05 Jun Internet-enabled niche markets take center stage
Madison, Wis. – Whether you pronounce it “nitch” or the more cosmopolitan “neesh,” the term niche is spelled the same way, and thanks in large measure to the Internet, it increasingly spells growth and profit.
An entire conference, Brandworks University 2007, is centered on what some are calling a seismic shift toward niche products, and the Internet and its low-cost distribution channel have emerged as the way to move the Earth.
Perhaps no person understands this shift more than Chris Anderson, editor-in-chief of Wired magazine and the author of the 2006 business best seller titled “The Long Tail: Why the Future of Business is Selling Less of More.”
It’s ironic that Anderson has written a best-selling book because terms like “best seller,” “big hit,” “Hollywood blockbuster” and “prime-time dominance” represent the hit-driven era known as the 20th Century. In the new growth model made possible by the Internet, it is smaller niches that will drive most of the new business growth, and even market dominators like Anheuser-Busch appear to understand the power of what Anderson calls the long tail of niche-market products.
“The one thing that’s different about the Internet is that it’s basically a marketplace of infinite shelf space,” Anderson said, “and so it has room for all the products and communities and minority tastes that just don’t fit into the one-size-fits-all model of traditional distribution. It’s the culture of the Internet.”
The term “long tail” refers specifically to the segment of a demand curve that includes a vertical axis or “head” representing traditional products, and a horizontal axis (the long tail) representing niche products. Most new growth opportunities are coming from that tail, which is made possible when the efficiencies of technology like the Internet lower the cost of distribution.
The head of the curve is still important, Anderson notes, but the ability to deliver niche products on the tail is creating new markets that, in the aggregate, are as large as the traditional, mainstream one. Anderson, who has spoken on this subject all over the world – he arrived in Madison after recent trips to Hong Kong and New York – said the age of more choices and more fragmentation will go on forever.
While the myriad of choices cater more to individual tastes, they also are creating new standards for “prime-time dominance” and other hit-driven barometers. In the 1950s, the iconic television series I Love Lucy regularly was watched in 70 percent of American households with a television set, but today’s most watched television show, American Idol, pulls down anywhere from a 15 to 20 percent share.
The same phenomenon applies to music, where individual digital recordings have made the album passé, and even a newly released motion picture can set box-office records on the first weekend but slowly fade when online and other word-of-mouth forms report that, despite all the pre-release marketing hype, the flick is not worth the price of admission.
Anderson is just beginning work on a second book titled “Free,” which will explore the economics of abundance, a business model built around giving things away. If it has the same impact of “The Long Tail,” he will continue his global travels and it will be referenced in virtually every business plan written in Silicon Valley.
Like the long tail, the new concept could have surprising adopters. Last year, Anheuser Busch started a new division called Long Tail Libations, including a beer brewed with sorghum (instead of wheat and barley) for the niche market of gluten-intolerant people. Anderson said Anheuser Bush’s embrace of the long-tail concept was the least expected application, but “they completely got it.”
There is a bit of supply chain magic at work here, Anderson acknowledged, but there also is some recognition that American culture is shifting from an attitude of “we want to do what everyone else does” to “we want to be ourselves.”
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