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Whale Watching: Many companies earn a huge portion of sales from a few customers
- grawprog 9y agoWhen I was in school for Wildlife Management, we learned pretty much the same thing about hunting. More money gets made by, outfitting companies, tour guides and local communities by having a lottery style big game hunt than an open season. It attracts a few people who are willing to spend upwards of $20000 just to shoot one animal as opposed to many hunters coming in and not spending as much overall. It also tends to be better for the survival of the population as a whole though it does tend to lead to an overall weakening of the population though as only the biggest and strongest animals, that should be breeding, get removed.
- jnmandal 9y agoI think you are taking the metaphor a little bit too literally. :)
- lloydde 9y agoI came to the article to find out how whale watching tour companies were making most of their money from a few customers. This likely comes from growing up in the pacific north West of North America. It wasn’t until Zynga was mentioned that I caught on.
- carlob 9y agoExactly the same here, I wouldn't have clicked if I knew there were no actual whales involved.
- grawprog 9y agoI don't understand I think that's my highest rated comment on HN. I gotta admit I wrote it before I actually read the article. I really thought it was going to be about whale watching. I've been trying to figure out if there's some kind of brilliant metaphor in that comment but honestly I can't see one now that I've actually read it.
- watwut 9y agoGame industry calls people who spend a lot of money on games "whales". I guess it is because whales are supposed to have a lot of meat. None of people who use it knows a lot about biology and whale is likely the only big animal that can be eaten they know.
- Joe-Z 9y agoThe metaphor is more about how types of fish are distributed in the vast 'sea' of gamers. Most of them are small fish, so they don't pay anything or very little for your game. There's also the term dolphins, for people that pay medium-sized amounts or regularly and then whales for people that pour big amounts of money into your game (and like the headline mentions, these can be ridiculous sums).
- grawprog 9y agoI understand the metaphor in the article. I just don't understand why my comment that actually has nothing at all to do with the article just keeps on getting upvotes. The article makes sense, my comment after reading it makes none. I thought maybe I'd lucked out and came up with something that somehow was actually related in someway but no it's really not applicable. It really confused me at first when I read down and people were talking about the economy and 99%vs1% below in an article I thought was about literal whales.
- seeekr 9y agoHere's how your comment made sense to me even though I had read the article and understood that it's not talking about literal "whales": You mention few customers bringing in the major share of the revenue, and that's exactly what the article linked is about.
- watwut 9y agoI found it hilarious. And it mostly matches the article which is funny. I read a lot about games and whales, but your comment contained something new and refreshing.
- marincounty 9y ago1. "It also tends to be better for the survival of the population as a whole though it does tend to lead to an overall weakening of the population though as only the biggest and strongest animals, that should be breeding, get removed." Where did you pull this from? Man has already greatly interfered with any Mother Nature theory. 2. Yes--you're probally right on the hunters who pay to kill--a rich human is the only species I know of who hunts because they love killing, and they probally do pay. It's something I've never understood about the wealthy; Why can't they just give without a payoff.
- spynxic 9y ago> ..though it does tend to lead to an overall weakening of the population though as only the biggest and strongest animals, that should be breeding, get removed. This is true only if it is presumed that the hunter is absolutely proficient. I mention this because it would be reasonable to assume, based on "survival of the fittest" ideology, that an in-proficient selection-by-omission process would play a role in breeding more evasive and/or fiercer competitors.
- emodendroket 9y agoThey don't have to be absolutely proficient if you've got enough of them.
- jasode 9y ago>Second Measure analyzes billions of credit card transactions to answer real-time questions about consumer behavior. Unless otherwise noted, the data below comes from our platform. Last time Second Measure came up on HN (April 2016), someone replied that the underlying data came from Yodlee.[1] Is that still the case? Also, if it's analyzing a subset of -- instead of the complete -- transaction logs from Visa/Mastercard/AMEX networks, is there any bias in the data because the samples are limited to users of the Yodlee platform? [1] https://en.wikipedia.org/wiki/Yodlee https://en.wikipedia.org/wiki/Yodlee
- btilly 9y agoThe online apps concentration of revenue gets even more extreme if you look at whales as a fraction of downloads rather than spending customers. Most popular games only have a small number of people who pay anything...ever. I'd be willing to bet money that most of Zynga's revenue comes from the top 1% of downloads.
