Blockbusters are limited and Amazons have long tails
This new Web 2.0 world is a wonderful place. It means small can be beautiful. It's a boon to the consumer, both in terms of price and availability, and it means that the esoteric or the eccentric can be easy to find. As well as for consumers, it's great for entrepreneurs, because the barriers for entry to a market, or to collect together the capital and tools required to start a new venture have never been lower or cheaper. Let me explain.
The retail trends of the 80s and the 90s meant that finding my favourite jazz record (and then CD) became harder and harder, as my local record store disappeared to be replaced by an Our Price or some such. Big focus on the top 50 albums, less space for my Jazz. I had to start going to the larger HMVs, Virgin Megastores or Tower Records. Often I would head for strange and dusty specialist shops, with very odd people behind the counter, décor from the previous owner, and fixtures made from poorly painted chipboard. I'd find what I wanted, but it wouldn't be cheap. In an initial wave Amazon has changed all of that. In a second wave iTunes is changing it further. At Amazon, the shelves are limitless. All of the old, and strange and esoteric stuff that was hard to find and beyond the economics of the record shop to be able to stock, is under the fingertips of my search engine. The cost to store it in the warehouse is no different to the latest Kylie. Usually it arrives by first class post the next day, and it's price isn't that different from a top 10 CD in the high street. And the other major factor, is how I get recommendations. In the old days, the dodgy guy behind the counter "might" put on an album I'd not heard that I might like. Or the guy next to me might say "that one's good". These days it's much safer. Amazon recommends that people buying this also bought that. I can even listen to snippets (and it usually only takes 30 seconds to decide if you like it or not). And Amazon are doing the same with books. My local Borders might stock 100,000 books. I can find lots of stuff in there, but Amazon stock loads more, with easy access to reviews, and even the first few pages. And the key fact - Amazon makes more than half or their book sales on titles from outside the top 100,000.
Now with iTunes, the revolution goes further. I get access to the large library, I get reviews and recommendations, and I even get to buy the one track I like rather than the whole album. Currently I still get dragged down Blockbuster by my son and daughter for movies and PS2 games. I would guess the store must stock 3,000 titles. I'm being regularly bombarded by mail shots and adverts for the online rental stores that have 25,000 or 32,000 titles in their inventory. For a modest monthly fee I get to rent a certain number, and I keep them for as long as I like. No more forgetting the day it was supposed to go back and forking out for another rental charge. I get this feeling I won't be visiting that Blockbuster store at all soon.
So the technology of Web 2.0 means that big companies like Amazon or eBay can access the long tail of the market and make it profitable. There is a great (though long) article on the topic, and particularly the media side by Chris Anderson at Wired Magazine, called The Long Tail.
I looked at a presentation recently by Joe Kraus, founder of search company Excite (if you remember them) and now JotSpot. He said:
They could make money on the 3% of traffic in their top 10 searches for sex, MP3 and Britney Spears, but not on the 97% of searches on everything else. Google figured out a way to make money on that long tail. But it's not just great for Google, who got big, it's great for the small business entrepreneur. This is a special kind of marketplace where small advertisers can reach small markets efficiently.
That access to the long tail at an affordable level is one of the factors that is lowering the barriers for new start ups, and creating the opportunity for small, specialist niche players to thrive. Joe says that to start Excite back in the 90s cost $3,000,000 from idea to launch, but to start JotSpot this year it cost $100,000 (a much easier sum for many people to raise than $3m). There are many factors to explain the difference, but it is better to hear the story from Joe at his Bnoopy blog. (Hey - and I didn't mention clicks or bricks once!)
The retail trends of the 80s and the 90s meant that finding my favourite jazz record (and then CD) became harder and harder, as my local record store disappeared to be replaced by an Our Price or some such. Big focus on the top 50 albums, less space for my Jazz. I had to start going to the larger HMVs, Virgin Megastores or Tower Records. Often I would head for strange and dusty specialist shops, with very odd people behind the counter, décor from the previous owner, and fixtures made from poorly painted chipboard. I'd find what I wanted, but it wouldn't be cheap. In an initial wave Amazon has changed all of that. In a second wave iTunes is changing it further. At Amazon, the shelves are limitless. All of the old, and strange and esoteric stuff that was hard to find and beyond the economics of the record shop to be able to stock, is under the fingertips of my search engine. The cost to store it in the warehouse is no different to the latest Kylie. Usually it arrives by first class post the next day, and it's price isn't that different from a top 10 CD in the high street. And the other major factor, is how I get recommendations. In the old days, the dodgy guy behind the counter "might" put on an album I'd not heard that I might like. Or the guy next to me might say "that one's good". These days it's much safer. Amazon recommends that people buying this also bought that. I can even listen to snippets (and it usually only takes 30 seconds to decide if you like it or not). And Amazon are doing the same with books. My local Borders might stock 100,000 books. I can find lots of stuff in there, but Amazon stock loads more, with easy access to reviews, and even the first few pages. And the key fact - Amazon makes more than half or their book sales on titles from outside the top 100,000.
Now with iTunes, the revolution goes further. I get access to the large library, I get reviews and recommendations, and I even get to buy the one track I like rather than the whole album. Currently I still get dragged down Blockbuster by my son and daughter for movies and PS2 games. I would guess the store must stock 3,000 titles. I'm being regularly bombarded by mail shots and adverts for the online rental stores that have 25,000 or 32,000 titles in their inventory. For a modest monthly fee I get to rent a certain number, and I keep them for as long as I like. No more forgetting the day it was supposed to go back and forking out for another rental charge. I get this feeling I won't be visiting that Blockbuster store at all soon.
So the technology of Web 2.0 means that big companies like Amazon or eBay can access the long tail of the market and make it profitable. There is a great (though long) article on the topic, and particularly the media side by Chris Anderson at Wired Magazine, called The Long Tail.
I looked at a presentation recently by Joe Kraus, founder of search company Excite (if you remember them) and now JotSpot. He said:
"You know the real reason Excite went out of business? We couldn’t figure out how to make money from 97% of our traffic. We couldn’t figure out how to make money from the long tail – from those queries asked only once a day."
They could make money on the 3% of traffic in their top 10 searches for sex, MP3 and Britney Spears, but not on the 97% of searches on everything else. Google figured out a way to make money on that long tail. But it's not just great for Google, who got big, it's great for the small business entrepreneur. This is a special kind of marketplace where small advertisers can reach small markets efficiently.
That access to the long tail at an affordable level is one of the factors that is lowering the barriers for new start ups, and creating the opportunity for small, specialist niche players to thrive. Joe says that to start Excite back in the 90s cost $3,000,000 from idea to launch, but to start JotSpot this year it cost $100,000 (a much easier sum for many people to raise than $3m). There are many factors to explain the difference, but it is better to hear the story from Joe at his Bnoopy blog. (Hey - and I didn't mention clicks or bricks once!)
posted by Unknown at 23:44
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