What does the Long Tail mean for small business?

The Long Tail

Have you heard of the Long Tail? For a lot of small businesses, this topic matters a LOT. For some, it doesn’t matter much, but you’ll still find it an interesting read. The book on the topic is shortlisted for the Business Book of the Year. But its far more than that.

The Long Tail was an article written by Chris Anderson in Wired Magazine, in October 2004. He has subsequently done a lot more research and published a book. Great author, great article. So good that reading it convinced me to resign from a big-company consulting role and head out and start my own business. This post owes an incredible amount to Chris Anderson.

I’m going to try and put my own small business perspective on the Long Tail. Most (not all) of the discussion around the Long Tail has been from the perspective of big companies – this isn’t a deficiency in the idea, just a natural byproduct of the audience. But I’m going to try and persuade you that the Long Tail is very significant for small business.

Ok, so what is this all about?

Addressable market.

When the Internet was established, it was the beginning of a tectonic shift in addressable market. Basically whatever your product or service, you only get to sell it to your addressable market. Mostly this means your customers have to be able to walk/drive to your outlet, or you go to them. So for a successful small business there needs to be enough people within geographical range of your business who … want/need what you are selling, come into your outlet (or you go to them), notice your product, don’t buy from a competitor … and … buy! (see p.162 of The Long Tail and the Tyranny of Geography).

If you want to sell specialist products/services, you better make sure there are enough people interested in your speciality within geographic range, or else it’ll be pretty lonely.

The basics of supply and demand are not difficult to understand.

No Demanders = No Suppliers!

But – and this is important – it also means

Some Demand with No Supply –> Buy a Subsitute or Don’t Buy

The Internet has created a situation where the addressable market for some products and services has expanded in an astonishing way. This is the tectonic shift you need to understand. The shift hasn’t occurred because of technology – it has occurred because of supply and demand. It is the same old laws at work, but with a new addressable market plugged in to the equation.
So lets look at an example:

Example 1: Old Situation

Book about mountain climbing sold in bookstore -> addressable market is essentially 10-15kms. Law of supply and demand says to bookstore owner … people interested in mountain climbing are spread thinly, and not enough live in my feeder area so I WON’T STOCK IT!

Example 2: New Situation

Book about mountain climbing sold on website -> addressable market is based on # of Internet users and languages supported on website = huge market. Even though mountain climbers are still spread thinly, there are a lot of people interested in mountain climbing overall. So I will STOCK IT!

So if you have read even the first few paragraphs of The Long Tail, by now you will recognise the example of Touching the Void. This is the classic Long Tail case study, thanks to Chris Anderson’s article. And its not hard to understand that Amazon (not just a big company, a huge company) is selling lots of niche books now. Around 32% of all their books.

So the theory of the long tail helps us understand that niche products / services are actually of interest to lots of people. And we can see easily that when the addressable market is large enough (e.g. the Internet), what was an unprofitable niche may now be profitable.
So what does this mean for small business? Well, its time for you to take a long, hard look at your products, services and expertise. I want you to ask two critical questions.

  1. Do you have something that you can now sell to a larger addressable market, available to you over the web?
  2. Can you draw on your niche expertise to create a new product or service that would unprofitable in your geographic market but profitable in your web-sized addressable market? Big caveat here … depending on how you intend to benefit from the product/service, you may need to be able to transact online.

If you are still with me here AND you get what I am saying AND you think its an extraordinary time to be changing how you do business, please comment on how the Long Tail might apply to your business, or even better, email me (glenn at publicityship dot com dot au). I love exploring this idea for new types of businesses, because in just about every case you go looking you can find an angle, a niche that is highly profitable for a small business person! Not necessarily for a large business. There is a very good interview with Chris Anderson, recorded by Ken Evoy of SiteSell, that discusses the long tail and small business. Its quite long (as if this post isn’t), and I recommend it to you.

And this is what makes it such an exciting change for small business. Small businesses have a chance to carve out a very specific niche. Its not even a matter of competing on an even footing with larger businesses. The tyranny of geography means a lot of people can’t find what they want/need, so they buy products or services that are a substitute for what they would really like to buy. Or they don’t buy at all. What happens you offer someone a choice that is a lot closer to what they want? The answer is (and Chris Anderson gives a lot of evidence to support this) they choose what they want. This means they buy less of what they used to, and more of what they really want to. The demand in the long tail includes a lot of pent up demand from people who haven’t been able to get what they want. And small business is exceptionally well placed to respond to this unmet demand.

Well, what are the barriers to achieving this? Why isn’t everyone doing it? I have a lot of thoughts in this area – its what I do a lot of in one of my startup businesses PublicityShip (www.publicityship.com.au). I’ll post more on these topics, or if you email me directly, be quite happy to converse via email. One of the first topics I will talk about is the long tail of Ocularists!