Grant Wickes, VP Marketing of Wasp Barcode Technologies
The debate rages over the Internet’s power to launch new businesses. Is the Long Tail a big opportunity, or a short-lived, false sense of importance?
Technically minded Internet visionaries believe that their products will change the world. Unlike the bricks-and-mortar world, which is slow to change and carries big overhead, the Internet offers high speeds and low costs. This gives entrepreneurs hope. Specialize, they believe, and big-time money will follow.
This view has been buttressed by The Long Tail, a recent tome by Chris Anderson. The book suggests that the Internet provides many opportunities for new companies to find a viable niche in which to play. When brought together, low-demand products can make up significant market share, creating new distribution and sales opportunities via the Internet to the disparate community that wants these items. This theory justifies both the continuing influx of startup cash from venture capitalists seeking big returns and the never-ending enthusiasm of entrepreneurs.
Stepping on the Long Tail
More recently, a counter-theory has been offered by Anita Elberse, an associate professor of business administration in the marketing unit at Harvard Business School. In a Harvard Business Review piece dubbed “Should You Invest in the Long Tail,” Elberse argues that there is not sustainable opportunity along the tail. Rather, the tail is dominated by hits and blockbusters, with the remaining competitors falling by the wayside.
While Elberse’s research focuses primarily on media content and entertainment, I believe it has broad applications for technology companies as well. In my view, while the tail initially is long and inviting, it rapidly curls at some point in the future. This has serious implications for companies of all sizes, whether in startup phase or dominating their industries.
During my more than 20 years in the technology sector, I’ve seen few instances in which a company that launched on the Long Tail emerged to become a dominant leader. Take, for example, the photo industry. In 1999, I was a member of the founding management team for EZPrints, a web site that would take orders for digital photo prints directly from the consumer.
By 2000, EZPrints was just one of about 150 online photo sites focusing on sharing, printing and more. The barriers to entry were extremely low, and each of the slew of competing companies believed it had a unique offering and opportunity to succeed. The tail was long and inviting!
In reality, this was a case of far too many suppliers chasing far too small of an initial market. The result? Road kill. The tail curled, leaving just a few. The survivors were a combination of:
- existing big-name brands such as Kodak and Hewlett-Packard, which bought up some of the better small competitors just got bigger and more entrenched
- a couple of new brands (e.g. Shutterfly, EZPrints) that survived and had the fortitude to press on during lean times, eventually taking advantage of increasing demand in an evolving market with fewer competitors. However, the costs required to build and survive were huge and most of these costs have yet to be recouped
The Long Tail curled. In the process, hundreds of companies died. What was left? A concentration of a few successful survivors that helped the market evolve. This reality clarifies the strengths and weaknesses of Anderson’s Long Tail theory. While Anderson does a good job explaining the initial phase and potential of Long Tail opportunities, Elberse casts a more holistic and accurate view of the ultimate outcome.
Shooting the curl
Sure, the Internet has changed the way we all do business. And the idea of the Long Tail is exciting, for the hope it lends and the riches it promises. But when it comes to competition and survival, I can come to just one conclusion: the more things change, the more they stay the same.
Technology folks always see their widget as changing the world. While the initial hype may create a buzz, eventually this new product regresses to the mean. There is no “this time, it’s different.” Best practices, combined with the normal slow evolution of consumers, wins out over time. Good technology can, of course, make businesses operate more profitably and go a long way to improve efficiency and drive sales.
So while the Long Tail helps explain the phenomenon of early-mover opportunity, it fails to consider the long term – when the tail eventually curls and consolidates the opportunity onto just a few market players.
What does this mean for small business? A few key principles have become clear:
- do not base an entire business plan on a technology paradigm shift or the belief that this new technology will create a fundamental long-term opportunity.
- recognize that no matter how real the opportunity feels and how slow incumbents are to embrace this new thing, the tail eventually curls
- be prepared for many other new companies to jump on the tail when they see the opportunity, creating brutal competition from firms that may be backed by rich venture capitalists
- batten down the hatches for nuclear winter, when the market fails to grow fast enough to support all of the new players. Only by preparing for this challenge can you hope to survive.
- -know the tail will curl and there are three possible outcomes: most will die, some will be acquired, and the lucky few will establish a new brand
Larger firms have lessons to learn as well:
- don’t be an ostrich hiding your head in the sand. Change happens. Be ready.
- experiment and invest, so you will understand and embrace new ideas that can improve your business
- focus on core best practices and leverage new technology to help create uniqueness or add value.
- be highly inquisitive to acquire the leading innovators – not at the beginning of the tail, when valuations are large, but later when intense competition creates desperate outcomes
In the end, it’s a fun game
this tail thing. Just make sure you’re positioned well when the tail curls, since it doesn’t stay long forever.
As vice president of marketing for Wasp Barcode Technologies (www.waspbarcode.com), Grant Wickes sets the strategic direction and oversees the tactical execution of the company’s marketing programs. Wickes’ marketing and sales experience spans more than two decades, the majority of which has been spent growing small technology companies. Wasp Barcode Technologies has become the trusted source for productivity solutions for small businesses.