Business is a game. There are strict governing bodies, rules to play by, and best practices that increase your chance of success. Games allow for free movement within rigid structures. The people who win utilize skill, strategy, and luck.
Athletes compete for championships. Academics compete for influence. Entrepreneurs compete for profit. Creators compete for attention.
Unlike most games, the rules of business are always evolving. Sometimes they evolve quickly — sometimes they evolve slowly. We are entering a period of rapid evolution. The strategies required to win the game of business are changing.
The traditional pathway to monetize consumer attention on the Internet is becoming archaic. Creators measure their influence using metrics like follower counts and albums sold. This is an inefficient strategy, and an outdated style of thinking.
We tend to think about our society in terms of bell curves. On a bell curve, the vast majority of data points fall in the middle of the graph, which is where the average lies. A small percentage of abnormal people rest at the far edges of the graph.
What Happens When the Playing Field Changes?
The playing field has changed before. When it shifts, the winners utilize new strategies that reflect how the game has changed. Technology, or lack thereof, has always played a pivotal role in how creators create content, distribute it, generate attention, and earn an income.
In 1781, Mozart moved from Salzburg to Vienna, the cultural capital of Austria to advance his music career. People could only listen to music live. Mozart moved to Vienna to perform for wealthy audiences and achieve fame. Only the political leadership of small city-states could finance Mozart’s travels and watch him perform. He did not even begin cataloging his own music until 1785. Many of his early performances were improvisations. After he performed, people could speak with Mozart directly. Wealthy aristocrats financed Mozart’s career.
Three-hundred years later, Prince rose to fame through television and recorded music. Records and new communications technologies enabled Prince to record anywhere. Empowered by technology, geography was removed as a constraint. With a boost from mainstream media, Prince had national reach and became a prominent star. He depended on the Warner Bros. music label for marketing and distribution. Prince had a one-way relationship with his fans. Prince performed — fans watched. He famously sought independence from music labels. While he tried to challenge conventional monetization streams, he was largely constrained by the tools of the era. He monetized through album sales and concerts. The masses financed Prince’s career.
Today, artists like Chance the Rapper distribute their music for free on SoundCloud. Chance the Rapper can record a song from the comfort of his own bedroom and distribute it globally to millions of fans at the click of a button. He interacts directly with his fans on two-way communication channels: Facebook and Twitter. He profits by selling merchandise and experiences, not albums. Passionate fans are financing Chance the Rapper’s career.
The winning strategy always reflects the rules of the game and the constraints of the playing field.
We see bell curves everywhere. Think of the height of the average adult American male. There is a small percentage of people who are shorter than 5’5”, and a similarly small percentage of men taller than 6’3”. Most adult men are average in height.
You may have seen the same thing in your college English class. Most students got Bs, a small percentage of strong students got As, and a small percentage of students got Cs. Bell curve graphs fail to convey extreme differences between the best students and average ones.
To use simple math terminology, the median and the average are the same on a perfect bell curve. The fields of natural sciences and economics depend on bell curves in their models the world. While we continue to think using bell curve mental models, power laws are becoming more common and integral to the way the world works.
A power law has more sample data with extreme values. One new value input dramatically changes the average.
To jump back to math terminology, the median and the average can be very far apart. To illustrate this shift, let’s look at the modern distribution of wealth. If you dropped 100 people from a fictional small town into a room, the cumulative distribution of wealth would largely resemble a bell curve. A small number of people are relatively poor, a large number of people have average wealth, and a small number of people are very wealthy. This is how most people think about the world.
Now let’s drop Bill Gates (net worth: $86 billion) into the room. The average, or mean, jumps up dramatically, but the median stays the same. This is how power laws work. One person can dominate a large percentage of the pie. Power law dynamics are increasingly common on the internet and in the modern world. Creators who are focus on their average fans instead of their most passionate ones are playing the wrong game.
The Upcoming Shift
We are living through a pivotal moment in the history of work. The rules of the game are changing. We are moving from a knowledge economy to an entrepreneurial one. None of this would be possible without the internet and recent technological advancements.
The story of the past five years has been about the democratization of distribution. The story of the next five years will be about the democratization of creation.
Digital technology enables everybody to reach a global audience with intrinsically motivating work. Powerful algorithms and personalized advertising enable creators to reach highly targeted audiences. We will see the rise of millions of niche creators.
This shift from bell curves to power laws is a consequence of a world governed by abundance, instead of scarcity.
To thrive in this new world, we need to recalibrate our minds to think in power laws instead of bell curves. Creators must adapt to this new game. Traditionally, businesses have focused on share of market. In this new digital economy, they should focus on share of customer. Creators who cannot adapt to this new game are leaving economic opportunity on the table.
The bell curve model of the world does not take into account the desires of avid fans who fuel us to do work we love. The current influencer model represents an archaic style of thinking. Influencers sell their reach and total distribution to brands looking for more “authentic” reach. Influencers pitch their total follower counts and the number of eyeballs they capture with each post. These passionate fans are looking for new ways to connect with their favorite artists or creators.
The 80/20 Principle offers a clear example here. In many businesses, 80% of revenue can come from 20% of the customers. In the gym, 80% of our gains can come from 20% of workouts. In life, 80% of our happiness can come from 20% of activities. The numbers do not have to add up to 100.
