zaterdag, januari 06, 2007
The long tail
Even web2.0 sites need money. Money to host, to develop and above all a lot of money to maintain a good quality service level day to day. The difference between community based applications and enterprise applications is in the amount of money needed. If a lot of people will put in their hours for free, well that saves a lot! And if you don't need money for profits, shareholders or taxes, that saves even more. But there are always costs, and it is a dream to maintain a popular site with no income whatsoever. Every organisation needs a sound business model, even if your products are for free. Those who denie basic economics may find themselves out of business quite soon. In retrospect they will probably say it was another bubble. No, it was just stupid.
Many web2.0 sites rely on advertisement income to cover their costs. Of course, you need the necessary eyeballs for that. Today I want to talk about another valid business model for the internet: serving the long tail.
Many web2.0 sites rely on advertisement income to cover their costs. Of course, you need the necessary eyeballs for that. Today I want to talk about another valid business model for the internet: serving the long tail.
In his book The Long Tail, Chris Anderson suggests that the Web and low-cost technologies have made it possible to finally address the underserved demand that results from scarce resources (for instance, shelf space, capital, bandwidth) and superficial barriers (such as geography, regulations, culture). Anderson’s research has determined that this underserved demand could double the size of an addressable market while actually decreasing the costs of addressing it.The term 'long tail' comes from statistics. Remember your statistics course and the bell shaped 'normal distribution'? Well, that thing tells you that about 70% of a population is within 1 standard deviation from the mean. Remember? :-) Anyway, it is the kind of logic to store 20% of the most popular cd-roms in your store because 80% of buyers will want those. Since you can't physically store all records ever made in your store, you can't offer them. So you try to optimise your scarce shop floor by offering the most sold or most profit generating items. Makes sense. Traditional business will focus on the bulk of the bell shape. And now enters the internet. Via the internet is it perfectly possible to offer all music ever made at the same cost of serving. There is no scarcity in storing digital bytes on the internet. So you can serve the other part of the bell curve that others typically leave out. You can become the place where people find songs they can never find in stores. You serve 'the long end' of the bell curve.
