Bubble 2.0 – The Long Tail of Supply

Bubble 2.0 aka Web 2.0 is upon is.  Like every bubble, there will be opportunities to create great fortunes, opportunities to lose such fortunes before spending them, plain old opportunities to lose money, chances to get funding to do cool things, and some important changes to the way we live our daily lives.

Chris Anderson introduced the concept of the Long Tail in a Wired Magazine article in October of 2004 and has continued to expand on it in The Long Tail blog which I have just added to the Fractals of Change blogroll. BTW, the Long Tail blog is actually a blook; it will be published on paper next year.

The concept of the Long Tail is a key part of Web 2.0.  It does represent real opportunity.  Moreover, if you can’t address it in a PowerPoint presentation, you won’t raise any money.

We are all used to a hit economy because the physical world is constrained by shelf space.  A book store or a record store can only afford to stock items which turn over quickly enough to pay the “rent” on the space they occupy.  But, if the store is virtual, the shelf space constraint disappears.  According to Chris:

“The average Barnes & Noble carries 130,000 titles. Yet more than half of Amazon's book sales come from outside its top 130,000 titles. Consider the implication: If the Amazon statistics are any guide, the market for books that are not even sold in the average bookstore is larger than the market for those that are…”

The Long Tail is the million or so books NOT carried in Barnes & Noble which can be purchased from a virtual book store like Amazon.  The Long Tail, obviously, is the area to the right on Chris' chart above; hits are to the left.  Without Internet-enabled  access to this Long Tail, most of the titles there would be inaccessible.  With the Long Tail, book sales can double by including sales of the many rarely sold titles and not just the relatively few current popular items.  Readers gain from more choice.  Book sellers gain from more orders.  Authors gain by being able to sell books which are less than hits but still have readers who want them.

Chris gives other examples of the Long Tail from music and video.  Not surprisingly, there is a huge market in the aggregate for songs and for videos which are NOT individually hits.  There is money to be made in serving this market.

A successful Long Tail business needs three things:

1. Access to exhaustive content in the category being sold.  I really expect to find EVERY book I ever look for on Amazon; that makes me come back time and again for both popular and rare books.  Chris makes the point that businesses which serve only the Long Tale without carrying the hit items usually fail.
2. A mechanism for making sure that the cost of doing business is a function of the orders processed and NOT of the size of the selection offered.  Because disk space is so cheap, the size of an online catalog is insignificant.  Shelf space doesn’t matter online.  But inventory could be a killer.  Amazon doesn’t have an inventory cost for the rare items: it just has an arrangement to pass orders off to other book dealers who happen to have the items in stock.
3. A way for potential buyers to find the rare stuff.  Some will know its title and look for it; that’s relatively easy to serve.  But some won’t.  You can’t display it all on the home page.  Amazon’s solution to this problem is simple:  “People who liked Hacks and Whacks also liked Down and Dirty in the Microcode”.  The first book may well be a hit which many people order; the second may be relatively unknown but noticed by Amazon’s algorithm because of its sales correlation with the first.

There is also a Long Tail of advertising in Web 2.0.  More on that soon.

I blogged an introduction to Bubble 2.0 here.