EntrepreneursInnovationVenture Capital

My thoughts on the Long Tail part II – Long Tails everywhere?

By September 7, 2006 January 6th, 2007 4 Comments

At the end of my last post on this subject I noted how the long tail had been a driver for a number of successful companies recently.  I started wondering if there were long tails everywhere and thought it might be useful to take a look at the economy top down and see how much of it is susceptible to change from the long tail trend.

This proved more difficult than I expected, as I struggled to find a useful industry classification or ranking of industry by size.  I ended up using a modified version of UK SIC codes.  The conculsion of which is that there are great swathes of the economy which will remain largely untouched by this phenomena (not least the public sector and financial services), but that there is further to go within areas like manufacturing and education.  This merits further elaboration, which I will get to in a later post.

As described above starting from UK SIC (standard industrial classification codes) the following list goes through the whole economy and comments briefly on the potential for entrepreneurs to build a big long tail business.  I have combined a number of categories to make this post shorter.  The full list can be found here.

  1. Agriculture, hunting, forestry and fishing – minimal potential because production costs not changing and scale economies remaining
  2. Mining and quarrying – minimal potential because production costs not changing and scale economies remaining
  3. Manufacture of food, leather, wood products, pulp and paper,  fossil fuels, nuclear fuels, metals, minerals, and transport equipment – minimal potential because production costs not changing and scale economies remaining
  4. Manufacture of textiles, chemicals, rubber and plastic products, paper products, fabricated metal products, electrical and optical equipment – reasonable potential because in all these industries you can see advanced manufacturing techniques making smaller batches feasible to manufacture and improved supply chain efficiencies reducing distribution costs.  There are elements of this in what companies like Zara have been doing over the last couple of years.  The next stage will come when manufacture to order technologies become more widespread.
  5. Utilities – gas, water and electricity – zero potential, these are natural monopolies
  6. Construction – zero potential, distibution in this industry can’t go to the web
  7. Wholesale and retail trade – high potential, this is where all the action has been, e.g. Amazon
  8. Property, hotels and restaurants – high potential because supply and demand are not well connected in these industries – there is scope for good aggregators and filters
  9. Transport, storage and communication – minimal potential because economies of scale remain
  10. Financial services – high levels of regulation will make change difficult
  11. Education – high potential, these are digital products and post school/college education is a high growth market
  12. Other public sector – not applicable (but large percentage of GDP)