2006-12-21

Fcuk Pareto

I am back to reading books. Dunno, whether it was the pressure to adapt to a consulting environment or just the lack of interest, I did not read (at least fully) a single book in the last six months. I had managed to read books even during my ISB days, when the demand for time was far more high.

After the hiatus, started with a good book, The Long Tail by Chris Anderson. The book talks about how sales of businesses depending on internet are driven increasingly by "niches" and not necessarily "hits". Products which sell just one item per quarter or a month make almost 15-25 % of the sales of firms such as Amazon or Rhapsody. The curve drawn between popularity and sales has a long tail with the tail almost infintely running close to but not reaching zero. The implications of the long tail do not end at the businesses depending on internet alone. Other physical businesses which are adapting to internet or will need to embrace internet will slowly but surely get impacted by the new trends which the long tail represents.

We all, well almost all, believe in Pareto's principle that 80 % of sales come from 20 % customers / products. 80-20 / Pareto's principle has a strong influence on our thinking. The Long Tail definitely puts doubts in mind about the validity of Pareto. Next time, I am making my business plans and analyses, I will be inclined to think more about the long tail than about Pareto.

6 comments:

Anonymous said...

Have been following your blog for some time.You have this great ability to question existing phenomenon and redefine rules. Extraordinary stuff.Just wanted to know your background before ISB. You inspire people like me.Request you to please leave a comment about your academic background and work ex before ISB.

itheabsolute said...

Anonymous

Thanks for those remarks. I was a banker before i went to ISB. I had B.Sc. degree.

Would have appreciated if you had left your name behind the message.

Cheers

Anonymous said...

hi vijay,

perhaps due to the reasons you just decribed..yr blog had really shrivelled content-wise the last few months.....

good to see you are back in blogo-sphere...hv really appreciated your perspective on the diverse issues your blog normally covered...looking forward to interesting reads!

pinakin

Anonymous said...

welcome back! missed the blog updates, which had become rare because of the consultant. we readers prefer the banker too ;)
-baLu

itheabsolute said...

Pinakin

Thanks for the good words. Hope to continue writing something good and sensible

balu

thanks for the comment. i will surely be writing oftner

Aman said...

Dear Vijay,
the long tail is yet another fad over which the whole world is going ga ga. It is important to understand where long tail makes sense and where it doesnt. For the long tail to be applicable it is important to have
1. Highly hetrogeneous preferences
2. Zero or negligible holding costs

The problem is not with Pareto or anything else, the problem is using a model out of context, a mistake most MBA's tend to make too often.

2006-12-21

Fcuk Pareto

I am back to reading books. Dunno, whether it was the pressure to adapt to a consulting environment or just the lack of interest, I did not read (at least fully) a single book in the last six months. I had managed to read books even during my ISB days, when the demand for time was far more high.

After the hiatus, started with a good book, The Long Tail by Chris Anderson. The book talks about how sales of businesses depending on internet are driven increasingly by "niches" and not necessarily "hits". Products which sell just one item per quarter or a month make almost 15-25 % of the sales of firms such as Amazon or Rhapsody. The curve drawn between popularity and sales has a long tail with the tail almost infintely running close to but not reaching zero. The implications of the long tail do not end at the businesses depending on internet alone. Other physical businesses which are adapting to internet or will need to embrace internet will slowly but surely get impacted by the new trends which the long tail represents.

We all, well almost all, believe in Pareto's principle that 80 % of sales come from 20 % customers / products. 80-20 / Pareto's principle has a strong influence on our thinking. The Long Tail definitely puts doubts in mind about the validity of Pareto. Next time, I am making my business plans and analyses, I will be inclined to think more about the long tail than about Pareto.

6 comments:

Anonymous said...

Have been following your blog for some time.You have this great ability to question existing phenomenon and redefine rules. Extraordinary stuff.Just wanted to know your background before ISB. You inspire people like me.Request you to please leave a comment about your academic background and work ex before ISB.

itheabsolute said...

Anonymous

Thanks for those remarks. I was a banker before i went to ISB. I had B.Sc. degree.

Would have appreciated if you had left your name behind the message.

Cheers

Anonymous said...

hi vijay,

perhaps due to the reasons you just decribed..yr blog had really shrivelled content-wise the last few months.....

good to see you are back in blogo-sphere...hv really appreciated your perspective on the diverse issues your blog normally covered...looking forward to interesting reads!

pinakin

Anonymous said...

welcome back! missed the blog updates, which had become rare because of the consultant. we readers prefer the banker too ;)
-baLu

itheabsolute said...

Pinakin

Thanks for the good words. Hope to continue writing something good and sensible

balu

thanks for the comment. i will surely be writing oftner

Aman said...

Dear Vijay,
the long tail is yet another fad over which the whole world is going ga ga. It is important to understand where long tail makes sense and where it doesnt. For the long tail to be applicable it is important to have
1. Highly hetrogeneous preferences
2. Zero or negligible holding costs

The problem is not with Pareto or anything else, the problem is using a model out of context, a mistake most MBA's tend to make too often.