In the good old days of rock and roll, one of my tasks, as a program director for a top 40 radio station was to wade through 300 or 400 new records that came in each week from distributors, record companies, and the band playing in the garage not far from my apartment.
In those days it was all about hits, music that could appeal to the broadest possible segment of the market; books that would sell a million copies; products that everyone had to have. But a funny, and quite irreversible, thing happened on the way to the 21st Century. That band playing their own style of music in the garage down the street can now market their music, even if they only appeal to a small group of listeners. They don’t need a big record company contract. The author and the inventor can get to the market with what they have to sell. Entrepreneurs who always dreamed of having their own store or business can have it because now there is a tool called the Internet, by which they can reach and sell to the tiniest of niche markets — and be profitable.
Chris Anderson, editor-in-chief of Wired magazine, calls the phenomenon “The Long Tail,” which happens to be the title of his bestseller. Anderson, a physicist, turned economist, turned editor and author, wasn’t talking about the long tail wagging the dog, although that is exactly what has happened in a marketplace turned upside-down by something he learned studying statistics.
That “something” is called long-tailed distributions, and it occurs when a statistical curve spikes (a little or a lot) in the beginning of a product or service life and then levels off, but never reaches zero. The demand, albeit minimal, goes on and that long level line hovering just above statistical oblivion is the “long tail.” It is an important economic fact of life in the brave new world of Internet marketing and distribution.
Anderson: “When ‘The Long Tail’ was published in Wired in October of 2004, it quickly became one of the most-cited articles the magazine had ever run. The three main observations:
- The tail of available variety is far longer than we realize;
- It’s now within reach economically;
- All of those niches, when aggregated, can make up a significant market — seemed indisputable, especially when backed up with heretofore unseen data.”
Anderson’s book explores the proposition that the future of business is less of more. That means more variety, more sellers, more products and more of everything except massive sales of any one item, except in rare circumstances. The highly segmented marketplace was made approachable by the Internet and the newfound ability of the producers and sellers to reach their buyers in a less costly and more direct distribution chain. The old way of doing business, i.e., the ‘hit-maker method’ of marketing with which most of us grew up, is going the way of buggy whips and cloth diapers. Anderson thinks this is a healthy thing for everyone concerned.
Anderson: “It certainly expands supply; there is more stuff being made than ever before. It appears to often, although not always, expand demand. If people are able to find things that are more satisfying to them, they’ll become more engaged and increase their consumption. That tends to have expansive effects on the economy. To counter that, for business, many of the new producers are amateurs, who are making ‘it’ for free, so you see some industries being demonetized. Classified ads are an example with Craigslist, but look at the amount of music that’s being given away for free, the videos on MySpace, Encyclopedia Britannica now competing with a free service called Wikipedia on the ‘net. That all becomes a challenge for the market as a whole. So, the long tail seems to be good for producers, good for consumers but challenging for many of the traditional businesses in the middle.”
With the Internet retail sales pegged at about 5 percent of the total retail volume and climbing, and with traditional marketing and distribution channels being circumvented by the long-tail effect, does this foreshadow a major shakeup in business, as we know it?
Anderson: “For some businesses, it is going to be very disruptive. We’ve already seen what happened in the music industry, competing with new forms of distribution that don’t have the scarcity effect of traditional sales space. We in the traditional media now compete, not with just other forms of traditional media, but with millions of blogs. Newspapers are incredibly challenged. Radio competes with not just satellite radio and cell phones, but with the iPod and other forms of music and information delivery.”
All of this ability to produce, market and deliver goods is a very tempting picture for the would-be entrepreneur. There are those who might take a rather cavalier approach to join the fray — good as it looks, it may not be that easy.
Anderson: “The large business opportunities are primarily in what I call the aggregator space. I’m talking companies like Amazon, where they managed to aggregate from the head to the tail and gather lots of content, some of it amateur, and present it all, make sense of the marketplace and make it easy for the consumer to find what they are looking for. Another example of that would be eBay. Most of the individual people who are selling to the long tail tend to be relatively small businesses or amateurs. None are necessarily making a lot of money but are doing it for reasons such as incremental income or reputation. As an entrepreneur, you may not be satisfied with one of the small businesses, so the question is what can you do? You know right now we have relatively short-headed aggregators that dominate the space. Is there a niche for another music aggregator? Not a one-size-fits-all, but a niche like classics or jazz. Could you have an anime aggregate that, in essence, competes with Netflix but specializes rather than being another generalist?”
Like the marketplace and the distribution and sales channels, the Internet itself is evolving. Does the increased technical capability of the average player in the market play a role in what you’re seeing?
Anderson: “What I see in the new technology is what I call ‘peer production’ — individuals and amateurs going from consumers to producers. This is where they are creating things that get mass appeal and they are creating things that compete with the professionals. This is enabled by technology — blogs, social networks, and services like MySpace — that have made it very easy to write and upload rather than just passively consume. None of these technologies is brand new, but they are just now working for the first time.”
Is there a possibility that the quality of the product, be it intellectual or physical, could be diminished by this deep reach in the niche markets by so many producers?
Anderson: “Well, yeah, but quality is in the eye of the beholder. The quality in the eye of the consumer may be in how neatly targeted it is to my specific interest. Look at the rise of YouTube, which is, by any traditional standard, crappy-quality video. But it turns out that the video quality isn’t a problem; what people like is it meets very specific interests. It strikes a chord. Quality has lots of dimensions, and our traditional definition, a sort of commercial gloss, is one of them. Being able to speak to narrow interests is another, and that’s what we’re enabling today.”
In Anderson’s research project that produced his excellent work “The Long Tail, Why the Future of Business is Selling Less of More,” which developed thoughts and ideas that offer some wisdom for new and experienced ecommerce entrepreneurs. I asked Anderson what he would tell an audience of Internet retailers — besides “read my book.”
Anderson: “My advice to them would be to find the communities that are into what they sell. You have, technically, entered the global marketplace, but if you can’t be found, you really aren’t maximizing the opportunity. So ask yourself, where are the blogs that are talking about your niche? Who are the influentials? You have to determine how you can build communities and stimulate communities that already exist and help them to know that you exist, to value what you have to offer and to steer business your way. Find those passionate consumers in your space and then you can help them tell your story.”