Tue, 10 May 2005

The Lego Group, and a change in the nature of companies

I think that with widespread Internet access, we're seeing a chanage in the nature of companies. It used to go like this: someone would: have an idea for something people would want to buy, find some capitalists, hire some people with their money, make the product, sell the product hopefully at a profit, pay back the capitalists, and start over again. You have producers selling to consumers.

Notice the long feedback loop there? That's the risk, you see. Companies profits are partially earned for taking risk. Consumers don't necessarily want to purchase the goods that were made. If they don't, and the company cannot cover the cost of that risk, then it goes out of business. The company's goods get liquidated and the capitalists suffer a loss (notice, though, that the workers are not at risk of losing their earnings -- so much for Marx's exploitation of workers).

Also notice that the feedback loop consists solely of consumers buying the products of producers? In essence, the consumers play zero role in the creation of the product. I think that this is what is changing. I notice it specifically in The Lego Group (TLG). They have been producing high-quality plastic toys for almost the entire duration of the plastic age. Their core product, the Lego(tm) brick, has remained unchanged for my entire lifetime. The bricks from my childhood still merge with brand-new bricks.

Up until the creation of their Robotics Invention System, and its RCX microcontroller, TLG operated in the mode I've described above. TLG was very insular and didn't take much feedback from its consumers other than sales figures. At the time the RIS was created, it was far and away the most expensive Lego kit ever created. I'm confident that they were doubtful of its success, but they were wrong. It was successful beyond their wildest dreams, and it opened their eyes. They discovered the Adult Fans Of Lego (AFOL) community. They thought they were selling mostly to children, and that only a few mutant freak adults played with children's toys. Fully half their sales of the RIS were to adults.

TLG gingerly put out some feelers into the community. They found out that these AFOLs were creating models equally as ambitious as Lego's Master Builders, and that they were buying thousands of dollars worth of Lego products. They have now added a fan-created kit to their lineup. They've added bulk bricks to their online store. They are slowly learning to work with their consumers. As they do so, they turn consumers into customers. This tightens the feedback loop and reduces the business risk.

Fast forward to the present. Steve Hassenplug with a few cohorts, have in essence created a whole new genre of Lego designs: The Great Ball Contraption. It's a very simple and sublime idea: define a standard for interconnecting Lego constructions so that a module accepts Lego soccer balls into an input bin, and then transports them into the next module's input bin. It's a great theme for an existing Lego club to pursue, or around which to start a new one.

TLG could use this idea to tighten the feedback loop further. Right now, the only way to accumulate a significant number of Lego soccer balls is to purchase many soccer games. TLG could put together a GBC club kit. This kit would consist of the GBC standard, and several hundred soccer balls. Somebody who wanted to start a GBC club would purchase the kit, split up the balls, copy the GBC spec and get their friends together.

Consumers just buy things. Customers help design products, and help sell them. This is radical.

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