Project Red Stripe was established in September 2006, and consisted of a six-member core group comprised of The Economist Group’s employees that had been brought together with the task of creating an innovative and web-based product, service or business model by July 2007. The core team consisted of Ludwig Siegele, German correspondent for The Economist, Joanna Slykerman, formerly Marketing Manager across all EMEA territories of the Economist Intelligence Unit, Steven Chiu of the Economist Intelligence Unit, and Mike Seery, CIO of The Economist Group.

In addition to the research which the core group conducted in-house, they solicited ideas from the outside world in an effort to attract submissions from a diverse group of people.

Following the initial launch of the project, the Red Stripe team held webcasts to further explain how individuals could participate, and took questions online during the webcasts. These questions and answers formed the basis for the projects FAQ.

One of the core team said at the time: “Being able to tap into (and maybe even pay for) outside knowledge and experience to help with the development of our idea will be especially useful if we can make it a collaborative experience.”

The outside participants chosen to take part in the project were selected during December 2006/January 2007. At the end of January, the new team members were introduced and some broad principles were scoped to guide the project.

With the team established, the task was divided into four basic items: setting up a framework for developing new ideas; brainstorming and choosing the best ideas; developing the ideas; and then writing the business plan and presenting the finished product.

At this stage the question of whether the project would conflict with the overall objectives of the Economist Group. However, it was noted that, while other publications were suffering from ads and readers moving online, the Economist’s advertising revenues were increasing and the group has never been more profitable. This gave the Economist Group the confidence to be more experimental about what it does on the Internet.

Around the same time that Project Red Stripe was gathering momentum, the concept of companies gathering ideas from the outside world was becoming more commonplace. In the space of a week, Yahoo! and Dell launched idea-gathering sites. A this point the core team had to consider the tricky issue of intellectual property – who would own the ideas that were to be submitted to Project Red Stripe? As one of the team noted on the Project Red Stripe blog, “If we don’t deal with this issue from the start, it could come back to haunt us later – particularly if we dream up a money maker.”

In the end, the terms of Project Red Stripe stated that The Economist Group would own whatever ideas were submitted. This was seen as the only practical way of dealing with the matter. However, it was less restrictive that the terms on Dell’s Ideastorm which prevented users from otherwise marketing their idea.

One practical incentive on offer was that the core team would further involve those making significant contributions in Project Red Stripe.

Many of the submissions received related to user-generated content such as wikis, blogs, and social networks.

Wikis were the most popular suggestion topic. The consensus from Project Red Stripe submitters was that the conventional wiki needs to be improved with some form of moderation. While many alternatives suggestions were mentioned in the Project Red Stripe Blog, my personal view was that perhaps the most obvious solution was missed – create a conventional wiki but limit editing to current subscribers to The Economist. While this would not solve all issues, it would certainly cut down on vandalism of content, as few potential vandals would be willing to spend on a subscription to The Economist before doing their worst on a wiki page.

There were also suggestions relating to prediction, information or decision markets.

From the Project Red Stripe Blog:

Prediction markets are are speculative markets set up to make predictions on the outcome of a particular event, for example the US presidential election. People can bet on one candidate by buying a “contract”, essentially a promise of the seller to pay, say, a dollar if the candidate wins and nothing if he or she loses. Those certain of the candidate’s victory should be willing to pay up to a dollar for this contract (they’ll pocket one dollar minus the price they paid). Those confident of a loss should want to sell such a contract, expecting to be able to keep the money they got for it (and not having to pay the one dollar to the buyer). Given enough buyers and sellers, this market should establish a price for the contract – which represents the probability of the candidate’s victory.

Most contributors in this area wished The Economist to launch an online service allowing subscribers to participate and even create such prediction markets. Some added a special twist to the concept, for example a system for “truth claim markets”, which amounts to using markets not to predict future outcomes, but to evaluate current truths. Another proposal was for an index for worldwide memes, ideas, and trends that rates their popularity and value much like a stock index.

Some even suggested that The Economist should create its own private currency, which subscribers could use to make bets on prediction or other markets. One suggestion was that every Economist subscriber receive one thousand Economist dollars per year to trade. This triggered another thought within the Red Stripe Team: Why not let subscribers earn some money (by contributing to a wiki, for instance) and spend it (by donating it to a charity of their choice)? i.e. turning The Economist into a real economy.

Other ideas related to The Economist Group’s own publications and products, such as an expansion of the scope of its Big Mac index (which uses the price of a McDonald’s Big Mac in different countries to calculate the relative buying power of individuals in each country).

Many parcipants stated that The Economist provided for them an aggregation of the most important issues of that week plus analysis and opinion. May contributors suggested expanding The Economist’s service of “trusted advisor and overseer” and applying it to information available online.There was strong support among idea contributors for The Economist to become the “gateway” or “sorter” of a wider body of information beyond that purely generated by itself. While this may be an attractive idea from the reader’s viewpoint, the workload that it would bring would be immense if undertaken by staff. However, an alternative would be for the work to be undertaken by readers, a sort of highbrow Digg, where items are rated, or a type of tagging service such as Del.icio.us. The team also considered using implicit pesonalization, by somehow collecting data on subscribers’ surfing behaviour to compile lists, such as “The Economist’s reader’s favorite websites” and “what other readers of this article have read”, in a simliar style to the likes of StumbleUpon and Last.fm.

