The Long Tail and Internet Startups

Photo By: Seth Godin

8/10/2008 Update: As I was writing this post, a storm had erupted based on a study by Harvard Professor Anita Elberse reportedly disputing some of the assertions by the Long Tail book.  I think the overview that I wrote here still applies - and the post distinguishes between pure long-tail strategies and the "1000 fan" strategy of niche-marketing.  A good overview of the dispute can be found at The Marginal Revolution. 

The Long Tail by Chris Anderson redefines the economics of selling as we know it.  For the past 50,000 years or so, our economics have been defined by assumptions so ingrained into our thinking that we have taken them as givens.  Some of these mythical givens are:

• "You need a blockbuster hit to win in business."
  
• "The top 20 percent of the products generate 80 percent of the profits."
• "Mass appeal is the key to business success."
  

Understanding The Long Tail provides an important strategic edge for Internet Startups. Where you choose to play in the tail defines how you should approach your market.

Imagine a roaring campfire. You and your family sit around, staring into the flames, watching the them lick the energy away from the shrinking wood. I like to call it “The Caveman’s TV.”  One channel, same show - all the time.

When I was a kid, we had about six channels to choose from. At school, you could generally find at least a handful of kids to talk about the latest episode of “Lost in Space” or “Gilligan’s Island” (two of my favorites). Our selection was dictated to us by the broadcast media giants.   The limited “shelf space” of television required that only the hits with the broadest appeal would make it on air. Even today, off-line stores like Walmart and Blockbuster focus on providing the biggest sellers due to limited shelf-space.

Last night, as I sat around a campfire with my 12 year daughter, her 12 year old friend and my 14 year old son, I asked them about what they liked to watch or do for entertainment. My computer-hopping daughter likes to interact at Meebo.com, which allows her to Instant Message her friends without downloading the AIM software. Her friend enjoys playing with SmartMusic, software that enables her to jam with an imaginary band on her clarinet. My son surfs YouTubefor funny video (funny to a 14 year old that is). Personally, I spent time recently surfing martial arts sites looking for a good weapon’s bag to hold my Aikido sword (Bokken) and staff (Jo).

The Long Tail has provided us with a wide range of opportunities as consumers. No longer restricted by shelf-space or a fixed set of consumers in a local geography, the Web has created the ability to provide an enormous range of products – hits and niche products alike, without the limitations of shelf-space, geography, customer base that merchants have worked with for most of human history.

But what does this mean for Internet Startups?  If you want to bring a new offering or product to market, how does that impact your ability to sell?  

As always, the question comes back to basics we’ve discussed before. What goals do you have for your business?  Are you hoping to change the world or just make a living from your spare bedroom?  What kind of entrepreneur are you (see our post on this topic)? Passion Mavens and Expert Idea Generators might be looking to bring a product or offering that they have created to market. Get Big Fast entrepreneurs might be seeking to grow as quickly as possible – and are willing to leverage other people’s work in the process.

This outlines an important difference in how to play in the “Long Tail.”  For purposes of this discussion, I’m going to avoid focusing on the “Head” of the Long Tail. The head is a tough place for an entrepreneur to enter. If you want to create the world’s best movie, write the next best-selling book or invent the next mobile computing device for the masses, I wish you luck.   I think it is a bit like playing the lottery – and I like de-risking ideas as much as possible before going to market.

That leaves two possibilities from the perspective of the Long Tail. You can be a creator or an aggregator. The good news is that both are viable startup options. Seth Godin’s post “The Long Tail and The Dip” provides a good overview of these options. 

As mentioned earlier, my daughter’s friend visits “Smart Music” which helps motivate students learning an instrument. The goal of this startup is to provide a quality product with a consistent revenue stream. They are not seeking to take on the giants of the music industry. Rather, they are seeking to create a niche of followers in the “students-learning-music” market. 

Kevin Kelly, Senior Maverick at Wired Magazine, talks about this niche-building strategy in his blog post, 1000 True Fans.The idea is that, with 1000 True Fans you can generate enough income to make a living.

Alternatively, you might seek to become an aggregator. This doesn’t mean that you need to take on Youtube or Amazon, both enormous aggregators of our day. Check out, for example, Bu Jin Design. Bu Jin provides a wide range of martial arts related products.  They have chosen to focus on aggregating high quality martial arts training DVDs, equipment and accessories.

In the Long Tail, Anderson points out that the Long Tail is “fractal” in nature. This means that there are Long Tails inside Long Tails. So the Long Tail of “Sporting Goods Equipment” also contains the Long Tails of “Soccer Gear”, “Hiking and Camping Gear” and “Martial Arts Equipment.” Within Martial Arts, Bu Jin found the Long Tail of “High Quality Martial Arts Equipment.”

An aggregator needs to pay particular attention to the use of “filters” like search tools, recommendation engines and user reviews. These tools allow people to discover niche products within the aggregator’s space that meets a need or desire that the consumer may not be able to articulate directly. These discoveries lead to more sales within your target market.

Kevin Kelly does a nice job of describing the Creator vs. Aggregator distinction in his post, “Wagging the Long Tail of Love.”

Once you’ve decided where in the long-tail you should create your new business, you can then begin to identify to the tactics that make the most sense for your marketplace.  You can also recognize that the old tenets of the business world are being redefined. Revisiting the old rules of business below:

• “You need a blockbuster hit to win in business.” Becomes “Blockbusters are nice, but hard to attain.  Setting modest goals with good focus may result in a higher likelihood of success.”
  

• “The top 20 percent of the products generate 80 percent of the profits.” Becomes “providing a wide range of products (without needing to hold inventory or “shelf-space”) for a specific market will allow profits to be discovered in the Long Tail of the curve.”
  

• “Mass appeal is the key to business success.” Becomes “personalized appeal that matches the right consumers with the right products is the key to business success.”

Given these new economics, what new rules will you write?

By: Skip Shuda

Comments

[Martial Arts Schools]

Great posting on what the long tail is not.Invoking the Long Tail is not a magic wand to explain away the apparent lack of demand for what you've got.

[Team and a Dream]

Martial Arts. Seems that demand can be built at the head or through a series of micro-verticals (longtails). The trick is in knowing which strategy you are going after and focusing on THAT.