Apple has been a fantastic investment over the past decade. In fact, since April 2003 when they launched the iTunes store (and iPod sales took off), a dollar invested in Apple would be worth over $40 today – an annualized return of almost 70%. That’s a return that would make most venture capitalists blush. Not bad for a company founded 27 years prior.

One more statistic: even if Apple stock had gone nowhere from its IPO in 1980 up to 2003, its annual return over the three decades since going public would be 13%, which still beats the S&P 500 by over 3%. In other words, almost all of Apple’s current value (~$230 billion) was created over the last seven years.

Where did that value come from? For the seven years ending 2009, sales grew from $5.7bb to $42.9bb. Over 70% of that growth came from new products: the iPod, the iPhone, media sales, and other related peripherals. On a net profit basis, even more than 70% of Apple’s growth came from new products (segment margins aren’t disclosed, but overall margins have hugely increased and most of that likely came from new products). Aside from the storied brand name, Apple is basically a startup that was funded with the cash and income from their struggling Macintosh business.

Apple and the Red Queen Run the Hedonic Treadmill

“…it takes all the running you can do, to keep in the same place.” – The Red Queen, Lewis Carroll’s “Through the Looking-Glass”

So, clearly, the law of large numbers comes into effect when looking at Apple’s future growth prospects. To double revenues, Apple would have to sell an extra $43 billion a year in products – that’s over 68 million iPhones or 32 million Macs every year.

Of course, investors aren’t counting on Apple’s revenue doubling anytime soon, and the law of large numbers just means it’s more difficult for them to grow, not that it’s impossible. But to me, the more relevant model to use for Apple’s future growth is that of the Red Queen Effect.

In Lewis Carroll’s follow up to “Alice in Wonderland,” Alice comes across the Red Queen (not to be confused with the more popular Queen of Hearts) and for no reason at all they both begin to run. Alice notices that, despite their tireless efforts, they have remained in the same spot. The Queen informs her that she must keep running just to stay put (see the above quote).

In biology, the Red Queen’s race is translated into the principle that “for an evolutionary system, continuing development is needed just in order to maintain its fitness relative to the systems it is co-evolving with.” I think the Red Queen effect is an apt analogy for Apple’s current situation. Here’s why:

• Most of Apple’s growth in sales over the past 2 years has been from the iPhone (68% of growth to be exact).  The iPhone was launched in 2007, and most of these sales have been to new iPhone users. Certainly there are much more non-iPhone users to “convert,” but at some point most iPhone purchases will come from current users who are upgrading. This has already happened with the iPod – as seen in the chart above with iPod unit sales tapering off lately.
• Most future growth will have to come from new iPhone users, iPad sales, and any new products that Apple introduces.
• To justify Apple’s current valuation, the company must consistently come out with new (and popular) products to both maintain and grow profits. In other words, they have to keep running just to stay in the same place.

The one part of Apple’s business that isn’t susceptible to the Red Queen effect is their share of media/app sales through the iTunes & App store. Because of their closed system (disregarding the downside to this model), Apple controls and gets a cut of almost every application and piece of media consumed on their devices.

The iPod/iPhone/iPad act as mobile “delivering devices” for entertainment and productivity applications. If Apple can maintain their closed system – and Clayton Christensen’s prediction continues to be wrong – their share of content distribution will continue to rake in profits.

But as an investment, I don’t think there’s much of a margin of safety if Apple stops “running” and a new product launch fails. Investor’s high expectations have put Apple on a Hedonic Treadmill of sorts that only a fall in price can cure.

Disruptive Portable Music?

Before MP3 players, the only real option for portable music was a CD player. The first MP3 players were introduced in 1998, and had very low capacities. They could hold at most one or two CDs worth of music. In 2000, Creative released its NOMAD Jukebox, which had a capacity of around 1,200 songs. However, it was expensive and had limited usability.

The first generation iPod (5GB) was released in 2001 and could hold an average of 1,000 songs, or about 79 CDs at an equivalent quality. The cost of music (content) was low at first: consumers who already had a CD collection could transfer their songs to the iPod, or download them from the (usually illegal) filesharing programs on the internet.