Another possibility was to combine Economist data and analysis with Google Earth, allowing the reader to scan the globe and zero in on a location of interest to access the relevant country and regional data. It was also suggested that The Economist partner with Google Earth to provide Economist analysis within the Google Earth environment, and that this economic and political analysis would work well with traditional travel guides about countries and cities.

These various suggestions led the team to consider if

“the traditional role of publisher could move from their managing their own-produced content to managing a ‘standard’… a respected source like The Economist could present for its readers the dominant viewpoints, showcase the various views for debate and even link to wider related event coverage, including multi-lingual reporting.”

Other ideas focused on using the Economist for educational needs, (even providing a version of The Economist for kids). Junior versions of other ‘high brow’ publications of this type exist in various countries. The challenge would be in creating something that young people would want to read rather than something that they would have to read as part of their coursework or that is aimed at their teachers.

One approach to this would be to use a community of teachers to create a curriculum plus teaching materials.

It was noted that the Economist website has been slow to take up the principles of Web 2.0, such as comments, mash-ups and tagging. One contributor felt that “many people discuss Economist articles on other web sites and in other discussion forums and that by not allowing our readers to comment on articles we are losing our community and potential ad dollars.” (The publication, is in fact, involved in blogs called Democracy in America and Free Exchange where it engages readers in discussion.)

Many other suggestions were received dealing with various aspects of how The Economist interacts with its readers and the World at large. Some contributors zoned in specifically on the data held by the Economist Intelligence Unit (EIU). Most of these related to making the data more accessible, in both the the financial and technical sense (for example through an Application Programming Interface (API)).

However, the EIU currently charges for its data, so making it free would damage the Group’s revenue. One possibility would be to liberate some of the data or, more radically, by turning a business with a few subscribers into one with many more monetised customers.In the end, after much deliberation, the one idea which was chosen to be implemented was perhaps the least expected – The Economist would start a social enterprise.

At the end of June 2007, it was decided to start a web service that harnesses the collective intelligence of The Economist Group’s community, enabling them to contribute their skills and knowledge to international and local development organisations. These business minds will help find solutions to the world’s most important development problems.

It would be a global platform that helps to offset the brain drain, by making expertise flow back into the developing world. They called it “Lughenjo”, an Tuvetan word meaning gift.

Non-governmental organisations (NGOs), charities and other organisations – as well as entrepreneurs active in developing countries – would be able to post tasks on Lughenjo asking for help in solving problems. Qualified individuals could then provide such help by donating their knowledge and skills. By connecting these two groups Lughenjo would “create a marketplace for good and a new channel for skills and knowledge transfer”.

It was decided that Lughenjo would be a social business enterprise – a business that does good, and returns a profit. It would be financed by online advertising.

Almost immediately, Lughenjo ran into difficulties. There was much internal debate among the team as to whether it was correct to make money from a website on which people would donate their time to solve development problems. Initially, the Project Red Stripe team wanted Lughenjo to be not-for-profit, with revenues to finance the programme coming from The Economist Group as well as long-term sponsors and grants.However, a business model mainly based on the financial support of others would have limited Lughenjo’s growth and sustainability. Also, not-for-profits do not always raise enough funds, and thus cannot fully achieve their mission. From a purely financial viewpoint, by making its brand and readers available to the site, The Economist Group would be taking a considerable risk, which should be compensated. This would give the Group a strong interest in making Lughenjo a success – which, in turn, would help achieve the site’s mission.

Many variations of the social enterprise model already exist. Perhaps the most famous is the Grameen Bank. However, Lughenjo would push this idea further, by not reinvesting the profit. It was hoped that Lughenjo would reflect a larger trend that would spawn many hybrid organisations that will both do good and make money at the same time.

The Project Red Stripe Team believed that a site to exchange skills and knowledge to solve development problems could make a significant difference. They noted that, while international and local development organisations need money, skills and knowledge are often the true bottleneck. Even if both are available locally, the networks to spread them are often missing. While Lughenjo would not only be a partial substitute for such networks, but would also help build them.

The team was reasonably confident of gaining enough volunteers to give Lughenjo a critical mass. However, it was noted that research on volunteering showed that “the biggest obstacle in online volunteering is the lack of an organisation’s capacity to involve any volunteers effectively.”

So, the real challenge was to find ways of stimulating demand for the service, for example by making it as easy as possible to post “help” requests. Another method used to create demand for the Lughenjo project was to work with major international and local NGOs to get them to serve as a kind of aggregator of such requests. However, the most important aspect of making Lughenjo a success would be to identify a “killer application” for it to gather momentum. In the end, these goals were not achieved.

