
Whale Watching: Many companies earn a huge portion of sales from a few customers - mikebabineau
http://blog.secondmeasure.com/2017/12/07/whales/
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grawprog
When 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
I think you are taking the metaphor a little bit too literally. :)

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grawprog
I 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
Game 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.

~~~
chickenfries
No it comes from Whaling, as in hunting whales for their spermaceti which was
used as a fuel and to make many products. Whale meat is actually not usually
sold by whalers. Not a lot of good methods for preserving meat in the 19th C
on a boat.

Whaling is compared to businesses that rely on a small number of big spenders
to be profitable because whaling is a similar high risk high reward business,
compared to fishing. Whaling is even more dangerous than fishing, requires
being at sea for a month at a time... if you fail to catch a whale, no one on
the ship gets paid. Whalers were paid in equity. A lowly deckhand would make a
very small amount compared to a spearman who killed a whale or the captain,
but there were rewards for spotting the whale and even the deckhand would
probably make enough money to take off work for a while before having to
return to sea.

(Anyone else enjoy Moby Dick?)

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hutzlibu
>Anyone else enjoy Moby Dick?

Yes, but given your slightly OT rant, I suppose your reading is fresh?

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chickenfries
No, just excited to get to show off useless whaling knowledge

~~~
hutzlibu
Yeah, I felt that too, sometimes ;)

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twoquestions
This 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.

~~~
tikhonj
I think the games in question are actually the opposite of that: they are
played by millions and millions of people, often for free, but financed by a
small, rich minority. It is _super_ aggressive price discrimination, which
actually benefits the 99%—we get something cheaper (or even free with F2P
games) because other people are willing to pay so much.

In a very real sense, the F2P business model only really works if the game is
popular amount non-paying customers—otherwise, what would motivate whales to
get into it in the first place? A whale-based system pretty much _guarantees_
a product that's as widely accessible as possible.

Of course, it has its own massive ethical issues; I am no fan of the practice.
(Not least because the people spending the most money aren't always the ones
who can _afford_ to spend that much!) But it does neatly invert the dynamic
and uses the top 1% of spenders to finance something primarily enjoyed by the
99% who spend little to nothing.

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brandmeyer
> but financed by a small rich minority

I'm not at all convinced of this. Considering that much the properties of the
game that land such whales are based on triggering addictive behavior, it
seems much more likely that the whales' income profile is similar to that of a
lotto ticker purchaser in the US: relatively poor people.

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ipfreighly
Do you believe that poor people are significantly more susceptible to
triggering addictive behavior? I think a simpler explanation for why poor
people play the lottery is that they see it as a way out of being poor.

~~~
ubernostrum
I don't think the argument is to reverse the original statement (the original
statement being something like "the top spenders must be wealthy", the
reversal being something like "the top spenders must be poor"). Rather, the
argument is that knowing there are people spending a lot of money tells you
nothing about the income level of those people. They might be someone who's
independently wealthy and using money they won't miss, or might be someone
who's quite poor who's damaging their life in other ways to obtain the money.
The argument is _you don 't know which_ from the facts given. All you know is
there are people who spend $X on it.

That said, I don't think income level has anything to do with it. There are
poorer people who shouldn't waste money to play the lottery or gamble in
casinos, but do it anyway. There are also wealthier people who shouldn't waste
money to play the markets, or other "casino/lottery for rich people" things,
but do it anyway. It's just that our society is mostly oriented to treat the
poorer people as compulsive gamblers -- which is treated as a moral failing --
and the wealthier people as "serial investors" or other terms which carry a
more positive connotation.

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jasode
_> 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)

~~~
jpeg_hero
It's absolutely incredible data if it is coming from the full transaction
feed.

Less so if Yodlee:(

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jrochkind1
> 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.

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btilly
The 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.

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giobox
Zynga 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-
> ad...](http://gawker.com/5634379/the-secret-dealer-for-farmville-addicts)

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bluetwo
[https://en.wikipedia.org/wiki/Pareto_principle](https://en.wikipedia.org/wiki/Pareto_principle)

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throwaway30yo
Reminds 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
At 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.

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dalfonso
I 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.

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joelrunyon
Love how people keep discovering instances of fractal 80/20 and are
continually surprised by it.

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parhurs
To 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...

~~~
joelrunyon
I 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.

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peterwwillis
Whales 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.

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SteveNuts
I 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.

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amrrs
This 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
it'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

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ghostcluster
The question isn't whether the long tail of the power law distribution exists,
it's how steep is that curve?

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LoonyBalloony
Perhaps 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
I think this is absolutely a key point to take from this. Most people I know
today have very little disposable income.

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hardtke
This data could be analyzed in terms of Gini coefficients. It would be much
easier then to make arbitrary comparisons between companies.

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Top19
Good example is SAP. They are basically an outsourced dev-shop for their top
50 customers. Everyone else who buys SAP is immaterial.

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tres
most 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
That's exactly what I took away from the article too.

Seems like an underrated piece of pricing advice.

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xstartup
When 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.

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tvanantwerp
I'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.

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thisisit
> 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?

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bweis
Second 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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alexchamberlain
Does anyone know if the average they are referring to is a mean or a median?

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_kst_
It 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.

~~~
fencepost
That 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
My 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.

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lerie82
This is news??? Wow

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yourmailman
It's called the power rule (Pareto distribution) and it's not news

