|Traditional markets vs. "long-tail" markets
||[Apr. 24th, 2005|03:33 am]
Jen's Sweetie and Code Poet
Edit:There is an even better Wired article on the same topic.|
The Long Tail is an interesting article on the success of companies like Google, Amazon, Netflix, and Apple's ITMS. The author's premise is interesting: Traditional thinking suggests an "80/20" rule (80% of your sales come from 20% of the inventory) when stocking inventory. However, companies like Amazon ignore (well, supplement) this rule to hit otherwise untouched portions of the market.
There is an additional trick to this:
* A company might not be able to serve tons of little niche markets successfully. Effectively doing business in that sort of environment often requires domain-specific knowledge and experience. (which is why one wouldn't go to Walmart for their high-end stereo needs).
* A company that only serves a small market loses the economy of scale that a bigger company can achieve by consolidating their shipping, payment processing, web administration, etc.
Many "long-tail" companies are "merely" enablers for the companies actually serving the niche markets. This solves both problems: customers deal with companies that really understand their needs and niche companies cut costs by riding on the rich infrastructure provided by the enablers. Ebay is my favorite example of this model.