Giants crush you. Even in fairy tales it's rare to find a nurturing giant even lady giants are tough critters. And there are lots of giants on the web; all the world's biggest offline companies plus the web's home-grown efforts - Google, Amazon and the like.
So how can you, sitting in your fabled pajamas at the kitchen table make money against that lot? Well, until recently there was no way to really explain what everyone was telling you based on instinct, self-interest or outright ignorance: there is room for everyone on the web.
It's called the long tail: the economics of abundance' and its guru is the editor of Wired Magazine Chris Anderson. Now don't let that put you off, this is fascinating stuff! The summary is simple: regular offline business is ruled by scarcity, digital business simply isn't!
Take a record store. They have so many feet of shelves and each CD takes up say half an inch. Result, the store can only carry so many CDs. So what do they do? They carry the ones that sell the most the hits.'
Now take iTunes: there is literally no limit to the inventory iTunes can carry. It sits in digital form and could be every song in every version ever recorded! The same is true of books: which is why Google is trying to snaffle them all first, and Apple is driving into video.
So what has this to do with you? Well two things: first the big web marketers have discovered that if you offer everything, "everything sells something!" Hence the term long tail.
Imagine the profile of a mouse standing on her back legs nose pointing in the air! The body of the mouse is the hits' with the biggest hit being the nose. The tail of the mouse (infinitely long) is the sales of everything else. The regular record store holds inventory corresponding to the body of the mouse. But, if you hold the inventory for free and it costs nothing to deliver it, then any sale out of the tail is pure profit! Wow! That's the economics of abundance: and it's only right now being understood.
But, I hear you object, that's records, books, and videos. True, but the same applies to everything where the restrictions of scarcity are removed.
What's eBay but a long tail of gazillions of real things? What's Amazon, the long tail of books and anything else they can get their hands on? So it continues the used book business after languishing for decades is booming after the dispersed and happenstance inventories held by individual stores were linked together into a single online database. The books are still in the stores, but the sales are global!
Now if you are an Amazon, or a Salesforce.com in software, or any of the other aggregators' of the long tail', you have five problems:
1. You need to put together the technology to hold the inventory and disperse it expensive and technically finnicky, but straightforward
2. You need to create the tools that customers can use to search the long tail which is VERY long. Search engines, recommendations, reviews all kinds of tools are emerging to provide filters at no cost to the company once they are in place.
3. You need to get your hands on the longest tail you can. Easier now Apple has broken through with the record industry, but really difficult if you want to have a long tail of TV shows because of the problem of tracing down the music rights. Google may be in a battle, but the stakes in the ancient book long tail are huge hence its determination to scan everything ever published.
4. You need to capture the emerging long tail. These are the products and creative offerings that have not yet been conceived. You do this by giving away the tools of creation. Give away (virtually) the software to create new music and provide a guaranteed market.
5. You need to meet the sales needs of the provider whether they are trying to make a go of it commercially or doing it for reasons of personal satisfaction. Put your book on Amazon and you can go in and tweak the marketing and this is just the beginning.
So what are the implications for web home-based businesses?
It means first you can expect sales no matter if you are 1st or 5,000th on the tail.
It means you can find a place on the web through an aggregator for what ever you produce.
It means that multiple channels of distribution are opening that can have different roles in your mix. Let's take a concrete example, that new book you just wrote.
* Well you could sell it yourself in electronic form, or
* Convert it into a physical book at Lulu (a 'tail' of self-pubished books) and end up with electronic and soft/hard copy versions yielding a higher net return.
* Lulu will submit it to Ingrams the book wholesalers and so it will find its way to the long tails run by Amazon, Barnes & Noble and the rest for a different, lower return but a much higher exposure and access to the recommendations system.
* You could sell it through Clickbank a long tail of Affiliates and make 50% margin.
* Finally, you can sell or liquidate it through eBay!
If you have something to offer, a tail is emerging that you can join. And most important, it's in everyone's interest to keep the tail growing. On the web we have invented the nurturing giant'. To me that spells perpetual opportunity!
And that's no fairy story!
Michael Kay is Research Director of HBB Research a business school based research program looking at web home-based business. He is the lead author of HBB Research's recent Report: The Gold Rush. To For more on The Gold Rush and to get your free subscription to HBB Insights, the ideas newsletter of HBB Research, go to http://www.hbbresearch.com/.
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Tuesday, February 10, 2009
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