After a month, it was decided to move on from Lughenjo. While the feedback was very favourable towards the idea, there were, however, two problems. Firstly, it was not obviously something that The Economist Group should do. Secondly, and more importantly, it became clear that there was not an immediate demand for a knowledge network from NGOs and social entrepreneurs.

A posting on the Project Red Stripe blog explained:

“The upshot was that we would have had to force the creation of the network from a demand point of view as well as marketing it to potential donors. This would have put a barrier in the way of us being able to grow the community quickly and therefore monetising it. And the one thing that pretty much all the people in the NGO community that we spoke to said, was that they expected us to run Lughenjo as a profitable business, because that would be our motivation to stick with it.”

Lughenjo had already gone through several iterations before being made public, each time being refined into a simpler proposition. It had its roots in us wanting to make a ‘major difference’ and originally deciding to help achieve one of the UN’s millennium development goals – that of universal primary education by 2015. The original idea was to create a platform for digital donations with a novel map interface. It then became a skills exchange to help achieve universal primary education, before ultimately seeing the light of day as Lughenjo, aimed at helping anyone working on projects involving international development.

It was noted that, with Lughenjo, The Project Red Stripe team had always thought that after philanthropy they would be able to roll out other “verticals” that would be of value to The Economist Group’s high-end audience. However, they hadn’t focused on that wider goal. The feedback received made them re-focus on the need to put the wider goal of a knowledge network at the front of their idea. So they came full circle to a type of social network, a type of Facebook for the Economist Group’s audience (provisionally called HiSpace). It’s focus would most likely be on knowledge generation and sharing rather than contact generation and maintenance – members of HiSpace would not just consume information but they would also be the principal generators of such information. It is expected that HiSpace will surface in some form around November 2007.

One of the principal issues that the Project Red Stripe team has identified as a result of the Lughenjo process is the question as to what extent innovators need to experience a problem before coming up with a solution. The Economist Group was in an unusual situation, in that it is reliant on revenues from a print product which are increasing, whereas the overall print media market is declining. The issue for the team was therefore how to get a high-end audience in the tens of millions to interact online.

Perhaps Lughenjo did not succeed because it was thought of as a solution first and a problem had to be found to fit it. However, the one advantage to this type of ‘wildcat innovation’ is that it is easier to move on to the next idea, because lack of success does not leave an unsolved problem behind.

It occurred to me that, while there has been extensive analysis of these various concepts, there has not been as much examination of how they have influenced and interacted with each other. To a certain degree, individual conceptual ideas overlap with each other, which may sometimes lead to a degree of confusion among those who are developing their understanding of mass customization and related business strategies. I hope that this article will shed some light on the origins of various concepts that have developed. It is probably fair to say that the terminology can come across as “management-speak” to many people, so it may be a good idea to come up with a more accessible description which can apply to them as a group.

An essential component in the evolution of these customer-centric business strategies from concept to reality has been the development of the web, firstly in the form of the world wide web itself, and more recently the ‘social internet’, sometimes referred to as “Web 2.0″. The role of information systems in the growth of the customer-centred business models will also be explained.

As is often the case when explaining something like this, a diagram helps. I have, to the best of my ability, mapped the evolution of mass customization and its ‘cousins’, such as user innovation and customer innovation. Towards the end, I’ll show a cumulative diagram which displays how all the different trends fit into the ‘big picture’.

From the first mention of the ‘prosumer’ in Alvin Toffler’s 1970 book ‘Future Shock’, right through to the current use of customer-driven innovation processes, there have been a great many significant events, which may at first appear unrelated to each other, but all of which have played a role in getting us to where we are today.

The ‘history’ of Mass Customization (it may seem strange to use the word history for something that is still developing) is likely to be familiar to readers of this website, but to quickly recap, the concept is generally traced back to Alvin Toffler’s 1970 book ‘Future Shock’ which referred to the producer and consumer working in concert. (It has recently come to light that an un-named lecturer at IBM’s System Research Institute outlined the mass customization idea as far back as 1963). Toffler used the term ‘prosumer’ to describe this type of interaction. The first use of the term mass customization occurred in Stan Davis’ 1987 book, ‘Future Perfect’, which was followed in 1993 by Joseph Pine’s landmark book ‘Mass Customization – The New Frontier in Business Competition’, which set out how this new strategy could be deployed in an enterprise.

Developments in supply chain management during the 1980′s and 1990′s, such as Just-in-Time delivery, made it feasible to dispense with large inventories of parts, and instead order frequent smaller deliveries to match demand. This made it more feasible to offer products built to order, as part order quantities could be based on actual customer orders.

The major impediment to widespread adoption of mass customization in the early 1990′s was the absence of an efficient communication channel for customers to describe their requirements. Telephone ordering existed, but it was not an efficient method for taking large numbers of orders for a customized product. However, two separate strands of information systems research were about to combine supply the right tool: the Product Configurator.

