- Mr Long Tail
When building a business online, one of the key foundational strategies is to choose a niche to market your products and services to. But have you asked yourself why that should be?
After all, there have been businesses around for centuries and many have successfully targeted large markets.
The answers to this riddle are wonderfully revealed in a book entitled ‘The Longer Long-Tail – How endless choice is creating unlimited demand’ by Chris Anderson.
This book explains in detail how the internet has created a new paradigm for businesses and consumers. The new paradigm makes almost unlimited choice affordable.
The author explains how products and businesses used to be limited by both geography and the cost of physical shelf space.
In other words, businesses could only offer their products to local consumers within a reasonable travelling time of their premises and, once they arrived, the business had only a limited amount of shelf space with which to display products and, as this has a cost (rent and other overheads), the shopkeeper was constrained to keep only the best-selling items.
This ferocious competition for shelf space meant that only the ‘big hits’ could be offered to the local consumer. To some extent the supermarkets addressed this problem but only to a limited degree.
The age of the internet has changed the business paradigm.
The geographical bounds have been broken and our market is now anyone in the world that can access a computer. This still leaves out a large proportion of the population but, in one giant leap, the market place has expanded enormously for just about every business. And access to computers will only continue to grow.
Computers also offer lower stock-holding costs. In fact, many digital products have a virtually zero stock-holding cost. Chris uses lots of examples to illustrate these changes.
Take ‘books’ for example. A good bookstore used to hold around 20,000 titles. Then came the advent of book super-stores such as Barnes and Noble (that has recently subsided into administration!) which could hold 100,000 titles, with the biiggest stores in the world going up to 175,000 titles.
Then along came Amazon.com. There are 6.1 million titles in print today, with a further 100,000 being written each year and there is no reason why Amazon should not offer them all. That doesn’t even include all the e-books that are on offer too. As I said, there has been a massive shift in the business paradigm.
Music is another example that has a similar profile.
Chris has discovered, through research, that the sales and profitability of ‘the long tail’ in products represents a very significant figure. Whilst a few hits or best-sellers still account for a sizeable proportion of sales, sales at lower volumes take place all along ‘the tail’ no matter how obscure.
In fact, the 80/20 rule has evolved.
Comparing a bricks-and-mortar retailer with a long tail retailer, Chris says, in the bricks-and-mortar business, 20% of the products make up 80% of the revenues and 100% of the profits.
In a long tail retailer, the top 2% of products generate 50% of revenues but because the top products are often offered at a discount, account for 33% of profits. The next 8% of products generate 25% of revenues and 33% of profits. The remaining 90% of products , generate 25% of revenues and 33% of profits.
The 3 Forces of the Long Tail
There are 3 forces driving the long tail:
- democratisation of the tools of production i.e. everyone can afford to access the tools to produce digital products such as music, e-books, videos, podcasts etc
- democratisation of the tools of distribution i.e. internet marketing
- the connection of supply and demand i.e. search engines such as Google, Yahoo etc
What This All Means For Business
The internet is economically helping to create and distribute a much wider variety of products and services than has ever been possible before. Competition is fierce for the ‘hit’ products but this diminishes down the tail which will get ever longer as the creative forces of the online community are unleashed.
This means that there is a proliferation of choice for the consumer who is no longer constrained by the limited product range that the bricks-and-mortar retailer can afford to stock.
To succeed, the online long tail retailer must therefore identify a profitable niche (or niches) in which he wishes to compete. These niches can be identified through keyword research which will enable you to discover the following:
- what keywords are relevant to your product or service
- how much traffic they are receiving i.e. how many people are looking for what you have to offer
- the level of competition you will face in your niche, and
- the likely commercial value of your niche
I genuinely believe that online marketing, and the creation of digital products and services, represents the key opportunity for our economy, and particularly for small businesses, due to the low-cost of entry. Smaller long tail niche markets are viable options for smaller businesses to exploit.
In his blog, Evan Williams who started Blogger and Twitter, says:
‘Be Narrow – Focus on the smallest possible problem you could solve that would potentially be useful. Most companies start out trying to do too many things, which makes life difficult and turns you into a me-too. Focusing on a small niche has so many advantages: With much less work, you can be the best at what you do. Small things, like a microscopic world, almost always turn out to be bigger than you think when you zoom in. You can much more easily position and market yourself when more focused. And when it comes to partnering, or being acquired, there’s less chance for conflict. This is all so logical and, yet, there’s a resistance to focusing. I think it comes from a fear of being trivial. Just remember: If you get to be #1 in your category, but your category is too small, then you can broaden your scope—and you can do so with leverage. ’
I believe internet marketing is a life-skill that many of us will need in future to succeed in business.
‘The Longer Long Tail’ by Chris Anderson was first published in 2006. The message it carries is clear – isn’t it time to order your copy from Amazon?
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