Tuesday, July 24, 2007

Wagging the tail

I conversationally tendered The Long Tail yesterday in a meeting. Five blank stares, then two questions: What is it? And, How can a business capitalize on it? Good questions, and my answers were a bit shallow ... time to dig deeper and scratch a few fleas.

In theory, as LT author Chris Anderson summarizes, the Long Tail makes sense: Our culture and economy are increasingly shifting away from a focus on a relatively small number of mainstream products and markets at the head of the demand curve, and moving toward a huge number of niches in the tail. In practice, as Anderson opines, it’s sensible too: In an era without the constraints of physical shelf space and other bottlenecks of distribution (reflect on our recent Wal-Mart Rocks post), narrowly targeted goods and services can be as economically attractive as mainstream fare. But, if you are running a Long Tail company or considering launching a new tail-wagging venture, what can you pragmatically learn and apply to your business?

Make it. Get it out there. And, help me find it. These are the three forces of the Long Tail, catalyzed by six contemporary themes:

1. In virtually all markets, there are far more niche goods than hits. That ratio is growing exponentially larger as the tools of production become cheaper and more ubiquitous.
2. The cost of reaching those niches is now falling dramatically. Thanks to a combination of forces including digital distribution, powerful search technologies, and a critical mass of broadband penetration, online markets are resetting the economics of retail. Thus, in many markets, it is now possible to offer a massively expanded variety of products.
3. Simply offering more variety, however, does not shift demand by itself. Consumers must be given ways to find niches that suit their particular needs and interests. A range of tools and techniques – from recommendations to rankings – are effective at doing this. These “filters” can drive demand down the Tail.
4. Once there’s massively expanded variety and the filters to sort through it, the demand curve flattens. There are still hits and niches, but the hits are relatively less popular and the niches relatively more so.
5. All those niches add up. Although none sell in huge numbers, there are so many niche products that collectively they can comprise a market rivaling the hits.
6. Once all of this is in place, the natural shape of demand is revealed, undistorted by distribution bottlenecks, scarcity of information, and limited choice of shelf space. What’s more, that shape is far less hit-driven than we have been led to believe. Instead, it is as diverse as the population itself.

Anderson’s bottom line: A Long Tail is just culture unfiltered by economic scarcity.

Let’s return to the three forces for a few pragmatic examples:

  • Force 1: Democratize Production (Make it). Business: Long Tail toolmakers and producers. Examples: Digital videocameras, desktop music and video editing software, blogging tools.
  • Force 2: Democratize Distribution (Get it out there). Business: Long Tail aggregators. Examples: Amazon, eBay, iTunes, Netflix.
  • Force 3: Connect Supply and Demand (Help me find it). Business: Long Tail filters. Examples: Google, blogs, Rhapsody recommendations, best-seller lists.
Wrap: If there’s a disconnect (or inefficiency) between supply and demand – e.g., customer needs are inadequately being fulfilled – you can wag the tail by taking advantage of ubiquitous production and distribution tools to capitalize on market opportunities. More flea searching and tail wagging to come.

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