Segment Zero
Rev: Sep, 2012
Euiho (David) Suh, Ph.D.
POSTECH Strategic Management of Information and Technology Laboratory
(POSMIT: http://posmit.postech.ac.kr)
Dept. of Industrial & Management Engineering
POSTECH
Contents
1
Segment Zero
2
Pareto Principle and Long tail
3
Real Application in Market
Segment Zero (1/2)
■ Segment Zero
– Definition: Low-end market requiring low-end technology
– Stated by Andrew Grove
in an Winter 1999 Leader to Leader Journal
■ Technology Improvement & Customer Requirements
– Customers expect to have products with better performance
– Over time, technologies improve faster than the expectations of the mass market
3
Segment Zero (2/2)
■ Rebuilding the Segment Pyramids (Intel)
The Way It Was
The Way It Is
Small population,
High margins
Narrower
& More profitable
Huge population,
Low margins
PC costing
less than $1,000
“Segment Zero”
Someone requiring a low
performance, limited features
and application was never
included Intel’s market
Segment Zero has been neglected
 Low-end versions of the technology
can earn margins
4
Pareto Principle and Long Tail
■ Pareto Principle
– Suggested by a business-management consultant Joseph Juran
– Named after an Italian economist Vilfredo Pareto
• He observed in 1906 that 80% of the land in Italy was
owned by 20% of the population
• He developed the principle by observing that
20% of the pea pods in his garden contained 80% of the peas
– 80-20 rule, Law of the vital few, Principle of factor sparsity
– For many events, roughly 80% of the effects
come from 20% of causes
■ Long Tail
– Large number of occurrences far from the "head“
or central part of a distribution of popularities
– Popularized by Chris Anderson
in an October 2004 Wired magazine article
– 20% of a population which draws long tail
in the graph expression of the Pareto Principle
– Intention to ignore the long tail
 Economic meaning the long tail has
5
Real Application in Market – Segment Zero
■ Galaxy Families (2011)
S2 LTE
W
M Pro
Y
High-End
Low-End
CPU: 1.5GHz Dual Core
Network: LTE / HSPA+
Display: 4.5’ SuperAmoled+
Camera: 8 million pixel
Ram: 1GB
Etc.: Full HD 1080p
CPU: 823Mhz ~ 1.4GHz Single Core
Network: HSPA+
Display: 2.66’~3.7’ TFT LCD
Camera: 2~5 million pixel
Ram: 512MB~1GB
Etc.: Qwerty keypad
6
Real Application in Market – Long Tail
■ Amazon.com
– Offline bookstore: Limitation of display space
 Only focusing on the 20% of best sellers
IT Development
– Amazon.com: No limitation of space
 Offering all kinds of books
 Welcomed by the customers in the “Long Tail”
Amazon.com’s
Target
Existing offline bookstore’s
Target
7