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There was a time when you bought books, and only books, on Amazon.com (NASDAQ: AMZN ) -- those days are long gone. Today, the company sells everything from diapers to car engines. That business model has become the online norm, and was described in detail in The Long Tail by Chris Anderson. The book's subtitle -- Why the Future of Business Is Selling Less of More -- gives away the main point. Anderson argued that what makes companies like Amazon so successful is that you can get weird little items from them that no one else sells.
That model has done so well that now it's starting to backfire. In recent months, Amazon's star rating system has started to come under fire, with observers arguing that the company and partisan customers are massaging ratings to get the kind of sales that they want . Regardless of whether that claim is true, it points to what customers are now looking for in their shopping experience -- curation.
What is curation?
Curation is managing content and product selection for quality and compatibility. Contrary to what I implied above, it's not incompatible with the fundamental premise behind the long tail. The basic premise of the long tail is that what will drive the future economy is not the big No. 1 hits, but the B-sides, and overlooked content.
Curated content is simply a subset of content from the huge mass that is selected for its quality -- where the term "quality" is very broad. Netflix (NASDAQ: NFLX ) is now actively moving toward curation, and has made a statement summarizing its position that does a good job of summarizing the whole point of curation.
"As we've gained experience, we've realized that the 20th documentary about the financial crisis will mostly just take away viewing from the other 19 such docs, and instead of trying to have everything, we should strive to have the best in each category. As such, we are actively curating our service rather than carrying as many titles as we can."
In short, curation looks to provide customers with the best possible products instead of the most products possible.
Who is curating already?
A lot of the best curation comes from smaller businesses, which have niche focuses and limited physical space, forcing them to be selective in what they carry. These sorts of businesses often provide suggestions for customers, instead of just being the place to go to get Brand X. A good example would be a small local bookstore. If you just want to get the fourth John Grisham book, you might be out of luck, but if you want a suggestion for a good book based on your tastes, you'll be pleasantly surprised.
Amazon has dabbled in curation through its lists system, which allows other users to make curated lists, and through its "customers who viewed this item also viewed..." capability. It's similar to Netflix's suggestion system, which is an attempt to pare down the seemingly unlimited selection into a smaller, more focused group for a specific customer.
One of the best companies for curation is Williams-Sonoma (NYSE: WSM ) . The whole premise of the company was that founder Chuck Williams wanted to provide specialized tools to American chefs. In classic curatorial style, he wasn't trying to carry everything you would ever need in order to cook, just the items that he thought were the best.
This is going to be big
The success of curation is going to come from the combination of massive selection and systematized suggestion. The model that Amazon is skirting the edges of gives consumers the ability to both drive their own choices and discover new ways to spend their money. As the algorithms that choose these recommendations become more powerful, the businesses will find higher strike rates with the suggestions. That will lead to higher sales and better targeting. While this may just seem like personalization, there's an important difference between the two.
Personalization -- like the advertising that Google (NASDAQ: GOOGL ) displays -- is designed to give you the results that you're most likely to click on, but the ads aren't selected for quality. Anyone who pays Google can advertise to the people that it thinks best fit its customer base -- Google does not care who those advertisers are, provided they adhere to its advertising policies.
Netflix takes that idea further by first -- at least theoretically -- paring down the world of all movies into a selection of good movies, and then suggesting ones that customers might like. The extra step of culling the movies should result in better offerings. As an investor, I'm excited about the opportunities that increasingly refined suggestions can offer to customers.
While those customers will initially be with Netflix, I can easily envision Netflix expanding beyond its own borders and offering a sort of consultation service to other retailers. Regardless of how that one instance of curation turns out, there's no denying that curation is the future of retail. Successful sellers will have to embrace it at some point, or they'll be left behind.
What is the future of Netflix?
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