The Long Tail Returns
Chris Anderson's article on Wired entitled "The Long Tail" tore around the web when it was published back in October. In it, Anderson writes about how there is a lot of money to be made by companies that aggregate and make available niche content:
To get a sense of our true taste, unfiltered by the economics of scarcity, look at Rhapsody, a subscription-based streaming music service (owned by RealNetworks) that currently offers more than 735,000 tracks.
Chart Rhapsody's monthly statistics and you get a "power law" demand curve that looks much like any record store's, with huge appeal for the top tracks, tailing off quickly for less popular ones. But a really interesting thing happens once you dig below the top 40,000 tracks, which is about the amount of the fluid inventory (the albums carried that will eventually be sold) of the average real-world record store. Here, the Wal-Marts of the world go to zero - either they don't carry any more CDs, or the few potential local takers for such fringy fare never find it or never even enter the store.
The Rhapsody demand, however, keeps going. Not only is every one of Rhapsody's top 100,000 tracks streamed at least once each month, the same is true for its top 200,000, top 300,000, and top 400,000. As fast as Rhapsody adds tracks to its library, those songs find an audience, even if it's just a few people a month, somewhere in the country.
This is the Long Tail.
Kevin Laws writes some more at Ventureblog about how this niche content aggregation model has been proven by non-media companies as well:
...it is clear that most of the successful Internet companies fall into exactly that category: business models aggregating the untapped tail.
- Amazon makes most of their profit from the tail - they receive a higher margin because they don't have competition in that area.
- Ebay does nothing but aggregate all of the tiny, single lot size items that were not being sold at all (or just through local classifieds).
- Google and Overture are aggregating all of the advertising spending that was not happening because it could not be targeted well enough. Coke doesn't go there in a big way, but Riley's Trick Shop in Worth, IL can target you if you're looking for vampire teeth.
Some serious food for thought for people interested in building web products for consumers. I remember that the day after reading Anderson's article for the first time, I was in a meeting and got so excited at the possibilites of tapping the long tail that I jumped up to a whiteboard, drew a power-law curve, and rambled a bit about the possibilities of tapping the long tail to build a new ESPN product.
Anyways, the reason why this is relevant now is because Anderson signed a book deal to write about the long tail, and has launched a blog on the subject where he will be responding to criticisms that followed the original Wired article.