Friday Fanboy: Lego's Long Tail

I'm often asked for Long Tail examples outside of entertainment, especially those that apply to physical goods, not just digital bits sent down a broadband connection. There are quite a few (aside from eBay, the obvious one), but perhaps my favorite is Lego.

If you just know Lego from kids' birthday parties and the display shelves of a toy store, you've only seen half of the company. The other half is the Lego that caters to enthusiasts, ranging from kids who want more than the stock kits to adults who have turned to bricks as the ultimate prototyper's toolkit.

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.

The next level of Lego obsession is joining one its two clubs. One gets you the monthly Lego magazine and catalogs. The other is the online club, where all the games and other cool stuff is. Basic membership for both is free, but if your kids are really into Lego you might want to consider upgrading to the Brickmaster level, which brings a bigger magazine with a lot of DIY projects (like MAKE for bricks), five exclusive kits that show up at your door, and a ticket to Legoland.

After that, it's time to start getting serious about your own creations. Lego has a long history of offering tools online to encourage model trading and other collaborative peer production. In 2000, its "My Own Creation" project led to a contest for the best user-created model. The winner was  blacksmith shop that Lego licensed from its creator and offered for a while as a commercial kit. After that, it offered Lego Mosaic, which allowed users to upload images that were converted into 2D Lego brick patterns, downloadable by all.

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.

I asked Michael McNally, Lego's senior brand-relations manager, whether Lego saw parallels in any other company's of approach to catering to niche market segments and encouraging peer production. Interestingly, he gave Apple's iTunes as an analogy. iTunes lets you download individual songs, not just albums. Although you can't upload your own music to iTunes, there are plenty of companies that can do that for you. And can make your own playlists and share them with other users, which is a bit like a custom Lego creation from standard parts. "What iTunes does for music, Lego Factory is doing for people who like to build," McNally says.

Comments

[David]

Chris, do you consider this idea of customers participating in the design of new products (not just customizing their own, but designing things that the company licenses and sells) to be part of the Long Tail concept, or is it something else?

[PeterCashmore]

Wow. Lego totally "gets it". Why can't more companies embrace user-generated content and software hacks? If your users love your product enough to participate in the process, let them.

Do I need to say FedEx Furniture?

[PeterCashmore]

Actually, I just remembered that story about Lego trying to stop someone from using their own name, which was indeed "Lego". Hopefully they've come to their senses on that one.

[Stefan Engeseth]

Lego is a great product and maybe it could interact like iPod do with the consumers? A new iPod model built in Lego?

[Lee Kraus]

The Lego example is great. The economics of unlimited shelf-space have obviously begun to take effect. However, the Lego model builds from a successful brand already at the head of the toy tail. I wonder what effect that brand position has on those participating in the niche markets? Is it an easier sell? It is also interesting to think about the Lego filtering effects, or the 4 click model. "If you like building a Knight Castle, click here and order the blocks you need to custom build your own garage?" I also like your discussion of the limitations on distribution. "on-demand" manufacturing is still a challenge.

[Lee Kraus]

The Lego example is great. The economics of unlimited shelf-space have obviously begun to take effect. However, the Lego model builds from a successful brand already at the head of the toy tail. I wonder what effect that brand position has on those participating in the niche markets? Is it an easier sell? It is also interesting to think about the Lego filtering effects, or the 4 click model. "If you like building a Knight Castle, click here and order the blocks you need to custom build your own garage?" I also like your discussion of the limitations on distribution. "on-demand" manufacturing is still a challenge.

[Jacob Bettany]

No references to Mechanized Brick, I can't resist.

[Kevin Wilson]

Even further out on the tail than the niche market products produced by the LEGO company itself, are third party LEGO-based producers - custom kits (like the Guild of Bricksmiths at www.bricksmiths.com) and individual pieces (the hundreds of individual sellers at Bricklink). There are even people who make super-niche-niche pieces that LEGO itself doesn't make, like Big Ben Bricks' train wheels and weapons from the Little Armory.

[Jake]

Great write-up, spot on with the recap!

LEGO Factory really is an amazing concept. I'm proud to be part of the team.

Considering it took several years or testing, tweaking, and learning to get here, it'll be interesting to see what we can pull off in the coming months and years. As you can imagine, we have big plans, some of which are currently underway, some of which are still being planned, and some of which exist in the recesses of our brains :)

The question posed above about how a brand owner/head of the tail can also benefit or influence the tail is an interesting one. I've also wondered what the impact of a small tail business can have on a larger head business when you effectively combine the two. In our case, the question is how much does the tail sales push head sales. It's pretty obvious to me that the head pushes the tail, but it'll be interesting to see how the opposite plays out.

Again, great read!

[Tyler]

I have a new idea for legos. My idea for legos is Pokemon.

[nachbarin]

http://www.girlnackt.com/