I’m open to correction on this, but my research suggests that the earliest work on what would be considered a product configurator was carried out by Ron Brachman at Harvard University in 1977. At that time, the term used was ‘knowledge representation’. In the mid-1980′s, Brachman worked at the Artificial Intelligence Principles Research Department at American Telephone and Telegraph (ATT) which developed the PROSE product configuration system for use in the telecoms industry. A few years later, unrelated research by Tim Berners-Lee would produce the first web-browser. By 1996, Dell had combined these two technological innovations into the first web-based product configuration system, that would allow anyone to specify their requirements when purchasing a computer. The idea of allowing customers to configure products on a website and then purchase the product was now no longer just a theoretical idea, but a reality.

Technological developments continued through the late 1990′s, with product configurators being developed by many different IT companies, but the general business concept of mass customization was largely unchanged during this period: companies would offer a basic product that could be configured in numerous ways by the customer at the time of purchase. The first two examples of how mass customization could be the catalyst for new business models came about at the turn of the Century. These can be summarised under the headings of Manufacturing Service Provider and Micro Manufacturing.

A manufacturing service provider is one who manufactures mass customized products, and also provides software to allow other brands to sell these customized products under their own name. The term ‘Manufacturing Service Provider’ is a variation on the well-known phrase ‘Application Service Provider’ which describes companies that provide business software as a service on the internet. The manufacturing service provider is simply offering custom manufacturing as a service to other companies through the internet. The best known exponent of this business model is Bivolino, a Belgium-based manufacturer of custom-made shirts. Customers can design and purchase made-to-measure shirts on Bivolino’s own website. However, Bivolino also provide other retailers with their expertise in custom shirt making, through an associated company, Shirtsdotnet. Retailers can set up their own website with their ‘branded’ version of the shirtsdotnet product configurator installed. They can also install a Shirtsdotnet kiosk in their stores, which their customers can use to configure a shirt while they are in the shop. Like on the retailers website, the retailer’s own branding appears on the kiosk version of the product configurator. The completed order is then manufactured and delivered by Shirtsdotnet/Bivolino, but under the brand name of the retailer.

The second of these business models, micro manufacturing, is exemplified by two companies: Zazzle and CafePress. Both of these companies offered conventional personalization of everyday products – you could upload your picture and they would print it on items like t-shirts and mouse mats. However, the most important aspect of their business was that they were also ‘micro-manufacturers’. Micro-manufacturing works like this: You have a website and you would like to earn money from it by selling merchandise. You have some interesting logo, photos or artwork that you want to put on t-shirts or other everyday items, but you have no factory, employees, suppliers or budget. No problem – sign up with a micro manufacturer. Upload your artwork to their website, then fill in a few details and copy some code to your own website. You are an instant retailer of your own collection. Manufacturing, distribution and payment are all dealt with entirely by the micro-manufacturer. All you have to do is run your site and wait for your share of the revenue to arrive from the micro-manufacturer. The idea has been a huge success, with Zazzle and Cafepress both having signed up hundreds of thousands of webmasters as members.

The growth of these companies was important in that it showed how the mass customization idea could be adapted to create completely new business models.

In conventional mass customization, the customer had, as yet, no role beyond specifying their requirements and making the purchase. However, it was obvious from the success of micro-manufacturing that there were a great many people who wanted to jump across from being customers to being developers of products themselves.

Ideas about involving the customer in the innovation process had been around since the late 1980′s. This area of research has a number of slightly different strands that have gradually come closer to each other over the years. User Innovation is the earliest of these concepts, devised by Eric Von Hippel at the Massachusetts Institute of Technology (MIT). Von Hippel discovered that most products and services are actually developed by users, who then give ideas to manufacturers. This is because products are developed to meet the widest possible need; when individual users face problems that the majority of consumers do not, they have no choice but to develop their own modifications to existing products, or entirely new products, to solve their issues. Often, user innovations will share their ideas with manufacturers in hopes of having them produce the product, a process called free revealing.

In 1986, Von Hippel introduced the Lead User method that can be used to systematically learn about user innovation in order to apply it in new product development. A Lead User is someone who faces needs that will be general in a marketplace – but faces them months or years before the bulk of that marketplace encounters them. Lead users are also positioned to benefit significantly by obtaining a solution to those needs. So user innovation can be combined with mass customization so that the customer is directly involved in the lifecycle of the product, from the design stage through to the configuration and purchasing stage.

Later, the idea of Open Innovation was devised by Henry Chesbrough, a professor and executive director at the Center for Open Innovation at Berkeley. The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license ideas (i.e. patents) from other companies. In addition, internal ideas not being used in a firm’s business should be taken outside the company (e.g., through licensing, joint ventures, spin offs). While Open Innovation encourages greater openness in a company’s research and development, it doesn’t specifically encourage interaction with end-customers. Therefore it is quite different in this respect to User Innovation.