The 80/20 Principle applies to everything that has a positive feedback loop. In a world of averages, the best performers are slightly better than the average. In our world of extremes, the best performers outperform the average at an exponential rate.
The key point is that most things in life (effort, reward, output) are not distributed evenly. Creators systematically focus too much on the masses and too little on their most passionate fans.
Looking at the world in terms of averages is a fool’s errand. We need to shift our thinking to extremes, exponential growth and powers of ten.
We see large gains going to a small percentage of people all the time. The top 20% of Americans own 85% of the country’s wealth and the wealthiest 1% of Americans own 35% of it. 9% of countries hold 80% of the world’s wealth. A great album with 15 songs usually has two or three popular songs with one becoming a Billboard top-10. Great artists are famous for the exceptional works of art they produce. See: Warhol and the Campbell’s soup cans, Green Day and American Idiot, and F. Scott Fitzgerald and The Great Gatsby.
Big gains come from a small percentage of our actions. By understanding the desires of their most passionate fans, creators can spin up new revenue streams.
These passionate fans will happily pay extra for exclusive meet-and-greets, and signed limited edition albums. When I have more disposable income, I plan to do both of these things regularly.
A group of friends recently traveled to Birmingham, Alabama to see their favorite artist Bassnectar perform on New Year’s Eve. They traveled from Maryland, North Carolina, and Texas. At first glance, this is absurd. Collectively, they traveled thousands of miles and spent hundreds of dollars to attend the show. 99.99% of people would call this ridiculous. To them, it was an easy decision. Passionate fandom has no limits.
From industry to industry, creators are focusing too much on the masses and not enough on their most passionate fans.
Beyond the Bell Curve Model
In his post Why the Normal Distribution is Vanishing, Alex Danco conveys the potential upside that creators ignore when they operate under the bell curve worldview.
Danco tells the story of a business school professor who walks into a room with two Taylor Swift tickets. The professor asks the class how much they would be willing to pay for the tickets on a piece of paper. The answers tend to resemble a bell curve. Some people do not want to go to the concert, some people will pay a reasonable sum, and others will pay a lot of money.
The business professor explains that based on the data, Taylor Swift should price her concert tickets at around $40 to maximize sales. This reflects an archaic, bell curve style of thinking. A modern power law graph propels us towards a new strategy.
Taylor Swift should increase her ticket prices substantially. Her most passionate fans will happily pay prices that far exceed what the average person is willing to spend. They will gain satisfaction from not having to deal with the stressful rush to buy premium concert tickets. They will also pay extra for a more intimate event with fewer crowds. Swift can increase revenue in by creating additional scarcity. She can hold an exclusive meet-and-greet or sell limited edition merchandise.
Creators can please their most passionate fans with authentic, one-of-a-kind products and experiences that will thrill their most passionate fans. The result will be an increase in income for Swift and happiness for her fans.
Embracing the Power Law
Musician Amanda Palmer is a case study on how to best leverage power law market dynamics. Her modern, internet-native strategy took her from working as a “living statue” on the streets of Boston to international acclaim. Palmer directs her attention towards building powerful, two-way direct relationships with fans.
I first discovered Palmer’s monetization strategy in this excellent post from Taylor Pearson. Throughout her career, she has transitioned from a bell curve model of monetization to a more modern methods. Her first album, Who Killed Amanda Palmer sold roughly 36,000 copies. Assuming an average cost of $15 per CD, Palmer earned about $540,000. Her second album, Theatre is Evil reflected a modern strategy that Palmercontroversially called “The Future of Music.” Palmer turned to Kickstarter where she earned $1.2 million from just 24,883 backers.
Yep, you read that right! Palmer more than doubled her income by focusing on a much smaller number of fans. How did she do it?
Palmer focused on share of customer over share of market. She collaborates with her fans instead of selling to them. She gives fans at all parts of the power law curve personalized and exclusive ways to connect with her.
For just $1, casual fans could support her in exchange for a digital album download featuring bonus songs and exclusive content. For $25, fans received a packaged backer-only version of the CD and a 24 page art booklet in a hardbound case. For $100, fans received a signed heavyweight art book featuring 70 pieces of artwork inspired by songs on the accompanying signed album. For $5000, Palmer performed at a house-party.
Palmer toured the world, played at 34 house parties and dined with fans. The result was happier fans and an average income per fan of $50 per fan instead of $15. When we change our mindset, we increase the intrinsic value of smaller, highly engaged audiences. We discover they are worth much more than what our instincts tell us.
The underlying shifts from markets of scarcity to markets of abundance and the corresponding technological improvements will create a paradigmatic shift in how creators monetize. From art, to music, to movie making, we are seeing the collapse of the mainstream. We are already witnessing the balkanization of culture, a trend that reflects this paradigm shift.
Consumers are in control and they want to interact as much as possible with their favorite creators. They seek opportunities to engage in niche, identity-based communities. These consumers escape the masses and proudly support the creators who inspire them.
Those who fail to adapt to an 80/20 worldview may encounter a shortfall of financial opportunities. By focusing on their most passionate fans, creators can win the attention game.