Kevin Laws of Ventureblog has a post on a fascinating article by Chris Anderson that appeared in Wired in October. I’ve posted before on the efficiency of the ‘net as tool for squeezing margins ‘til they shriek in pain. But the upside for vendors is that the ‘net can allow you to more efficiently go after the long tail – the 80% of the market that only 20% of your sales come from, and profit from niche aggregation. Anderson’s article looked at this development in media – Kevin extends the concept into other areas. Money quote from Kevin’s post:
The Death of 80/20 on the Internet
It’s not just media. Once you start to think of the world in those terms, it is clear that most of the successful Internet companies fall into exactly that category: business models aggregating the untapped tail.
- Amazon makes most of their profit from the tail – they receive a higher margin because they don’t have competition in that area.
- Ebay does nothing but aggregate all of the tiny, single lot size items that were not being sold at all (or just through local classifieds).
- Google and Overture are aggregating all of the advertising spending that was not happening because it could not be targeted well enough. Coke doesn’t go there in a big way, but Riley’s Trick Shop in Worth, IL can target you if you’re looking for vampire teeth.
The current crop of private companies include some doing exactly that. CafePress aggregates all of the niche content on the Internet and makes it available as merchandise, books, and CDs. They are making millions in the areas the traditional publishers and music houses have ignored. (Full disclosure: we are investors in CafePress). The blogging phenomenon is all about the long tail in journalism, spawning tools like Technorati and Movable Type (by Six Apart, where Andrew is now working). Clay Shirky has noted that blogs are surpassing niche media in traffic (though he believes that 80/20 applies to blogs also).
Chris Anderson now has a blog on the Long Tail, and apparently a book deal and consulting practice on the idea as well.