Another approach to this area is referred to as ‘co-creation’. This originated in the 1994 book ‘Designing Interactive Strategy – From Value Chain to Value Constellation’ by Richard Normann and Rafael Ramírez. They they proposed a model of ‘co-production’ between ‘actors’ in the business environment, coming together in a ‘value constellation’. The co-creation idea was later expanded upon by management writer C K Prahalad, who argues value is increasingly being co-created by the firm and the customer, rather than being created entirely inside the firm. Co-creation is at the heart of the open source software movement, where users have full access to the source code and are empowered to make their own changes and improvements to it. Open source software is the inspiration for other new business models, which I will come back to later.

Most recently, Patricia Seybold has updated the User Innovation idea in her book ‘Outside Innovation‘. This recent book brings right up-to-date the idea of customer involvement in the innovation process, and some of the concepts described in this article are explored in detail in ‘Outside Innovation’. Therefore, I would strongly recommend Outside Innovation as reading for anyone interested in exploring these ideas further.

Just as the first generation world wide web had allowed businesses to sell customized products to consumers, Web 2.0, or the social internet, enables new methods of interaction between business and customers. (The correct usage of the term Web 2.0 is sometimes subject to a certain amount of debate and argument about particular technologies. Therefore for this article I will stick with the more generic term of ‘social internet’).

The social internet is the name given to web-based activities that involve two-way conversations, where the consumer of information (the website reader) can also become a contributor of information to that same site. Examples of the social internet include blogging, where the reader can leave comments on an article, and wikis, where the reader can join a community and contribute to authoritative content on a particular topic. In the world of mass customization, the social internet has been adopted by some businesses to integrate their customers into proposing designs for products. In the business-to-consumer sector, companies like Threadless and Innertee have adopted this strategy, referred to as ‘Crowdsourcing’.

Crowdsourcing involves the use of discussion and debate among participants to arrive at a solution which satisfies the requirement. In some cases, such as Threadless, there is a formal ‘voting’ process. Designs submitted by members are voted upon and the most popular are then marketed by the business. In a crowdsourcing model, the designers whose ideas have been selected sometimes receive a commission on each example of their design that is subsequently sold.

An alternative approach in crowdsourcing for deciding the correct solution is a process of discussion and review. This is generally moderated by people within the enterprise who eventually decide what solution will be used based on a consensus among the contributors.

While crowdsourcing, to date, has been used mostly in the area of visual design, it could easily be adapted to issues of technical design also. Who is to say that an electronic equipment company could not use crowdsourcing to develop new products? There could be thousands of engineers itching to submit designs for new devices or contribute to the design of a new product. Indeed, Patricia Seybold’s Outside Innovation describes just such a case, that of National Semiconductor, which empowers design engineers to reach their desired outcomes with a comprehensive software toolkit.

Crowdsourcing can generally be described as commercial organisations encouraging customers or users to contribute knowledge or ideas, that it can then use to its own benefit, and the contributors may or may not share financially in the benefits. However, the possibility of using crowdsourcing for technical development inevitably hits a stumbling block due to the traditional concerns regarding the protection of intellectual property rights. Very few CEO’s would be willing to have their intellectual property and product designs discussed openly. However, the same viewpoint has been significantly challenged in the publishing sector, with the growth of the Open Source software movement. If open source can be accepted in relation to copyright, it might also be more accepted in other forms of intellectual property.

The general view among publishers of all kinds (including software) for many years was that it was essential to maintain copyright over the work to protect the financial benefits for the author and publisher. However, the growth of open source software changed attitudes to copyright, and it was only a matter of time before similar open distribution models would appear in other areas of activity. The first very significant development in this regard was Creative Commons licensing. This concept was devised by Lawrence Lessig in 2001, and it enables copyright holders to grant some of their rights to the public while retaining others through a variety of licensing and contract schemes, including dedication to the public domain or open content licensing terms. Creative Commons was adopted by many websites as a means of allowing the content to be distributed while giving a degree of recognition to the original publisher.

If you combine creative commons with user innovation, the result closely resembles another concept, Peer Production. Commons-based peer production is a term coined by Yale’s Law professor Yochai Benkler to describe a new model of economic production in which the creative energy of large numbers of people is coordinated (usually with the aid of the internet) into large, meaningful projects, mostly without traditional hierarchical organization or financial compensation. He compares this to firm production (where a centralized decision process decides what has to be done and by whom) and market-based production (when tagging different prices to different jobs serves as an attractor to anyone interested in doing the job). Peer production to date has been limited mostly to information technology projects, a good example of which is the open source Mozilla Firefox web browser.

The Outside Innovation book describes how this project is run on a non-profit basis, but has generated significant financial surpluses due to sponsorship arrangements with other technology companies. The Mozilla organisation is reported in Outside Innovation as looking at ways of distributing part of its surplus back to those who took part in its development. This gives rise to an interesting question – just as today’s public companies are listed on the stock market, distributing surpluses to shareholders in the form of dividends, might there in the future be a ‘stakemarket’ where peer production projects are listed and distribute surpluses to stakeholders who have contributed to them intellectually? Exploring this question is probably one for another day.

