Tales of The Long Tail
As we get closer and closer to our official release, we have been having more and more conversations about the vision behind socialmarkets. Allan and I have a pretty good handle on that vision, and hopefully do a respectable job of describing it here on our site. What has been most interesting to me in these conversations is how some people see things in our described vision that we didn’t - or at least not clearly until it was reflected back at us.
One recent example came from a conversation at a soiree right here at Studio Guild, our headquarters in midtown Manhattan. After giving the quick elevator pitch on what we’re about, the instant response was to note how well socialmarkets fits into the Long Tail model of markets - which is actually quite true, and quite insightful.
The Long Tail (full explanation here) is an interesting emergent property of the Internet’s immense scalability, allowing for example Amazon.com to add an arbitrarily large number of books to its “inventory” with arbitrarily small marginal costs. The larger that inventory gets, the more the cumulative sales of the many slow-selling books will dwarf the stellar sales of the few best-sellers.
With a large enough inventory of participants, socialmarkets can function in much the same manner. So for example, the aggregated donations to the army of lesser-known non-profits in the environment protection market (e.g. our own Rushing Rivers Institute) can outweigh those to familiar faces like Greenpeace and Sierra Club. Even better, socialmarkets offers a unique set of tools for its participants to actively engage in the process of determining who are the slow versus best sellers:
- Space for non-profits to promote themselves
- Forums for users to share their thoughts on individual charities or markets
- Objective measures of non-profit performance, e.g. SROI
- Crowdsourcing tools to allow for subjective tweaking of SROIs
- Leaderboards to see where the “smartest” donation dollars are going
Finally, I’ll note an important difference between socialmarkets and other markets: our particpants’ investment decisions are highly subjective. We deal with charitable donations, which is typically a much more personal decision than stocks or bonds or even books.
That subjectivity can play itself out in all sorts of interesting ways, including ones that turn the “normal” market model on its head. For example, there may be donors who are particularly attracted to hard-luck cases, i.e. charities whose inherent risks make stellar SROIs difficult. In this case, the low investment return which is the kiss of death in stock markets may actually attract investors in socialmarkets.
In whatever way our participating charities end up sorting into the star vs. bit-player buckets, we think The Long Tail is a useful and potentially powerful model for our sector, and are pleased to be thought of as a part of it.