- giobox 9y agoZynga have more or less admitted this in the past IIRC. No idea if this still exists, but they had at one point setup a ridiculous bank transfer payment program for the largest whales who were bulk buying in game purchases at the tens of thousands of dollars level - minimum $500 transaction to participate. > http://gawker.com/5634379/the-secret-dealer-for-farmville-addicts http://gawker.com/5634379/the-secret-dealer-for-farmville-ad...
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- _kst_ 9y agoIt took me way too long to figure out that the article isn't about literal whale watching. I was expecting something about a small number of customers spending large amounts of money to go on whale-watching cruises.
- mikestew 9y agoNormally I downvote the hell out of "I read it as 'aliens want to penetrate my anus", har har har!", but in this case I would side with the "kiss this guy" crowd because that is precisely what the title says, even though that's not what the article is about. I, too, wondered and then thought, "meh, makes sense. I went on a whale watching tour once and don't have much desire to do it again. Ergo, someone is keeping those boats in the water, must be the 'whales' of whale watching tours." Hell, I'd go as far as to massage the data just so the pun would work.
- mulmen 9y agoNever let the truth get in the way of a good story?
- fencepost 9y agoThat was my impression from the headline, driven in part by a conversation earlier this week about many whale watching day cruises giving a free pass to come back if you don't actually see any whales. The person I was talking with had gone on a cruise while traveling, got a pass, passed it to a coworker who was going to be in the same area, then it repeated at least two more times over the course of more than a year. One purchase, at least 4 trips.
- mulmen 9y agoMy family has gone on three cruises now for the price of one. The company guarantees that we will see Orcas around the San Juan Islands in Washington State. We have seen seals and humpbacks but never Orcas. We go back every couple years, the last time we saw Orcas from the ferry to get to the tour boat but not on the cruise itself so we still have the tickets.
- bluetwo 9y agohttps://en.wikipedia.org/wiki/Pareto_principle https://en.wikipedia.org/wiki/Pareto_principle
- joelrunyon 9y agoLove how people keep discovering instances of fractal 80/20 and are continually surprised by it.
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- parhurs 9y agoTo blindly assume patterns such as "80/20" hold everywhere would be foolish - rather, it is better to empirically verify them first in each case (as done by the article). Further, I wonder what makes you think the writer is surprised in the least...
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- xenihn 9y ago>To blindly assume patterns such as "80/20" hold everywhere would be foolish I see 80/20 EVERYWHERE now. It's hard for me to think of things where it isn't applicable. Maybe I'm just going crazy.
- joelrunyon 9y agoI don't think it's foolish. When it shows up as often it does, it's smart to see if it applies there. You can verify it, but it seems like a smart hypothesis to start with rather than assuming the inverse.
- exolymph 9y agoThe point of heuristics is not that they apply 100% of the time, but that they're correct more often than they're not.
- rytill 9y agoTo a point... but it's so prolific that you should be testing to falsify it most of the time.
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- twoquestions 9y agoThis is one thing I'm terrified of going forward: industries being built by the 1% for the 1% and to Hell what the rest of us proles want. I'm not at all against elites being able to get tons of money, so long as there's at least some scraps left for the rest of us.
- knieveltech 9y agoYou denounce the logical conclusion of the system you claim to support.
- stillhere 9y agoThis already exists. One example is luxury brands. A middle class person might infrequently buy something from a luxury clothing boutique as a gift whereas Ivanka Trump might shop for clothes there regularly. I'd wager that the more expensive a good or service is, the more important it is that the business cozy up to the the wealthier customers (the whales).