Getting back to our discussion, if you combine crowdsourcing with a type of creative commons intellectual property arrangement, you could have a business model where products are developed by users under creative commons licensing, which would in turn allow other businesses to use the intellectual property subject to conditions (financial or otherwise). This presents the potential to massively advance countless areas of technology, by opening them up to faster development by sheer weight of numbers.

Another part of our jigsaw is digital manufacturing (or digital fabrication – ‘fabbing’). This originated with CNC milling machines and the like in the 1980’s, but took a step forward technologically with the development of additive fabrication during the 1990’s. Without going into too much technical detail, additive fabrication is three-dimensional printing. Design data is read from a file, and a three-dimensional object is created by depositing materials in successive layers to create the shape contained in the design.

A company called eMachineShop combined digital manufacturing with the world wide web to create an ‘online factory’ which can make almost anything from a designs submitted by customers. Customers download eMachineShop’s own design software, an easy-to-learn CAD application. They then use this software on their own computers to compose their design, before uploading it to the eMachineShop website and place the order for it to be manufactured by the company.

eMachineShop’s design software is a type of ‘user toolkit’- the name given to software that assists users to design new products for manufacture by the company concerned. Although eMachineShop customers mostly design and purchase items for themselves, user toolkits are most often associated with open innovation, where they are used to contribute design knowledge to a project. User toolkits are to open innovation what product configurators are to mass customization. Of course, a user toolkit may exist as a web application or a software download.

It is also possible to combine one or more of these business concepts with digital manufacturing. There is already one example of Creative Commons and digital manufacturing being combined for the purpose of allowing customers to ‘download designs’ for products. Ronen Kadushin, a lecturer in furniture design at the Shenkar School of Engineering and Design in Israel, has published a collection of lighting and accessories, where the product designs available for download under the principles of ‘Open Design’.

In explaining many of these concepts, it is difficult to state definitively if a particular project belongs to one or the other concept, as it may display attributes taken from many or all of them. So, while all of these ideas and concepts for new ways of doing business were devised separately, they do overlap to a signficant extent. Patricia Seybold has devised a ‘continuum of customization’, showing many of these ideas on a scale of customer involvement, beginning with the most basic level of product customization and moving towards ever increasing involvement of customers as stakeholders in the business, through their contribution to product design and development.

Looking to the future, in the event that hardware manufacturers were to produce an affordable digital manufacturing system for home use, the popularity of downloading designs would grow exponentially. Chris Anderson discussed this idea in the final chapter of his recent book ‘The Long Tail‘ .

Combining user-friendly digital manufacturing with mass customization and the other concepts described above would enable a host of new business models to gain popularity, from the Creative Commons distribution example used by Ronen Kadushin, to ‘shareware’ style examples (get a basic product design for free, pay a fee for a more advanced version), through to standard commercial agreements. And, of course, any of these business models for digital products could be combined with all of the other ideas discussed above, for example:

• User innovation – users contribute to the design of a digital product design which is then made available for download by other customers;
• Crowdsourcing – users upload designs of their own for peer review and possible resale by a digital manufacturing business;
• Custom marketplaces – webmasters upload three dimensional product designs to a custom digital manufacturing marketplace (a sort of combination of eMachineShop with Zazzle or Cafepress).

One other technology development that may yet be a significant factor in the development of customerism is digital identity management. Inputting personal details, and especially personal measurements or other preferences, is a chore for most people. What if you could store all of your personal details in a manner where they could be retrieved instantly, to be used whenever you are purchasing a customized product, contributing to an open innovation process, or just about anything else? An open source project currently underway, called the Higgins Project, may be the path towards having a single overall digital identity for every web user. This project is still at the development stage, but could be a major leap forward in the way that personal data is accessed on the web. While its impact cannot be predicted with certainty, if successful it could make filling out detailed order forms on the web look quaint in years to come.

This is the overall diagram (set your browser to full-screen view for best results) which shows how the various events and trends described above have interacted with each other. In the diagram , the event flows sometimes originate at a great distance from each other, not so much in the geographic sense, but rather in their field of research or activity. However, each new development feeds off everything that has gone before, and differences between the concepts tend to be eroded as ideas become adapted to real-world applications.

This is where we are now then: a collection of separate business concepts and enabling technologies, that encourage user/customer participation, whose attributes overlap with one another to a significant extent. I have given some thought as to whether they can be labelled collectively as a group. While there is no single word that can take in all of them (‘masspeercustomizationcommonsmarketplace’ doesn’t roll off the tongue!), my personal opinion is that there is one word to describe a series of ideas that empower the customer with a greater level of participation in deciding how products are designed and how they are produced. It has been used before in a couple of places, more so to describe the general growth of consumer power, rather than in the context I am describing here. However, “..isms” generally refer to a collection of ideas, so it seems appropriate to use it for this purpose.

It’s called ‘Customerism’.

Note: Some information for this article, particularly the definitions of some concepts, was sourced on Wikipedia. Logos of companies are shown in diagrams to illustrate an event or trend only.

