do for your country.”

This is Milton Friedman’s response to it:

Neither half of that statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. “What your country can do for you” implies that the government is the patron, the citizen the ward. “What you can do for your country” assumes that the government is the master, the citizen the servant.

This didn’t make much sense to me. After all, how can two seemingly opposite statements have the same nuance (of the individual being subservient to the government)?

Since it was Milton Friedman, and not a stupid crackpot commentator, I spend sometime looking at this. At first glance, we have the following two statements, with Friedman’s analysis:

1) “Ask what your country can do for you” (Government is the patron, Person is the ward)
2) “Ask what you can do for your country” (Government is the master, Person is the servant)

Once I wrote it this way, I saw there is hidden variable here: the person doing the asking (i.e. the actor). In this case either “you” or the “government” can be doing the asking.

So there are two more options that need to be added to the above list, making the full list something like this (with what Friedman’s opinion likely would be):

1) Person asks, “What can my government do for me?” (Government is the patron, Person is the ward)
2) Person asks, “What can I do for my government?” (Government is the master, Person is the servant)
3) Government asks, “What can you do for us?” (Person is the patron, Government is the ward)
4) Government asks, “What can we do for you?” (Person is the master, Government is the servant)

[At first I thought there would be 8 options, since the sentence “X asks, ‘What can Y do for Z?’” has three variables and each variable has two choices (i.e. 2×2x2 = 8). But, in this case, if Y is “the person”, then Z must be “the government” and vice versa. So effectively Y = not Z, so there are only two variables with two choices each (i.e. 2×2=4).]

Kennedy presents only two of the four possible options: a false dilemma. (A good example of a false dilemma is, “You’re either with us or against us.”)

I think the subtlety here is that the person asking is the one that needs something. Thus, generalized a bit, it seems that the one being asked is the the provider — the patron or the master.

A free-market advocate with Friedman would have probably preferred option (4), where the government works for the people.

I don’t know if the speech was intentionally written with in mind. My guess is that the speech-writer’s cognitive frame didn’t include options (3) and (4).

Maybe it’s over-analysis. But it’s really scary to think about all these tools of persuasion, how often they are used, and how they affect how we think.

Often people will talk about how out of touch and elitist politics are. Most are born into wealth and live luxurious lives that most the rest of us can’t imagine. To make up for this, most politicians have lots of staged photo-ops so they appear to be just a regular guy: for example, John Kerry ate at Wendy’s during the presidential election and Bush regularly pretends to do yard work at his ranch.

Occasionally though, they slip up, with very humorous results. Chuck Schumer, “the other senator from New York”, recently wrote a small article in Time, with the following passage (emphasis mine):

Biking through New York’s boroughs in 2005, I thought about some old friends, Joe and Eileen Bailey. Though they are imaginary, I frequently talk to them. To me, they represent the hardworking and often-ignored families who are not tuned in to special-interest newsletters or editorial pages, but want a little something more from their government and their leaders.

So I guess Schumer doesn’t know any hard-working American families, and rather than actually take the time to get to know some of his constituents, he’d rather just make it up in his head.

Which is disappointing considering that he’s about to publish a book called, Positively American: Winning Back the Middle-Class Majority One Family at a Time.

So I’m getting planning on getting a new car. I know I’ve been saying this for a while, but this time I’m a lot more serious and motivated. My car (a 1992 Honda Accord) is still going strong and would probably run fine for 5 or 6 more years, but I worry how I would fare in a collision with a newer car or truck.

Last time I said I’d get a new car, I couldn’t decide between a sedan or compact SUV. This time around, I need to decide between a hybrid and a regular car. I’m not too concerned about the price premium with the hybrid, the technology’s goal (of reducing oil consumption) is one I support, but my current car is going strong after nearly 16 years on the road with negligible repairs. I’d like to get close to that value with my new car. :-)

So I test drove the Civic Hybrid and to be honest it didn’t drive all that much differently then a regular car. I did notice one thing that really bothered me though. When the gas engine would turn off when I came to a stop or when it started again, the car would lurch slightly.

The salesman told me that once you learned how to drive the hybrid the right way, the lurch wouldn’t happen. But it did remind me that the gas engine turns on and off a lot and that makes me very uneasy about how long the car would last without needing major repairs.

I’ll probably go test-drive the Prius, to see if it is similar. But I don’t want a Prius. I’d rather have a car that doesn’t scream, “Hey look at me, I have a hybrid.” I suspect that there are some Prius drivers who really want everyone to know how much they “care about the environment”. :-)