I finally had an opportunity to read “The Long Tail” by Chris Anderson (I’m always behind in my reading) and found it quite thought-provoking. Anderson’s thesis is that the traditional inventory limitation imposed by needing to stock physical goods imposed a need by businesses to focus on only the best-selling goods — the so-called “hits.” Because the Internet enables merchants to break free of the tyranny of needing to locate physical inventory, those merchants can now stock many, many more items that aren’t “hits”: they can stock lower-selling “tail” products that, while not selling in the numbers that hits do, in aggregate (thus the phrase “long tail” since the aggregate can be enormous in terms of individual items) sell in significant numbers.
Anderson goes on to note that, in respect to music, the fact that it can be stored and distributed in a digital format enables the banishment of physical inventory altogether, enabling a further extension of the long tail. He further describes the capability of using the Internet to aggregate users who can share information with one another so that individual users can learn about new products and feel more comfortable in trying them out.
All to the good, but he brings only about half the picture into focus.
What he misses is that the genius of the Internet is how it allows digitization to deconstruct what we used to think of as a “product.” At one time, you could go look at a physical product at a store, ask the clerk for some info, maybe ask one or more friends for their opinion. Anderson describes how Amazon allows people to post reviews about the product below the product description.
True, but looking at it that way misses the essential point — on Amazon, the reviews reside with the product description, but they don’t have to; it’s just coincidental that they do. The reviews could just as easily be somewhere completely different. Or, I can look at the reviews and use them to inform myself before I go to the local electronics superstore to make the actual purchase (and, perhaps someday Amazon will enable other websites to access reviews via the Amazon Web Services interface). Today, the information gathering aspect of the product is totally abstracted from the product itself. Thanks to the Internet, I can reach around the world to find out information.
In other words, digitization enables a deconstruction of the product — or perhaps a better way to put it is that digitization enables a construction of an entire new type of product, based on a subset of the total elements of the product. The Long Tail implies that a larger marketplace comes into being for existing products due to the Internet; it misses the point that a broader marketplace comes into being based upon a whole new range of products that can be created from the deconstruction of products.
To offer an example, UPS (and Fedex and DHL) offer the ability to track packages on their website (and, in fact, offer shippers the ability to allow *their* customers to track their packages from the shipper’s website). Because they can abstract the information about the package from the package itself, they can offer information about it that is separate from the package. That’s the Long Tail — I can find out information about the product I’ve purchased.
However, it’s not much of a stretch to see that one of the shipping companies could take the data about people tracking their packages and create a new product from it that they can offer to their customers, e.g., Amazon. They could offer Amazon a “special product” that shares which of Amazon’s customers, or perhaps which of the products Amazon sells, are most likely to get repeated shipment status updates, indicating a buyer with high need for shipment certainty or a product with strong buyer anticipation. Amazon could then figure out an offering to accompany those products, or one targeted to multi-status requestors. This is well beyond the users of the products sharing personal likes and dislikes about it — it’s using the (if I may use the term) metadata about the transactions involving the products to create new offerings.
We’ve only begun to scratch the surface of where digitization is going to take us. It’s going to go well beyond new ways to sell existing commodities, and into areas only tangentially related to long tail markets. The recent move to use India-based radiologists to review digitized X-rays and scans illustrates the unpredictable outcomes of digitization, but, believe me, it’s going to be way past big digital jukeboxes or easier ways to sell used books.