It might be appropriate to namecheck those people who have used the term ‘customerism’ in other contexts previously. Firstly, Dan Gillmor wrote an article in SiliconValley.com some years ago which used the term (unfortunately this article seems to be no longer available online), and more recently, Jeff Jarvis titled a posting “The Age of Customerism and Producerism”. This article discussed at length the merits of the blogging approach to communication with customers.

The Long Tail is named after the shape of the graph that demonstrates it:

The high sellers appear in the ‘head’ towards the left, with the lower sellers ‘tailing’ off to the right in a slope that never quite reaches zero: even the most obscure item will have some sales.

In conventional retailing theory, only those items near the left side of the graph should be offered, due to the high cost of retail shelf space. In the long tail model (I’m using lowercase when referrring to the long tail concept – uppercase Long Tail when describing the book), by contrast, every possible option can be carried due to the ability to reach a customer for everything on the internet. In the long tail model, companies like Amazon.com can carry millions of books in low-cost warehousing, because every single inventory item will be sought by somebody, somewhere.

Because warehouse space is far cheaper than high street shelf space, an online retailer can carry a far greater variety of product than a conventional retailer. Each item of stock held in a warehouse will have a carrying cost that is only a fraction of its counterpart on a retail shelf. In the market for digital products, like music downloads and online video, the cost of carrying stock is virtually zero. Therefore it does not matter if some items hardly ever sell, because even if they sell once, they are contributing directly to the bottom line.

Product variety is constantly growing in almost every sector of every market. Even commodity products like flour are sub-dividing into smaller sub-markets. These ever-dividing ‘niches’ are eroding the traditional business strategy of focusing on the really big sellers – the ‘hits’. They are also contributing to the growth of the tail’s share of the overall market.

Andersen describes three forces of the Long Tail:
1. Democratize the tools of production – this can be related to the economic phrase ‘lowering the barriers to entry’. He uses the example of how personal computers, the internet and blogging software have combined to enable millions of new publishers to appear. Some of publishers are individuals with a small audience (like this one!) or online publishers who started small and became big, such as tech and gadget blog Boing Boing.
2. Democratize the tools of distribution – In other words, make it easier and cheaper for producers to reach customers, and vice versa. This increases the ‘liquidity’ of the tail, which in turn increases the overall size of the market for niches.
3 Connect supply and demand – filtering elements like customer recommendations on music sites, opinions of bloggers, and (ironically) best-seller lists aid the spread of knowledge about the market, increasing the potential number of buyers for every niche product.

The Long Tail takes many of the best known online companies as examples of the concept at work: Ebay is an aggregator, putting buyers and sellers together without ever holding stock of its own; Google’s AdWords system uses algorithms to match many thousands of advertisers with sellers of advertising space (webmasters), Amazon.com has a merchant program where smaller sellers of niche products can have their products listed on Amazon, who do not have to carry the stock that is being offfered.

The book makes the important point that the long tail of the market will not replace the head; both can and will continue to exist alongside each other, but those who produce can no longer assume that the head will remain as large. Increased exposure to the tail may increase overall demand, but this is more likely to raise the tail than the head.

The Long Tail and Mass Customization – Opposites or Just Opposite Sides of the Coin?

Given the focus of this website, it is worth noting that The Long Tail is not a book on mass customization. It does provide examples of mass customization as evidence of the growing power of the tail, but it is principally about leveraging the potential of massive product variety.

The long tail concept presumes that the product is available – sometimes on a build-to-order basis, but more often from stocks already held. This aspect of the long tail idea is at odds with the mass customization idea, which presumes little or no finished stock inventory, with products being made only after they are sold.

However, some aspects of the long tail relate closely to mass customization. Among the factors influencing the growth of the long tail is less homogenous markets, which was also cited by B. Joseph Pine as a contributing factor to the development of mass customization, in his landmark 1993 book Mass Customization – The New Frontier in Business Competition. Also, the constantly increasing levels of product variety were also noted by W. Michael Cox and Richard Alm, in ‘The Right Stuff: America’s Move to Mass Customization’, part of the Federal Reserve Bank of Texas 1998 Annual report.

The growth of more ‘democratic’ markets is also shared between mass customization and the long tail. One example is the growth of peer production, where individual members of a large group propose new products (such as new music, lego toys or t-shirt designs), which are then rated by their peers within the group. The most successful are then made available to the open market. This displays characteristics of both the long tail and mass customization.

Also, the growth of the long tail make build-to-order more feasible in many markets. Lulu.com can publish a book for you and print copies in tiny numbers to fill orders on-demand.

Critically, the issues of choice that affect mass customization markets also affect the long tail. Andersen looks in detail at the risk of creating confusion by massive choice, a topic that has also been studied extensively by researchers into mass customization. Similar to mass customization, Andersen concludes that a well-contructed guiding process is essential for long tail environments.

