The
Long Tail Of The Software Market
NOTE:
For quite a while now, I’ve been thinking about how Chris
Andersen’s Long Tail theories might apply to software markets as
well as to music and movies. Every
time I hear Chris speak I get a little further along in my thinking.
So I wrote this piece to capture where I’m at and
circulated it to a few colleagues. They liked it, so you’ll see a longer piece soon that I
wrote for them, taking the discussion a bit further.
We’ll see if we can link to it.
What’s a Long Tail?
We have always
thought that the goal of a successful marketer was to rise quickly
to the top of his market segment. Most markets, we knew, were organized so that only a few
products would gain most of that market’s attention and sales. Typically they would share 50 to 75% of the market, leaving
the rest to be divided among a long list of medium-sized, small, and
very small competitors. Most
of the competitors were very small and had little chance of growing
much bigger. Everyone’s
eye was on the Big Market Share prize.
No one valued the myriad of small companies, individually or
together.
But the
disruptive power of the Internet changed that.
It offers a new way to identify objects of interest and to
market those objects at very low cost.
Wired editor Chris Andersen, who invented the Long Tail
notion and is writing a book about it, due out in March, 2006, notes
that the Internet allows a clever vendor to offer an unlimited
selection of objects (books, songs, obsolete anything).
Customers
behave differently when faced with unlimited choices.
Rather than selecting one of the top market share choices
(the ones everyone knows about), they can be better satisfied by
dipping into the huge variety of thousands of tiny niche markets. No
one of those markets would be profitable (or perhaps even viable) on
its own, but together they are a huge, rich marketplace that can
satisfy nearly any buyer Remarkably,
the long tail, in nearly any market, is larger than the total market
divided by the major players.
Furthermore,
the mechanisms of the Internet and its players have facilitated this
behavior. Search makes
it much easier to find something at essentially no cost, no matter
how obscure the item or how limited its audience.
Communities of interest grow up around certain sites
providing additional information to Long Tail buyers.
On Amazon, the site can offer recommendations based on what
buyers with your interests also bought.
That’s how new best sellers can create a new, brisk market
for old books on the same subject, as Amazon passes on the
recommendation from one buyer of the best seller to another.
Readers may also choose to write reviews or ratings which
help buyers choose.
The idea of
search plus ratings is powerful and is found all over the Internet,
from eBay, where a seller’s rating is critical to his future
success, to nearly any ecommerce site, however obscure, whose good
behavior is rated by the comparison engines.
This allows their reputation and rating to be substituted for
a small firm’s lack of recognition.
How does the Long Tail
apply to the software market?
It becomes
apparent that the software market fits readily into the Long Tail
model. That is:
-
There are a
few very large players in any of its segments, together holding
most of the market.
Below these large vendors, there are hundreds (in some cases
thousands) of small software vendors, each averaging just a few
million dollars in revenues. Any
one of them is too small to be interesting, but together they make a
$20B market.
Software – or. Rather, the business problems software
solves – is readily found on the Internet through search engines
and recommended by both customer experiences and the halo effect of
marquis partners and high ratings.
Any amount of information can be provided to a prospective
buyer via the web.
Software can be distributed directly from the web, via
downloads, or through partner relationships with the ISV’s
ecosystem. That
ecosystem would, of course, be accessed initially through the web.
Riding the Long Tail
Curve
The marketplace
needs the rich variety that small software vendors, existing in
countess niche markets and local and regional markets, can provide.
Without it, customers are faced with too few choices, often
from firms whose success in the volume mainstream market is achieved
by appealing to what “everyone” needs, rather than building
applications with features for the needs of particular markets.
In the Long Tail, smaller software vendors can focus on their
very specific customer needs, using their expertise in these markets
to build applications that are perfect matches for just a few
customers.
If we can use
the facilities of the Internet to organize the long tail of the
software market, so that customers find just the right solution and
ISVs meet just the right business partners, we can radically
increase customer satisfaction and the value of customers’
solutions, without reading an Internet roadmap or solving any
mathematical equations. The
tools are there. We
need only use them.
(back to top)