The total cost per portable song for an iPod 1G was $1.48 or $0.39 if users converted old songs. This compares favorably to a CD player’s $1.95 cost per song (assuming someone can carry around a maximum of 10 CDs without it becoming too much of a burden – see notes for details). Despite this ability to carry more music for an incrementally cheaper cost, like earlier players the high total cost of the device—and the lack of convenience to use its capacity—confined sales to “fist adopters” and high-end users who were willing to convert their old music collection.

So at first, the iPod was a sustaining innovation relative to other portable music devices. Although it wasn’t made by a current industry leader, it was a breakthrough improvement upon other portable music devices and the performance metrics that customers valued (quality, capacity, cost per portable song, etc.).

The release of the iTunes store in April 2003 significantly reduced the barrier of purchasing and managing new music/content for the iPod. The store would offer individual songs for 99 cents or an album for $9.99 (also comparing favorably to CDs). As you can see in this chart, iPod sales go from an average of 123,000 a quarter to 545,000 a quarter immediately after the store’s release.

Although the iPod itself was not disruptive, the iPod/iTunes combination seems like a low-end disruptive innovation relative to both CD retailers/distributors and (to a lesser extent) record companies. It disrupted the “channel” of the music industry by coming in at a lower price point, a much lower cost structure, and more convenience for the end user. *

(* I should note that, unlike some innovations, the iPod & iTunes don’t neatly fit into any of Christensen’s categories. In the end, labels don’t really matter, though it does help to see where the product fits in and where its evolution may take it in the future.)

The value network of the industry was well situated before iTunes came along: Artists > Record companies > Music devices / CD manufacturers > CD retailers. Each constituent made money this way, and so their strategies were focused on lowering costs and satisfying current customers (CD purchasers). In the new network, the iPod/iTunes combo filled the roles of medium, device, and distribution. But it also had the ability to bypass record companies and distribute directly from artists. So although the record companies still play a major role, by disrupting their product channel iTunes forced them redefine how they made money.

Performance Oversupply

According to Clay Christensen, performance oversupply occurs when the performance of a technology under a certain attribute (whether it be quality, capacity, reliability, etc.) increases beyond what the market demands. Once market demands of that attribute are met, other attributes whose performance has not yet satisfied demands becomes more highly valued. Companies pursuing both sustaining & disruptive technologies will seek to use this “new” attribute to sustain and differentiate their product.

Both song capacity and purchasing convenience were what vaulted the iPod past CD players and other music devices. But as seen in this chart, the metric of song capacity (and in turn cost per song) quickly surpassed average market demand (though high-end users were still served by this ever increasing performance).

A typical pattern of attributes, according to Christensen, is the evolution from functionality to reliability to convenience to price. Price competition is usually the endgame once each dimension of performance has been fully satisfied. For the iPod, it seems that the most important attribute evolved from capacity to convenience to features—and finally to price:

When the iPod was competing for features (photos, bigger screen, video playback), it essentially branched out into the iPhone and iPod Touch. Although both have much less capacity than an iPod classic, they have enough capacity to satisfy average market demand along with the features that are now more important.

While the iPhone is a completely separate product, it evolved from the iPod’s value network and technology, and was an improvement upon existing cellphone designs. It is a sustaining innovation relative to both iPods and smart-phone devices. The iPhone (& Touch) transformed the iPod from a portable music device into a portable communication / productivity / entertainment device (with iTunes and the new app store acting as content distributors).

I’ll talk more about the iPhone—and where the iPad may fit in—in part II of this post.

Average song size is 5MB (Apple figures size is just over 4MB, though the actually average is probably higher). If you assume that for every 30 individual songs purchased the user purchases 1 album (13 songs for $9.99), the average cost per song is 92.3 cents. For the measure of song capacity, to partially adjust for the inclusion of “other media” (photos, videos, etc.) after the iPod 4G, it is assumed that 25% of the iPod’s capacity is not used for music, and in that space each “song” is an average of 100MB in size.

For any number that is estimated above, I tried to err on the side of caution so that if I was off it wouldn’t necessarily invalidate any conclusions.

There are two types of disruptive innovations: new-market and low-end. New-market disruptions create a new value network (the context in which customers and firms within an industry define what attributes are most important), with different performance attributes. They usually serve customers who would normally not be using the product at all (i.e. personal computers, Bloomberg terminals). Low-end disruptions attack the least-profitable and most overserved customers along attributes that the market currently values (i.e. discount retailing, steel minimills). Both types of disruption eventually end up overtaking or completely replacing current offerings as their performance improves.