Keeping the accountants happy

While in some markets, such as digital music, the cost of carrying stock is practically zero, any market for goods made of matter will involve carrying costs for stock. And while the cost of carrying stock may be far less for an online retailer using warehouses, it is not zero. And unless you are an aggregator, matching buyers and sellers without holding stock directly, targeting the long tail of the market will often involve holding large inventories of stock. This means having large amounts of working capital tied up, which is generally viewed unfavourably as a business strategy. This is probably the biggest challenge to the acceptance of the long tail model among businesses. Some enterprises might be able to develop super-efficient supply chains that minimize the stock levels at any one time. However, this is more difficult for online retailers than it is for online manufacturers.

Rather than encouraging online retailers to expand their own range of available products, The Long Tail may instead encourage more of them to become aggregators for other smaller sellers.

The Long Tail book is well worth reading. Depending on the extent to which you follow developments in online business, the descriptions of online retailers’ business models may or may not be new to you. However, they are presented in a way that illustrates well how the long tail concept has grown with the World Wide Web.

At the end of the book there is a short piece on digital manufacturing, which is sometimes called 3D printing. Andersen rightly states that if digital manufacturing can be developed to output more complex products, then almost every market will become a digital market. In the same way that online music can be downloaded now, someday the design for pretty much anything else might be downloaded someday and manufactured at home. (An earlier article on this site looks at this issue in more detail.) Then every market will be a long tail market, and the cost of carrying infinite variety of stock will be zero for everything.

If digital manufacturing becomes widespread, then many more industries would become ‘knowledge industries’. One quote from the book, which was new to me, struck a chord and made me wonder about what potential is out there for new economic models based on long tail markets, mass customization and peer production. Thomas Jefferson, who developed the U.S. patent system, said:

“He who receive an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.”

It is worth considering how this quote could be used as the basis for imaginative business models in the age of the long tail and mass customization. But that discussion is for another day…..

Footnote/disclosure: On the Long Tail website, Chris Andersen offered free advance copies of the Long Tail book to bloggers who would write a review of it. I got one of those copies, and this post is keeping the bargain.

The Long Tail: Hyperion Books ISBN 1-4013-0237-8.

The first article is by Linda Matchan, and originally appeared in the Boston Globe, where it is only accessible to registered users, but you can read the full text on The Financial Express in India.

Linda writes that:

The ‘Me Generation’ of yesteryear had nothing on today’s culture of ultra “me-ness” which is enabled by an Extreme Me marketplace of products and Web offerings.

She describes various well-known examples of consumer products that can be personalized, and quotes various commentators, some of whom describe personalization as a type of narcissism.

Another article which is unrelated at first glance, but actually has some similarity of theme, is Jason Fry‘s piece in the Wall Street Journal. He writes about his experiences of traditional (CD) and digital jukeboxes in bars around New York. Basically he suggests that the infinite choice of music available on digital jukeboxes damages the sense of community which exists where a CD-based jukebox has a selection of music that follows a particular theme. In other words, that too much personalization removes the possibility of ‘community’. Sarah Gilbert on Bloggingstocks.com takes up this theme, asking:

If you’re going to subscribe to Fry’s theory, that with mass customization and digitization comes loss in community … you’ll have to agree that digital music — and, most specifically, iTunes — is killing community. If people can get any song they like, why should they listen to their friend’s music, or (horrors) listen to the music selected by a group of barflys? By allowing people to have whatever they want, are we destroying that ability to get along?

I don’t particularly agree with the sentiments being put forward here, but it would suggest that there is a certain amount of anti-personalization sentiment out there. Perhaps the providers of products and services that can be personalized need to offer windows to their other non-personalized offerings, as a way of ‘balancing’ impressions that they are encouraging excessive self-centredness among customers.

But one well-known media company did this, and it still ran into criticism for it.

The New York Times newspaper recently launched an online personalized edition, where readers can personalized the type of content that they wish to read, and they will then get recommendations on other content that NY Times editors believe will be of interest to them.

David S. Hirschman of Editor and Publisher wrote about the NY Times personalization a few weeks ago. In The Mixed Blessing of Personalized News, he says that:

“It’s saying that readers can decide for themselves what they want to see first in the paper, and lets them bury stories they presume they would not find interesting.

But by then turning around and offering the “informed editorial judgment” of writers and editors as a “guide,” the Times is subtly trying to take back some of the editorial decision-making power it has ceded (even if the reporters are only providing “guidance”).

So it appears that the only way for businesses to deal with suggestions that they are ‘controlling’ customer preferences is to provide an ‘exit strategy’ for the consumer from the personalization route – in the NY Times case, to have a fixed window to non-personalized headlines on the user’s personalized page.

Or is all this suspicion of personalization just the opinion of a few media commentators? It is comment, but the thing is that opinion writers do influence opinion. The issue for businesses is to be able to offer personalization without creating the impression that they are railroading the customer into a ‘siding of personalization’, where their initial choices can be used to confine their options in the future. The best way of doing this is to always make it easy for the customer to access the full range of offerings when they return to do business (whether it is to buy a t-shirt or read the news), and not try to assume that they only want the same as the last time.