72 the long tail patterns The Danish toy company LEGO started manu- facturing its now famous interlocking bricks in 1949. Generations of children have played with them, and LEGO has released thousands of kits around a variety of themes, including space stations, pirates, and the Middle Ages. But over time, intensifying competition in the toy industry forced LEGO to seek innovative new paths to growth. It started licensing the rights to use characters from blockbuster movies such as Star Wars , Batman , and Indiana Jones . While such licensing is expensive, it proved to be an impressive revenue generator. In 2005 LEGO started experimenting with user-generated content. It introduced LEGO Factory, which allows customers to assemble their very own LEGO kits and order them online. Using software called LEGO Digital Designer, customers can invent and design their own buildings, vehicles, themes, and characters, choosing from thousands of components and dozens of colors. Customers can even design the box containing the customized kit. With LEGO Factory, LEGO turned passive users into active participants in the LEGO design experience. This requires transforming the supply chain infrastructure, and because of low volumes LEGO has not yet fully adapted its support infrastructure to the new LEGO Factory model. Instead, it simply tweaked existing resources and activities. In terms of a business model, though, LEGO took a step beyond mass customization by enter- ing Long Tail territory. In addition to helping users design their own LEGO sets, LEGO Fac- tory now sells user-designed sets online. Some sell well; some sell poorly or not at all. What’s important for LEGO is that the user-designed sets expand a product line previously focused on a limited number of best-selling kits. Today this aspect of LEGO’s business accounts for only a small portion of total revenue, but it is a fi rst step towards implementing a Long Tail model as a complement—or even alternative—to a traditional mass-market model. LEGO ® ’s New Long Tail Customers who build new LEGO designs and post them online become key partners generating content and value LEGO has to provide and manage the platform and logistics that allow packaging and delivery of custom- made LEGO sets LEGO Factory substan- tially expands the scope of the oΩ-the-shelf kit oΩering by giving LEGO fans the tools to build, showcase, and sell their own custom- designed kits LEGO Factory builds a Long Tail community around customers who are truly interested in niche content and want to go beyond oΩ-the- shelf retail kits Thousands of new, customer-designed kits perfectly complement LEGO’s standard sets of blocks. LEGO Factory connects customers who create customized designs with other cus- tomers, thus becoming a customer match- making platform and increasing sales LEGO has not yet fully adapted its resources and activities, which are optimized primarily for the mass market LEGO Factory’s existence depends heavily on the Web channel LEGO Factory leverages production and logistics costs already incurred by its traditional retail model LEGO Factory aims to generate small revenues from a large number of customer-designed items. This represents a valuable addition to traditional high-volume retail revenues LEGO + LEGO users can make their own designs and order them online = LEGO Factory + LEGO allows users to post and sell their designs online = LEGO Users Catalog bmgen_final.indd 72 6/15/10 5:35 PM