There are also two types of sustaining innovations: incremental and breakthrough. Most sustaining innovations are simple, incremental year-to-year improvements. Others are dramatic, breakthrough advances that surpass all current offerings (i.e. contact lenses replacing glasses, airliners replacing other long-distance travel). Many people confuse the terms disruptive and breakthrough. Christensen further distinguishes them by pointing out that disruptive innovations usually do not entail technological breakthroughs. Instead, they package current technologies into a disruptive business model.

Practical Use

So why does it matter if a technology/business model is disruptive or sustaining? To consumers, it doesn’t matter. If a new innovation provides “…a way to do something better than it’s ever done before,” (David Neeleman) then its classification or origin is of no concern. But to both investors and the companies that create the innovations, where they fit in can make a big difference.

Established companies and leaders are usually very good at developing sustaining innovations. It is clear to these firms that their future profits depend on constantly improving technologies/practices, so they invest heavily in creating products and services with higher performance. After all, that’s what their current customers want. It is difficult for a startup or small company to develop a sustaining technology because they lack the resources of the established players.

Disruptive innovations turn things around. Here, the resources and processes of established companies are a hindrance. In the face of disruption, good management is the primary reason incumbents fail. Their downfall is because they listen to their customers and invest in better performance. Startups have the edge here because they can serve different customers (at first) and build their company and cost structures around the new innovation. Along the way, they gain experience, market share, and other first-mover advantages.

In my next post, I’ll take a look at Apple’s products through the lens of the above framework.

The Innovators Dilemma talks a lot about a company’s culture, and why incumbent leaders of a certain technology are restrained from participating in a disruptive technology’s upside. Christensen names these attributes as the incumbent’s downfall: (1) Current customers aren’t served by new market; (2) New market is too small for large companies; (3) Use of new technology isn’t fully known yet; (4) Processes that help them with current business hurt them with new business; and (5) New technology isn’t good enough yet to meet higher-end market demand.

One solution to the above issues is to acquire another company that can take advantage of the disruptive technology. If done correctly, this can solve numbers 1, 2, 4, and 5 above.

Christensen breaks down the factors that affect what a company can and cannot do into Resources, Processes, and Values. Resources are people, equipment, brands, technology, customers, etc. Processes are how companies transform those resources into products or services of greater value. Values are standards by which employees make and prioritize decisions (think of a company’s “Core Values” of the Jim Collins variety).

So when strategically acquiring a company, you’re either acquiring it for its resources, or its processes and values.

Processes and Values are extremely difficult to change once they’ve been ingrained in a company’s culture. So if they are the drivers behind the success of an acquisition (i.e. if the target’s culture is very important), the acquirer should never try to integrate themselves with the new company. No synergies here. Integration will destroy the desired processes and values, so the acquired company should be left alone.

But if a company’s resources are the primary target, then integration makes complete sense. This is where the elusive synergies can be found. Employees can be moved, technology can be exploited, brands can have new distribution, and customers can be transferred.

Christensen sites the example of Daimler’s acquisition of Chrysler. Chrysler’s success was rooted in its creative product design processes. Sure, it also had some great resources. But when Daimler integrated the two companies, performance immediately was impacted, and the acquisition turned out to be a disaster.

It’s obvious which type of acquisitions get screwed up the most. “Often, it seems,” says Clayton Christensen, “financial analysts have a better intuition for the value of resources than for processes.”

The Acquisitions of Berkshire Hathaway

Most of Buffett’s acquisition candidates are financial and not strategic. But they can still be looked at using the above framework. A majority of Berkshire’s subsidiaries are great companies because of their culture: they may have good brands and good people, but it is their culture that ultimately drives their success in the long run. And Buffett leaves them alone.

However, Berkshire does make some “resource” based acquisitions. Below is a list of some recent acquisitions and their categorizations:

• Culture: Burlington Northern, Iscar, Business Wire, Marmon
• Resources: Russell Corp. (to Fruit of the Loom), PacifiCorp (to MidAmerican), Railsplitter Holdings (to GenRe), Burlington Northern (to ??)

Yes, I included BNI in both categories. Burlington was acquired for both, although currently (and in the near future) it will probably be left alone in favor of their successful processes. But their resources may have further potential value in the future.

