How smart companies find high-value customers

As the founder of gamesbrief.com and author of several books on computer games, Nicholas Lovell is an expert on the business of engaging players online. For some time now, he has been tutoring gamers and geeks on how to compete in a glutted market. Plainly, he has spent a lot of time on the Internet and has carved out a niche for himself, teaching others how to profit from a business model where consumers expect to pay nothing. Now he is turning his attention to the rest of the online economy.

The eponymous curve from the title of his new book – The Curve: How Smart Companies Find High-Value Customers – describes the bend between potentially stratospheric profits online and the “long tail” of a global market that does not care about your product. Lovell advises letting people test their product for free and then slowly moving them along that curve from indifference into customers, and finally towards “super fandom”, where they will pay handsomely for services and things they truly value.

If any of this sounds familiar, it is because the digital revolution has caused a financial revolution, which in turn has caused a radical migration in profits, particularly from the news and entertainment sectors. Piracy, falling cinema attendance, low returns from distribution and online advertising, and the rise of aggregation sites have all challenged the role of the content creator. As a result, governments are being asked to police the Internet, and film and TV producers are crying that their primary revenue streams are drying up. On Twitter, Facebook, Pinterest, e-Bay and Etsy, individuals are hawking their creative products, and on Indiegogo and Kickstarter, they are dodging the professionals and financing their ideas themselves.

Books such as The Long Tail, Here Comes Everybody, Outliers and Big Data have spilled a lot of ink trying to find clarity on this topic. In this respect, what Lovell is offering is not particularly new or surprising, but he has provided that most contemporary of services – aggregation. He has collected the relevant information into an accessible and “actionable” document, which stimulates readers to consider how they can (actually and profitably) use this information. For that alone, it is worth reading.

Throughout the book, Lovell returns to three relatively simple suggestions:

1. Things are free on the Internet; use them to attract new markets
2. Use technology to find out what your market values
3. Use social networks to create one to one relationships, and then turn admirers into the sort of customers who will spend big

According to Lovell, we have been here before during the Industrial Revolution. He quotes two diverging economists, Joseph Bertrand and Antoine Cournot, and concludes that the Internet favours Bertrand’s model – “If products are identical, buyers will choose the cheaper”. In a competitive market, Lovell says, prices fall to marginal costs of production. In an abundant online market, where things are easy to make and distribution costs are minimal, the marginal costs will settle at zero. The trick now is to use other tools to create value.

Lovell is not advocating a removal of copyright, but he is observing that while it is natural for people to bellyache when their profits migrate, the smart thing to do is follow the profits. He gives plenty of examples of businesses that are doing this, not only the usual suspects (individual musicians turning their back on record companies, TV producers becoming distributors, aggregating news services offering a fee to filter the noise) but also surprising ones like clothing manufacturers and swimming pool builders.

Lovell also points out that with 3D printing, more traditional manufacturers will need to prepare for the reduction of their distribution costs and the erosion of their markets as well. The “freemium” market is here, he says, now we need to learn how to profit from it.

It seems relevant to mention that Lovell’s book is for sale on Amazon in electronic form for $14.90 or $20.96 in hardback.

Sheridan Jobbins is a journalist, screenwriter and regular contributor to Forum:Blog.