aTypical Joe: a gay New Yorker living in the rural South
Sunday, October 09, 2005
Lego’s Long Tail
It all starts with Lego’s mail-order business, which began as a
traditional shop-at-home catalog and is now increasing organized around its website. In a typical toy store, Lego may have a few dozen products. On its online store, it has nearly 1,000, ranging from bags of roof tiles to a $300 Deathstar (shown). If you want to see how different the online market is from the traditional retail market for Lego, check out their topsellers list. Only a few of those products are even available in stores, and most of those are inexpensive items added to other purchases to bring them over $50 and thus qualify for free shipping.
It’s worth pausing here and considering the Long Tail implications of this. At least 90% of Lego’s products are not available in traditional retail. They’re only available in the catalogs and online, where the economics of inventory and distribution are far friendlier to niche products. Overall, those non-retail parts of the business represent 10-15% of Lego’s annual $1.1 billion in sales. But the margins on these products are higher than the kits sold through Toys R Us, thanks to not having to share the revenues with the retailer. And because the virtual store can carry products for all Lego fans, from kids to adult enthusiasts, and not just the sweet spot of nine-year-old boys, the range of prices can be a lot greater online, from $1 bricks to the aforementioned $300 Star Wars kit.
I said bravo Lego last month, over their reaction to a customer hack. Chris has more…
Earlier this year, Lego launched its most ambitious peer-production effort of all, Lego Factory. The idea is that you download software that allows you to design and build virtual creations, then upload them to the company. A week or so later, you get a kit with the necessary parts delivered in a box with an image of your creation on the front. What’s especially cool is that others can buy your kit, too, and there’s a nice selection of user-created models, such as this truck, available for purchase. More than 77,000 models have been designed this way, and some of the best of them are also being released as official Lego products (Lego pays the creators a royalty).
However, all is not what it could be in Factory land. Mass
customization is cool, but when you have 7,000 possible parts in 75
possible colors (that’s more than a half-million possibilities), the
fulfillment challenge of offering users full freedom quickly becomes
overwhelming. So Lego limits choice in two ways. First, each model can
only be built from a single set brick palette, such as car parts.
Second, those parts come in pre-packaged bags of a fixed number of
bricks, so you’ll likely get more than you needed. If you’re not
careful, a simple vehicle that might cost less than $10 in retail can
turn out to cost nearly $100 in Lego Factory simply because it uses those bags of parts inefficiently.Fortunately, there’s a hack-around. Lego enthusiasts compiled a database of what bags were in which palettes and created software that helped builders use those bags efficiently, avoiding having to buy an expensive bag of parts for a single brick. And to its credit, Lego encouraged this. But that’s still too hard and limiting for most people (including me), so Lego is now considering how to improve the experience, starting with easier-to-use design software.