“The Restaurant Investor” by Max Olson

In March, 2008, Sardar Biglari won the most important victory of his life. In an activist campaign to gain control of the board of directors of The Steak n Shake Company, Biglari and his partner received nearly triple the number of votes of the directors they were replacing.

It hadn’t been easy—their proxy fight with incumbent management had been going on for more than six months. Biglari and the entities he controlled first purchased seven percent of Steak n Shake during the summer of 2007. In August, the initial filing was made with the S.E.C. stating that Biglari had been in discussions with management. At this point, as with many activist investors, Biglari hoped that management would be open to his suggestions and criticisms of the company. He was the third largest owner of Steak n Shake at the time, holding more shares than all executive officers and directors combined. Only days earlier, C.E.O. Peter Dunn had unexpectedly resigned, stating his intent to “pursue other interests.” It seemed like the perfect time to reform the faltering restaurant chain.

Yet, after Biglari’s initial meeting with the Board and interim C.E.O., he was denied representation and otherwise rebuffed from any involvement with the company. To management, he was as a nuisance—one that if ignored, would go away. But Biglari was not the kind of investor to be ignored. While continuing to accumulate shares, he launched the first blow in the proxy fight on October 1. Along with an official solicitation to shareholders, Biglari wrote a brief letter outlining his intentions and frustration with the performance of Steak n Shake.

During the proxy fight, Biglari’s demands were relatively mild. His initial goal was to obtain two Board seats—one for himself, and one for Philip Cooley (Biglari’s mentor and business partner). But as the Board continued to fight, and Steak n Shake’s performance continued to decline, he determined that simple representation wasn’t enough. The current Chairman and interim C.E.O., along with the Lead Director, had to go. Biglari launched a website titled “Enhance Steak n Shake” and went as far as buying billboard space in the company’s hometown of Indianapolis.

After months of back-and-forth between Biglari and incumbent management, the minority share owners of Steak n Shake made the overwhelming choice to replace current leadership with Sardar Biglari and Phil Cooley. During the contest, some claimed that Biglari was nothing but a corporate raider, only interested in Steak n Shake to pursue short-term profits at the expense of the company. Now, he would have the chance to prove them wrong.

Of course, this wasn’t the first time Biglari had successfully launched a hostile Board takeover of a public company. Despite his relatively young age of thirty-years, this wasn’t even the first restaurant he had pursued.

Continue Reading “The Restaurant Investor”

In October of 1907, financial markets in the United States came to a complete halt. Credit markets froze, major banks collapsed, and the stock market plunged. Heads of industry, like J. P. Morgan, were forced to inject massive amounts of capital to prevent a complete collapse.

The circumstances of the Panic of 1907 are very similar to our current crisis. In both, the economy had experienced huge growth over the preceding decade. Banks lowered lending standards, which led people to take on more and more debt. When bank assets began to decline, depositors panicked, and there was a run on the financial system.

But for the rest of this post, I’d like to focus on the period that follows a financial crisis—not on the crisis itself. (Keep in mind that although I speak in terms of American progress, my point applies to any country around the world.)

* * *

The period following 1907 was monumental in American history.

Influential figures of the era would forever change the world: Thomas Edison, John D. Rockefeller, Mark Twain, Rudyard Kipling, J. P. Morgan, Henry Ford, the Wright brothers, Nikola Tesla, Andrew Carnegie, Pablo Picasso (Spain), and Albert Einstein (Germany).

In 1908, the Wright brothers performed their first public flights. Henry Ford introduced the Model T, changing automobile industry forever and giving the world it’s first modern assembly line. Frederick Cook became the first person to reach the North Pole. The United States in particular was at the dawn of one of the greatest technological and economic expansions in history.

New York City skyline, 1908

In the past century, the United States has grown at astounding rates: 6.5% annual GDP growth, 1.2% annual population increase, 2.7% real GDP growth per capita (inflation-adjusted GDP growth per person). These figures don’t do justice to the profound change that has occurred during that period. To paraphrase Warren Buffett, the average person today lives much better than John D. Rockefeller did at his height (and he was worth over $300 billion).

Will the next hundred years hold a similar fate? In terms of expansion, probably not. But what we lack in growth, we can make up for in accomplishments.

Over the past few decades, manufacturing skill and productivity have moved to other countries. Going forward, the US will still be a manufacturer, but on a much smaller scale. Hopefully we will continue to work with faster growing economies like China, India and Brazil for the mutual benefit of everyone involved.

