THE NEW YORKER & THE WARSHAW CURVE

In this week's New Yorker, James Surowiecki on his Financial Page has an article, "Soft In The Middle" that is entirely about theAldenCurve!!! Okay, okay, it's not actually about TheCurve — but Surowiecki's article describes exactly the same phenomenon — about how, when it comes to consumer products:

While the high and low ends are thriving, the middle of the market is in trouble.

Now, while I originally started writing about TheCurve focusing on evolution of the consumption of television content (see graphics below), I later began posting about other areas that adhere to TheCurve, along with Adam Park's observations about TheCurve and consumer electronics. And although Surowiecki never graphically drawers TheCurve, in this week's New Yorker he does write about how the consumption of consumer electronics has shifted from "the amorphous blob of consumers who make up the middle of the market to the high and low ends."

For Apple, which has enjoyed enormous success in recent years, “build it and they will pay” is business as usual. But it’s not a universal business truth. On the contrary, companies like Ikea, H&M, and the makers of the Flip video camera are flourishing not by selling products or services that are “far better” than anyone else’s but by selling things that aren’t bad and cost a lot less. . . unlike Apple, the companies aren’t trying to build the best mousetrap out there. Instead, they’re engaged in what Wired recently christened the “good-enough revolution.” For them, the key to success isn’t excellence. It’s well-priced adequacy.

These two strategies may look completely different, but they have one crucial thing in common: they don’t target the amorphous blob of consumers who make up the middle of the market. Paradoxically, ignoring these people has turned out to be a great way of getting lots of customers, because, in many businesses, high-and low-end producers are taking more and more of the market. In fashion, both H. & M. and Hermès have prospered during the recession. In the auto industry, luxury-car sales, though initially hurt by the downturn, are reemerging as one of the most profitable segments of the market, even as small cars like the Ford Focus are luring consumers into showrooms. And, in the computer business, the Taiwanese company Acer has become a dominant player by making cheap, reasonably good laptops—the reverse of Apple’s premium-price approach.

While the high and low ends are thriving, the middle of the market is in trouble.

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A SIMPLE PHRASE

I've come to the conclusion that all of this can be summed up in a single sentence:

Technology moves things to the extremes.

That's what we've come to see everywhere — not just in content and consumer products, but also in politics, sports and even interpersonal relations. (Something I'll write about in a bit.)

And that in a nutshell is the lesson of TheCurve:

Technology moves things to the extremes.  The middle drops out and both ends of the curve move up:

Warshaw_curve_1_6

Warshaw_curve_2_1

Indeed, that's what happens whenever disruptive influences enter an ecosystem.

As posted back in May of 2008, it turns out that TheWarshawCurve actually follows what evolutionary biologists call a "Disruptive Curve," as you can see below, along with the two other evolutionary curves: the "Stabilizing" and "Directional" curves (again, click on the images to enlarge them):

 

(Click to Enlarge)

If you think about it for just a second, it makes a great deal of sense that this same disruptive evolutionary curve should be found in patterns of consumer consumption:

New media and communication technologies — "disruptive technologies," as they are commonly called — are entering the marketplace today at a frenetic rate, specifically with regard to the storing and sharing of content.  Devices and platforms such as TiVo, generic DVR's, iPods, iPads, YouTube, Pandora, Netflix and on and on and on — basically all the stuff that's making life hell for the television networks and film studios, who once upon a time, not too long ago, lived in a world where consumers had to eat whatever they served — and most of it was mediocre content. (After all, as Ernie Kovacs so eloquently put it, "You know TV is a medium because it is neither rare nor well done.")

The result of all of the time shifting, sharing and storage, of course, is that people are no longer eating the middle of the curve and instead are saving up the high-quality stuff to eat later and noshing on the low-quality stuff (mostly thanks to YouTube) whenever they want to see a cat flush the toilet, a bull dog ride a skate board, a skate boarder crash or an infinite number of other things to entertain themselves for a moment, at that moment.

ONE OTHER THING THE CURVE TELLS YOU: BRANDS MATTER LESS AND LESS.

Finally, as Surowiecki also notes — under these new conditions, as we've written before:

The result is that brands matter less: a recent Nielsen survey found that more than sixty per cent of consumers think that stores’ generic products are equal in quality to brand-name ones. In effect, the more information people have, the tighter the relationship between quality and price: if you can deliver a product or service that is qualitatively better, you can charge top dollar. But if you can’t deliver the quality you can’t get the price. (Even Apple, after all, couldn’t make Apple TV a hit.)

It's a point that I've been debating with the CEO's and senior level executives of advertising agencies for well over two years now.  (And I completely understand see their point of view: 'cause when you have a hammer, everything looks like a nail — and, after all, their existence is based on pitching brands, so it's hard for them to see that brands matter less in a world of constantly iterative products. But that's the natural result of TheCurve. So, please, if you won't take my word for it, take James Surowiecki's.)

The reason, as noted earlier in "Consumer Goods and TheCurve," is that as the cost of production and distribution drop, goods inevitably become mass produced commodities — not just consumer goods but all forms of content and entertainment.

(Oh, and once again, before everyone goes pointing to Apple as being the most obvious exception to the rule that brands mater less, please read ("Apple Stumbles Along the Curveabout how Apple is as much a service company as it is a product company.  And how, in a world of iterative products, service matters more than ever — which is something that Microsoft has never understood and, alas, something far too many technology based companies, especially start-ups, fail to understand.)

More on how technology moves things to the extremes — including the world of sports and sports fans' behaviors — in posts to follow.

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