- neolefty 9y agoInteresting. I feel both ways about it. On the one hand, if those scraps are enough to live on (and educate my children and so on), it's fine with me because it's enough. On the other hand, the economy as a whole is so much healthier with vigorous participation by the 99%. But maybe that's all a fallacy -- if the economy truly becomes driven by the 1%, then maybe there can't be enough for the 99%?
- whatshisface 9y agoI doubt we will ever see productivity concentrated in the aristocrat class: people are too lazy, and after a couple of generations it falls down between either a society that encourages rent or a family that isn't rich anymore. However, if when you say "the economy becomes driven by the 1%" you mean "the economy reaches a point where it is funded entirely by the 1%," then I have an interesting thought experiment for you: You may not know this, but I am the richest man in the world. All economic activity is technically mine, carried out by stewards of my capital. However, I have decided that the most humanitarian approach to this massive responsibility is to let things run their course - I am comfortable on a meager living, so I take no interest. It's not like someone is going to replace me: after all, everyone in the world simply manages my funds, and does their best to earn the right to manage more. Now, my brother on the other hand - he's a notorious criminal. He owns nothing rightfully, but his famous heists have resulted in a 3% annual decrease in the value of every bank account in the world; and even worse, the multitude of shots fired in the ensuing high-speed chases have done the same to essentially every asset. Congress has decided to close the loopholes my brother has been using to escape justice, but they're fine with me.
- throwaway30yo 9y agoReminds me of the old days of online poker. The regulars would sit around for hours just waiting for an unskilled opponent. They would almost never play each other. Eventually the whale would leave and the game would instantly break. The ecosystem was so broken but sustained for a long period because so much money was being shovelled in.
- GoatOfAplomb 9y agoAt the most popular sites, at popular limits, during the peak years, there were plenty of poor players to go around. We had databases of player behaviors, and consulted them to find juicy games, but there was enough to go around that games didn't really break over losing a fish or two. I do agree that the process you described occurred, basically whenever one of my above assumptions didn't hold - unpopular sites/high limits/post-boom.
- ghostcluster 9y agoThe question isn't whether the long tail of the power law distribution exists, it's how steep is that curve?
- tres 9y agomost insightful and relevant: Stitch Fix topping out relative to other companies in the same industry because they don't really offer a "whale" option. the takeaway for me: make a product level for the whale, even if it seems a waste of time, it could very well make or break my business. (I'm not captain obvious, but I play one on TV)
- maxpupmax 9y agoThat's exactly what I took away from the article too. Seems like an underrated piece of pricing advice.
- yourmailman 9y agoIt's called the power rule (Pareto distribution) and it's not news
- amrrs 9y agoThis is exactly what NNT tries to explain in Blackswan with his argument against the bell curve (in favour of Power law) a bell curve or assumed normal distribution would put 99% of the consumer base with +-2 standard deviation which is not the case in reality
- make3 9y agoit's probably just a log normal distribution, meaning that the result is a product of normal factors, not a sum. Afaik this is one of the most used models in statistics, because the central limit theorem still applies, just with sums of logged random variables instead of just sums
- bweis 9y agoSecond Measure is at it again! I've really enjoyed the numerous blog posts over the past few months, the data is unreal.
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- Top19 9y agoGood example is SAP. They are basically an outsourced dev-shop for their top 50 customers. Everyone else who buys SAP is immaterial.
- dalfonso 9y agoI wouldn't consider "20 percent of customers were responsible for more than half the money raked in" as having "whales". At that point, you can usually still afford to lose one of your customers and survive. I've worked at companies where 1 out of their 15-20 clients is responsible for 25+% of revenue...THAT is having a whale. If you do have a whale, then you've essentially just become a custom software/service firm for that "whale". From my experience working at companies that had a "whale", the business starts prioritizing the requests of that one "whale" over what's best for the product itself.