Looking Forward

So the US won’t be the world’s manufacturer anymore. And at the moment, we don’t have much capital to spare. But the one thing that we will continue to export is our ideas.

Much ingenuity with a little money is vastly more profitable and amusing than much money without ingenuity — Arnold Bennett

Innovation and discovery will continue to drive our economy in every industry. Whether it comes in the form of technology, business models, problem solving, or making current methods more efficient.

Now that the tide has washed out, we have truly begun to see who was swimming naked. And that’s a fantastic thing. To the businesses, investment funds, and individuals who were overcome by greed, took too much reckless risk, never added value, and thought that things would always be easy—farewell. And good riddance.

My only hope is that the current economic problems won’t diminish our drive to take risks. Based on history alone, I don’t believe it will. After all, if no one takes any risks, society won’t progress. (And by “risk”, I don’t mean “financial speculation.”)

2008 may have marked the worst financial collapse since the Great Depression, but that will never stop the progression of ideas.

New York City skyline, 2008

__________________________

The following books were used as a reference for this post:
(both are highly recommended)

The Panic of 1907, by Robert Bruner and Sean Carr
America, 1908, by Jim Rasenberger

In Saturday’s Wall Street Journal, Elizabeth Wurtzel wrote an opinion piece titled “The Internet Is Ruining America’s Movies and Music.” She talks about how both businesses aren’t like they used to be, because of—you guessed it—the internet.

It’s easy to understand why many people in both the music and movie industries long for the good old days. They used to exist in government-sanctioned oligopolies where consumers had little choice in where their entertainment came from. Whether it was the three network TV stations, limited spectrum for radio, or your local theater being the only option for a movie. Here’s a passage from Wurtzel’s article:

In the era of the online music store — even if you buy from iTunes rather than stealing from LimeWire, the problem is the same — no one knows how to listen to a complete album anymore. Everything is slanted toward the hit single. This means that the music industry is oriented toward one-hit wonders rather than consummate musicians, and talent development is just not worth the trouble.

In reality, the opposite is true. One-hit wonders have always dominated sales in the music industry. This won’t change anytime soon—there will always be the megahits in the “head” of the long-tail. Places like iTunes or Netflix allow the obscure musicians and moviemakers to find some kind of an audience. Also, in the past, if I liked only one song from an artist, I may not purchase their album at all. Now, I can at least get the song I like.

In fact, 47% of our gross domestic product involves intellectual property (IP) transactions, and about 6% of our national worth — $626.6 billion annually — is from our copyright businesses. These are the segments of our economy that are suffering, or stand to do so, as a result of the Internet. The Internet, glorious as it is, should be thought of as the plague of postmodernity.

Because the internet (and computers in general) makes it easier to copy things, people like to blame it for destroying intellectual property rights. Yes, the internet has changed the dynamic for the media companies. But technology radically affecting an industry is nothing new. There are many reasons why the internet has changed media for the better.

Where’s the Scarcity?

Not too long ago, most media products were scarce. If you wanted to see Jaws, there were only two places you could go: the local theater, or on one of the network TV stations. If you wanted the new Rolling Stones album, you had to go buy it at the record store. And there wasn’t any YouTube or video games, so entertainment options were limited.

Computers, the internet, home video, etc. changed that. When a song is uploaded to the internet, it can be downloaded a million times at no cost to the producer. You can watch a movie on your computer, one of hundreds of cable channels, a DVD, or your cell phone. In other words, no more scarcity. But new technology didn’t completely get rid of scarcity. It just changed which components were scarce.

So what is scarce? What can content creators make money off of in the future? Our time is scarce: people won’t waste it on something that isn’t amazing when they have plenty of other things to do. iTunes saves users an enormous amount of time. Live concerts are scarce: fans will pay a premium to see their favorite musicians in concert. Seeing a movie in IMAX is scarce: with current technology, consumers can’t get the same “mega” screen experience anywhere else.

The days when everybody rushed out to Sam Goody to buy the new Beatles album as soon as it came out, the days when lines formed around the block at New York’s Ziegfeld Theater because the latest installment of Star Wars had opened . . . live on only in mild forms.

The recent release of The Dark Knight proves that this statement is incorrect. Since its opening, the movie has grossed over $704 million worldwide. For the first midnight showing, tickets had been sold out weeks in advance. So yes, every once in a while, when a movie has the right combination of quality, mass appeal, and positive word of mouth, it can become a huge success.

