My view is that the long tail is a very important phenomenon – we are talking about 25-50% of some huge markets turning on their heads. But the world will still be as we recognise it today. There will still be box office smashes and niche content. All that changes is the balance. In some places in his book Anderson implies it will be more than this, and a lot of the commentary makes the same mistake.
To summarise the theory – and you really should read the book (or check out Chris Anderson‘s blog, or read this from Peter Schmula for a critique) – in industries where the costs of production and/or distribution are falling to zero long tail plays change the game for up to half the market from selling millions of a small number of products to selling a small number of millions of products. They are often enabled by the internet and are most advanced in digital industries like music and film.
This is not a new play. The internet has been a big enabler for long tail companies, but this is something that has been going on for 100 years. Catalogue companies using centralised warehouses to increase choice whilst reducing stock and distribution costs are long tail plays.
IMHO effective long tail markets have two components:
- Aggregators – companies that collect the long tail of products in one place
- Filters – technologies that help people deal with the huge choice that is a feature of the long tail world
Smart readers will have inferred from my use of “companies” to classify aggregators and “technologies” to describe fllters that this is where I think the big bucks are.
I have ignored Anderson’s third category of enabler – production tools – because that is a big company game and of less interest to enrepreneurs and VCs.
If you think about it (and this surprised me when I did) the four biggest internet companies are all long tail plays:
- Google – aggregates searches
- Yahoo – started by aggregating small sites
- Amazon – aggregates books
- Ebay – aggregates second hand goods
These companies all have filters too, but I believe their value comes from aggregation.
Looking at the internet world in this light, seeing the big winners as long tail plays, makes it seem like the internet has lived up to its early promise of being a great leveller and giving access to all things to everybody!
Part two of this post will be forwrd looking, answering the question of where the next big long tail plays will be.
As a total aside, I am on a campsite in Arcachon and have just struggled through typing this on a French keyboard – nightmare. I have a newfound sympathy for you guys coming to England!