It’s taken me six weeks, shamefully enough, but I have finally read Chris Anderson’s The Long Tail. Here’s a very quick precis of the main idea for anyone just released from a Chinese prison:
The internet makes it possible for retailers to increase their available stock almost indefinitely. For example, Amazon stocks 3.7mn titles whereas the largest traditional book stores keep 100,000. The same proportions are true for iTunes, netflix, Rhapsody, cafe press and other online retailers.
This increased variety has an interesting effect. The products that aren’t big hits still sell. Amazon is believed to sell 98% of the books it stocks over any quarter. 98% of Rhapsody’s tunes are sold over the same period. When people have access to more variety, they develop a taste for it. And the accumulated value of all those little sales can add up. 25% of Amazon’s sales are books not available in any book shop. 40% of tracks played through Rhapsody are not available in offline record stores.
These less popular products that are not available offline, but which sell nonetheless when the opportunity is given are the Long Tail. Anderson argues that internet businesses are therefore wrong to concentrate solely on the bestsellers, since offering more choice creates an endless supply of sales at no significant added cost to the retailer. The same sort of model can be applied to other areas. There’s a Long Tail of websites, for example, that don’t have a lot of traffic, but are still enjoyed by the people who do go there. There’s a Long Tail of games, cheeses and beers and lots of other things.
Is the book any good? Yes, it is. Economics is not a subject I am naturally attracted to (ask my bank manager) but I found it a very compelling read. Anderson is a very good story teller and has dozens of great examples. He’s also very good at avoiding jargon, which must be tricky when your subject is economics and technology.
I do have some reservations, of course. Otherwise I could have just posted a link to the essay in Wired that started it all. “Read this … book if you want to get a look at the future of business” says Google’s Eric Schmidt on the cover. Well, maybe. But the main examples are all businesses that already exist and are doing things that are fairly common sense. If you are an online book retailer and you haven’t realised that you’d generate more sales if you stocked more titles, then you might want to reconsider your line of business. If your future business idea is an online store selling, err, books and CDs, then you might be in for a surprise.
Also, the rewards of catering to the Long Tail might not be quite as considerable as you’d hope. If you sell cars on the internet, for example, keeping 10,000 models in stock is going to cost you a lot of money compared to keeping the 100 most popular models. Will selling (say) 25% more cars as a consequence compensate for the increased costs? Not for a long time.
For a Long Tail business to succeed you need negligible storage and acquisition costs for your products. Digital media is good for this. Small things like CDs, software and books also work. Things that are very quickly made to order, like printed T-shirts and computers, are also good.
For anything that requires warehouse space or has a life-expectancy, you also need a large volume and speed of sales overall. If you sell 20 tractors a year from 5 models, expanding your range to 500 models stored in 40 warehouses and then selling another five tractors a year won’t help your business much. An online cheesemonger that stocks 1000 cheeses needs to shift them pretty quickly. Otherwise, that portion of Sacrebleu du Merde sitting at the end of the Tail might be pretty whiffy by the time it gets sold.
Amazon also sells sewing machines. Four models. Why don’t they adopt a Long Tail approach there and stock a thousand different models, creating “unlimited demand”? Because they cost some money to store, source and administer. And I presume they don’t sell very many of the four they do stock: 25% extra on top of not very much is still not that much.
Good book, though. Great food for thought and very much recommended reading.
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I still think Amazon should adopt a Long Tail approach with sewing machines. I’m pretty sure they’ve got enough clout now not to have to stock anything. Why don’t they advertise all sewing machines and just route the orders to a reliable supplier for them to fulfill the orders? I’m fairly certain they do that with a lot of their other products.
The issue is, as you say, with the supply chain costs. As Amazon has the eye-balls, why wouldn’t they sell every product on the planet (rather those that can be reasonably and profitably sourced from a reliable supplier)? Simply route the orders to the suppliers and have them fulfill the orders and then take a cut on every sale.
Given what you say about sewing machines (and I trust your reputation for deep research :-) ) then it would seem that either Amazon does not buy into the Long Tail philosophy completely, or that reliable sewing machine manufacturers are difficult (read not profitable) to source, or that it’s not a particularly exciting product area for them (most likely — but then why sell any?)
Dave, sewing machines are a passion for me.
Believe it or not, I was going exactly where you said on the aggregation point when I decided to cut the post short. (No-one likes long posts). I believe that all the hardware stuff is already outsourced. Probably a lot of the other things are too, and why not, so long as they can deliver Amazon’s great customer service? Maybe the lamentable lack of sewing machines is more to do with the fact that the power of Amazon is in the reader reviews, lists, blogs and (recently) wikis? They actively generate buzz (or the users do) around products, niche and mainstream.
From my intense research into the market, the sewing machine community is a bit quiet online, so less amenable to that approach.
Niche Web 2.0 opportunity ALERT. KnittyWiki.com. Genius
And it’s available!