Does your business model rely on volume?
Are you constantly seeking blockbuster products?
A new book The Long Tail by Chris Anderson challenges the traditional blockbuster mentality. It’s currently ranked #18 at Amazon (yesterday it was #38).
Hit products make sense in an economic model governed by scarcity. If chain bookstores only stock a fraction of titles published each season, movie theaters only have screens for a finite number of movies, and grocers shelves only have so many facings, producers must compete to get their products in front of consumers. Only the most popular items survive because "it's only sensible to fill them with the titles that will sell best."
But technology is changing the economics of demand. Web sites and online retailers offer seemingly infinite inventory, and the result is the "shattering of the mainstream into a zillion different cultural shards." The book challenges the traditional assumption that 20% of a company’s products generate eighty percent of the revenues. Relying on internet examples such as Netflix, Google, eBay, iTunes, and Amazon Anderson demonstrates that there is untapped revenue potential in the other 80%.
Quick quiz to demonstrate The Long Tail effect:
QUESTION:
Of the 60,000 titles available at Netflix, how many are rented at least once on a typical day?
ANSWER:
35,000 – 45,000
It’s astonishing isn’t it? When I read that fact in a New York Times
article I guessed 2000. But then again, how many documentaries, classic
films, foreign movies, and childhood TV favorites are in your queue?
Whether your are aware of it or not, the majorty of your rentals are
probably among the 80% that make up the long tail.
Applying The Long Tail theory to your business, what are the "countless niches" of opportunity in your industry? How will you capitalize on them? This book (or at least the well researched summary and review in this week's New Yorker) are well worth a read.
Articles and books mentioned in this post:
The Long Tail: Why the Future of Business Is Selling Less of More
By Chris Anderson
Hyperion (July 11, 2006)
Chris Anderson’s article that was the genesis of the book:
The Long Tail
Wired Magazine
October 2004
New Yorker review of the book:
GOING LONG: In the new “long tail” marketplace, has the blockbuster met its match?
The New Yorker
July 10, 2006
by John Cassidy
New York Times article on Netflix (source of quick quiz above)
What Netflix Could Teach Hollywood
The New York Times
June 7, 2006
By David Leonhardt
During her time at Glenbrook, Erin focused on client engagements in business payments, cross-border transactions, bill payment, and the intersection of corporate finance, banking, and ERP/accounting. She has nearly twenty years of experience leading increasingly complex payment initiatives for corporate clients and advising financial institutions and payment technologists on the development of their payment capabilities.
Erin is also the founder of Forte Financial, a consulting firm focused on corporate finance efficiency, technology, and process improvement. She is a past president of the Financial Women’s Association of San Francisco and also a two-term past president of the San Francisco Treasury Management Association. Erin is no longer with Glenbrook, but contributed greatly during her time at the firm.