Bookshelf: Minority interests

Customer/supplier relationships have been transformed by the phenomenon of the 'long tail', as this book explains.

by Richard Donkin
Last Updated: 23 Jul 2013

Every now and again someone makes an observation about the world that resonates among those who run business. Ideas have a lifecycle. Someone will make a point, someone else might hear it and elaborate on it, or write a book about the phenomenon. Others hear it and tell their friends, adding some extra bit of information. Finally, the idea is so mainstream that no-one can recall a time when it wasn't part of the language. The idea of management started this way and even by the time it was explained by Peter Drucker, who sometimes claimed to have invented the concept, it was not ingrained in business parlance. In the same way, Drucker popularised the idea of 'knowledge workers', building on the idea of knowledge industries that had been discussed by economist Fritz Machlup.

When Chris Anderson, editor-in-chief of Wired magazine, wrote an article called 'The Long Tail' in October 2004, he was applying a recognisable term to a phenomenon that people grasped instinctively. They could see it happening in their lives, yet it needed someone to give it some simple definition. The effect, as dramatic as that of a switched on light-bulb, is apparent in the first few pages of his new book, which takes this concept to the next stage of familiarity. Within the next year, you will hear people talking about the 'long tail' in the same way that two or three years ago they were discussing Malcolm Gladwell's 'tipping point'.

But, as Anderson points out, those businesses thriving off long-tail principles have been around for many years. When Jeff Bezos, a young hedge fund analyst, was asked by his boss to investigate internet business opportunities in 1994 he found that somewhere near the foot of a list of things sold remotely were books. But book clubs had been going for years and companies such as Barnes & Noble and Borders had introduced book superstores with large inventories that could hold upwards of 100,000 different titles. Suppose, however, a service could access a million different books, giving space to all kinds of minority titles. The result was Amazon.com.

Now a newer service, Lulu.com, enables anyone to publish their book cheaply, through the internet, melding the economy of scale with the new economy of reach. This economy of reach is what the long tail is all about. Economists have been familiar with long-tailed distribution curves for years. Most businesses have tended to concentrate on the mass market represented at the front of the curve, which is why the music, film and publishing industries have developed their obsessions with hits.

Now the internet, using filtering techniques - where software is able to match buyers and sellers through metatagging and keyword recognition - allows scattered special interest groups to be serviced by their providers. In this way, businesses such as eBay, Amazon, Lulu and Rhapsody, the US-based music retailer, act as efficient conduits between a source and an enthusiast. They reach those minority interests and providers on the far reaches of the long-tail distribution curve. More than this, they are making money in doing so, since they earn a small profit from every transaction, which adds up substantially when multiplied across this universe of interest. It is not going to make millionaires out of itinerant singers of sea shanties, but it can now put them in touch with people in their niche audience that were hitherto out of reach. As Anderson writes: "All those niches can potentially add up to a market that is as big (if not bigger than) the hits."

How is this market growing? It appears that the tail is thickening in a backlash against high-street homogeneity. A study by AC Nielsen in 2005 found more than 724,000 Americans reported that eBay was their primary or secondary source of income. In the UK, it found that some 68,000 cottage industries were dependent on the site for at least a quarter of their income. But even eBay may be caught out by the increasingly sophisticated web-based filters that allow dependent businesses to access their hidden markets independently. Given that Eric Schmidt, chief executive of Google, has described his company's mission as "serving the long tail", we can begin to see the scale of this business opportunity. If you want to sell snow to an Eskimo, the long tail will help you find him.

This incisive book is a must-read for anyone who wants to understand the way that second-generation internet companies are transforming the customer/supplier relationship.

The Long Tail: how endless choice is creating unlimited demand, Chris Anderson, £17.99, Random House Business Books, ISBN: 1-844-13850-X.

Richard Donkin is the author of Blood, Sweat and Tears: the evolution of work (Texere); www.richarddonkin.com

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