Long Tails, Big Heads and Feet of Clay

One thing that struck me after talking with Chris Anderson about The Long Tail was that his formulation is in some ways only a small step towards the end of the tail; his focus is mainly on how to exploit niche markets for products like books or movies.

There's an old joke that seems apposite here:
Q. How do you get to run a small newspaper business?
A. Start with a large newspaper business and wait a bit.

A true long tail business is one that copes with the ultimate niches - where there are just one, or even zero customers. You need to be sure that your submission model can cope with these limiting cases and not choke, especially as you do not know a priori which ones are going to garner customers.

So, what businesses fit this model? The obvious one is eBay. Omidyar's model of a perfect marketplace is tuned so that it is stable if you don't find a buyer (eBay takes a small listing fee), but works better if you do (eBay takes a percentage). Most auctions only have a single successful buyer, but they expanded the model to allow multiple identical goods to be sold too.

Another example is cafepress. They don't even set a listing fee, working on the assumption that the effort to build a product list is enough of a hurdle, and have prices set so that a production run of one item is cost effective for them (they aggregate sales and pay monthly). They also have a higher payback rate if you do gather more orders and let economies of scale kick in on their back end.

Longer standing examples are the venerable photo-processing by mail business (now undermined by digital cameras) and the newer videotape to DVD service offered by YesVideo. In a similar field, there is CustomFlix, which does on-demand DVD distribution, though with a setup fee that puts breakeven above a single copy (and expects you to make the DVD yourself first).

Perhaps the purest of all these businesses is PayPal, which gives away free small transactions, and makes it up in volume from bigger retailers.

If you plan your business to cope with this end of the tail, you'll be perfectly placed to reap economies of scale as you attack from below both the niche seekers and those still mesmerised by the Big Head.

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