ETech: Talk with Chris Anderson and Joe Kraus about the Long Tail
Anderson asks, what did you learn about Excite's failture to become Google?"
Kraus replies that if you mapped query searches it formed a power-law distribution. The average frequency of a query was 1.2 / day, which meant 97% of traffic was in the tail. The reason they went out of business is that they could not make money from the 97% of people who were in the long tail. The old advertising model was dozens of markets of millions. The 3% of traffic generated in the head of Excite's power-law curve could be monetized in this model. The model failed to develop, which Google has, is very efficient at reaching millions of markets of dozens with effective advertising.
Kraus' new company, Jotspot, is trying to apply software to take advantage of the long tail of business processes. For example, the way one company recruits is not the same way another company recruits. When you have millions of companies, there is a combinatorial effect that creates a long tail of business processes. The fundamental driver is that you can reach small markets efficiently. VC wisdom has not caught up with this at all, however. Jotspot's VC's freak out when Kraus takes out his Jotspot-Long tail Powerpoint.
Long tail businesses have to be built from the ground up to acquire customers at a low cost (self service model), which means it doesn't have to be really expensive to reach small markets any more.
Anderson asks, how are you able to determine what the size of the long tail opportunity is?
Kraus replies that they have not been able to. They were able to raise money successfully because of the idea that there might be something there.
All long-tail businesses are marketplaces. The only way you can get massive inventory is to not make it yourself. Ebay and Amazon create ecosystems for inventory to be sold in their market. You must enable an end-user marketplace to be successful
An audience member asks where there are businesses that should not be long tail businesses.
Kraus replies that all businesses can be long-tail businesses by taking advantage of economic efficiencies. It's just a question of how that is done.
The conversation was a little too brief for my tastes, because previous sessions ran long, but there's a great post on Kraus' blog that goes into more depth.