You cannot, after all, download a painting or a sculpture. The thingness of the thing itself — all that stuff Heidegger talked about when you read him in college — cannot be translated, even if an exhibit poster will do for poor college students and poverty-stricken bohemians looking for kitchen decorations.

This comes back to the scarcity issue. Original paintings from Picasso are extremely valuable, because they’re scarce. But if the internet allows more people to see (and print out, and hang on their wall) Picasso’s paintings, the more valuable they become to the people who own the originals. In other words, the abundance of one component of the content makes the scarce components more valuable.

The Death of Mediocrity

Peter Chernin, C.O.O. of News Corp., made an interesting comment in a recent interview with Charlie Rose. (Thanks to Nick Nejad for the heads up.)

Peter Chernin: Death in this marketplace is sort of something that feels mediocre. Mediocrity is death. In a world of infinite choice… think about it for yourself: why would you possibly go to something mediocre? You’re either going to go to some big event (Batman right now) because everybody is talking about it, or you’re going to go find that special piece of content. Whether it’s a comedy, whether it’s a drama—but something that really gets you excited personally. I think in all of our content businesses, we need to create product with those things in mind. And what we should avoid is things that feel bland and middle-of-the-road. And you know what—that’s the most exciting thing about the business right now, [because] who wants to be working on things that are bland and middle-of-the-road. The fact that the marketplace rejects them is the best news that every happened to any of us.

Charlie Rose: It seems to me that for an executive like you, it’s the best of times. Because the opportunities, while difficult and challenging, present you with more opportunity for creativity than ever before.

Peter Chernin: Absolutely. It is by far the most exciting time in the business. And you know what—challenge is a good thing in life.

This is the key here. Make something good, make something entertaining, and most people will pay to enjoy it. That could be a small group of devoted fans (the “special piece”), or everyone else in the head of the tail (the “big event”). But with all the different options for entertainment around, nobody will put up with the mediocre. And if the internet caused that, then thank god for the internet.

Bill Gates keynote
International Retail Power Panel / Retailers talk about retail trends and technologies (includes heads of Best Buy, Circuit City, and Target)
Chip Heath keynote / One of the authors of Made to Stick explains the concepts of the book.
Michael Dell keynote
Top 10 Technologies You’ve Never Heard Of

Each clip is about 20 minutes long. Below the links is one of my favorite talks, Malcolm Gladwell on Spaghetti Sauce.

Sergey Brin and Larry Page: Inside the Google machine
Jeff Bezos: After the gold rush, there’s innovation ahead
Seth Godin: Sliced bread and other marketing delights
Barry Schwartz: The paradox of choice
Steven Levitt: Why do crack dealers still live with their moms?
Jimmy Wales: How a ragtag band created Wikipedia
Jeff Skoll: Making movies that make change
Richard Branson: Life at 30,000 feet
Chris Anderson: Technology’s long tail
Malcolm Gladwell: What we can learn from spaghetti sauce

However, I have two reasons for watching this season: the first being Mark Cuban. Cuban is an interesting guy. I don’t follow his adventures in the sports world, but I like his blog and think some of his posts are right on the mark (no pun intended). Obviously, I don’t agree with everything he says but I like alternative points of view. It will be interesting to see him on the show. He certainly doesn’t fit in with the other male contestants — but I guess if he enjoys himself that’s all that matters. The second, being Josie Maran — for obvious reasons.

Bureaucratic Innovation

I think the biggest problem with reality TV at the moment is lack of originality. Every show is either a direct copy or a “rhyme” of another (usually successful) show. Is it because the networks are too afraid to take a chance on something new? Or have the creators/writers truly run out of ideas? I have the tendency to believe it’s the former rather than the latter. And that’s just one reason why eyeballs are moving away from traditional media sources and on to new media. More original, more creative content. If and when the big guys do get it right (it happens every once in a while), they have the talent and the resources to do a fantastic job.

Outside the bureaucracy of the large content generators, it’s easy and cheap to try new things. Throw it out there, quickly gauge the public’s response, and either make the necessary adjustments or continue to expand the content. Maximum tinkering and survival in small niches of content on The Long Tail. In my opinion, a combination of both these features — being nimble/innovative and having the resources of a large content generator — would produce the best results (another reason why Google (GOOG) is so successful).