- SteveNuts 9y agoI worked at a really small development shop, I'd say about 25 employees. We also did optional hosting for sites we'd finished (mostly WordPress). The hosting side of the business didn't even come close to paying for itself, except we ran one large company's e-learning platform which paid for the rest of the hosting operation.
- alexchamberlain 9y agoDoes anyone know if the average they are referring to is a mean or a median?
- xstartup 9y agoWhen I go on a trip funded by my company, I make sure I spend the allowance in full. I travel business class and spend lavishly. Yes, lots of middle class might be in category of these whales occasionally.
- hardtke 9y agoThis data could be analyzed in terms of Gini coefficients. It would be much easier then to make arbitrary comparisons between companies.
- lerie82 9y agoThis is news??? Wow
- peterwwillis 9y agoWhales can have a huge effect on your company. One effect is derailing your product development. If you have one client bringing in millions of dollars a year, their feature requests, tweaks and bug fixes end up crowding out others. Features also end up getting shipped before they're ready, resulting in a shoddy product. Pressure to keep the client happy also results in promising unrealistic things, or letting the customer dictate the design. And they can hijack your support staff and developers to fix minor issues. Another, less well known effect, is pressure on staff. This ranges from unrealistic workloads and deadlines causing stress at work, to outright harassment being ignored. If a client doesn't like someone who works for your company, your executives may decide that keeping the contract is worth more than the employee. Whales can also get you through funding crunches and be the difference between staying afloat or collapsing. They can also help you test your product in environments you could never afford to simulate on your own, weeding out strange bugs and one offs, and tweaking for performance. They can also be a great source of insight into how to improve the product for other users.
- LoonyBalloony 9y agoPerhaps they have to because of income/wealth inequality? If the wealthy are the only one with disposable income, it makes sense the market will conform to their needs.
- beebmam 9y agoI think this is absolutely a key point to take from this. Most people I know today have very little disposable income.
- jrochkind1 9y ago> At giant retailers like Walmart, Target, and Amazon, the top 20 percent of spenders accounted for 65-70 percent of credit and debit card sales dollars in 2016. At all three, WI80=8-9x. Some of these seems nothing more nor less than the unequal distribution of wealth in America. What portion of total income, wealth, or spending to the top 20% of Americans in any of those categories have? About the same as the portion of Amazon sales from the top 20% of spenders, I wonder? I'm not saying I'm not disturbed, but that part isn't about business models or plans, exactly. On the other hand, the top 20% of Zynga spenders are probably more like the top spenders in a casino (and for pretty much the same addictive reasons), and not necessarily correlated to income. It's an interesting observation that this pattern holds true in diverse companies/industries, but I'm not sure the reasons are related, or say much about business similarities. > Likewise, at eyewear retailer Warby Parker (whose products have relatively low price variance), WI80 was only 3x. Also, apparently no marketting has successfully convinced most glasses-wearers that they need more than at most 2 or 3 pairs of glasses at a time, regardless of if they can afford it! If the number of pairs of glasses you had was some kind of status symbol or something, I think there'd be more variance.
- thisisit 9y ago> Blue Apron and Stitch Fix don’t match trends in their industries Couple things which really jump out to me. I might be wrong but one of the article postulates is that whales tend to drive profitability. In which case what impact it might have on Blue Apron and Stitch Fix? Secondly, what are the chances of someone repeating and garnering some whales by actual marketing? That is - instead of trying to gauge customer behaviors why not gauge whale behavior and model the platform accordingly?
- tvanantwerp 9y agoI've seen this at nonprofits I've worked for. 5% of donors account for 95% of revenues. Sometimes it's even more extreme. But I think that distribution is very, very typical. With the exception of immediate and broad causes (Obama campaign, Bernie campaign, Red Cross relief for whatever disaster), small donors are not what keeps a cause going. It's the people with serious money to give who form a relationship with the org that make the difference.