Wednesday, July 18, 2007

Tale of the Tail


In October 2004 Wired published an article, The Long Tail, authored by its editor, Chris Anderson. The article quickly became the most cited piece the magazine had ever run, and for good reason. Anderson struck a cord with his analysis of “long-tailed distributions,” the tail-end (and theretofore too often ignored chunk) of an industry’s sales. He proffered three primary observations:

  1. The tail of available variety is far longer than we realize;
  2. It’s now within reach economically; and,
  3. All those niches, when aggregated, can make up a significant market.
The Long Tail the article soon became The Long Tail the book. Reading it reminded me of The Tipping Point, not content-wise, but in its page-turning, a-ha-inducing, and thought-provoking smorgasbord of meaningful morsels. Anderson summarized the impact of his thinking:
What people intuitively grasped was that new efficiencies in distribution, manufacturing, and marketing were changing the definition of what was commercially viable across the board. The best way to describe these forces is that they are turning unprofitable customers, products, and markets into profitable ones.
Anderson’s tome focuses primarily on the media and entertainment industries, and each industry’s “hits” and “non-hits”. What’s truly amazing, he contends, is the sheer size of the Long Tail. Books are a great example:
The average Borders carries around 100,000 titles. Consider the implication: If the Amazon statistics are any guide, the market for books that are not even sold in the average bookstore is already a third the size of the existing market – and what’s more, it’s growing quickly. If these growth trends continue, the potential book market may actually be half as big as it appears to be, if only we can get over the economics of scarcity. Venture capitalist and former music industry consultant Kevin Laws puts it this way: “The biggest money is in the smallest sales.”
Whether they set out to do so or not, the most successful Internet businesses are monetizing the Long Tail:
Google makes most of its money not from huge corporate advertisers, but from small ones (the Long Tail of advertising). eBay is mostly Tail as well – niche products from collector cars to tricked-out golf clubs. By overcoming the limitations of geography and scale, companies like these have not only expanded existing markets, but more important, they’ve also discovered entirely new ones. Moreover, in each case those new markets that lie outside the reach of the physical retailer have proven to be far bigger than anyone expected – and they’re only getting bigger.
Retail as we know it is not dead, but the scarcity of its supply (and shelf space) increasingly constrains brick-and-mortar companies (in addition to the other virtues of buying and selling via the Internet). “These infinite-shelf-space businesses have learned a lesson in new math: A very, very big number (the products in the Tail) multiplied by a relatively small number (the sales of each) is still equal to a very, very big number,” Anderson explains. “And, again, that very, very big number is only getting bigger.”

More LT stuff to come … for now, check out Anderson’s blog (particularly the left sidebar … there’s lots of good stuff therein) to dig deeper.

No comments: