If you have enough crap, some of it will be fertilizer
I’m surprised by how many industries and businesses thrive on this model. The idea is that rather than trying really hard to pick the winners in any field, you do some basic due diligence to weed out the obvious losers, and then build a portfolio with what is left. The odds are good that a relatively small fraction what is left will more than make up for any inadequacies in the portfolio.
This is the basic idea behind mutual funds, venture capital, the music industry, web and cellular application deployment, hiring in certain industries, and some companies use it to build up patent portfolios. Lately, everywhere I look, I see the crap / fertilizer model in action.
(Note that I’m being facetious about “crap”…you don’t want crap in your portfolio, but hey…it makes for a better by-line.)
With the present and future dominance of the long tail, will the crap / fertilizer model change? I see the interaction between the two like this:
- The long tail gives us more portfolio candidates to choose from, so it will be even harder to execute due diligence on each. Good for the crap / fertilizer model.
- “Hits” will be less common and of a smaller magnitude. Bad for the crap / fertilizer model.
- As the long tail reaches more niche markets, stuff that might have been crap a few years ago may turn out to be fertilizer for a small audience. Good for the crap / fertilizer model.
I suspect that the operational impact of the long tail will be that those using the crap / fertilizer model will reduce their level of due diligence even further and attempt to lower the barriers of entry into their portfolios. They will try to grow the size of their portfolios while push as much risk as possible back to the producer. This might be easy for say, the music industry or mutual funds, but hard for those building a patent portfolio, since there are fixed costs mandated by governments associated with patent prosecution (on the other hand, it might incentivize entities to buy other entities’ portfolio with less review).
Food for thought.