A niche piece of the pie

A couple of years ago Chris Anderson, editor-in-chief of Wired magazine, produced an essay called “The Long Tail.” It showed how e-commerce is revolutionizing industries like books, music and film by moving us from mass production and mass marketing to niche products and niche marketing.

The paper was a huge success. Anderson has since turned it into a book of the same name, which was released this summer. It is an exciting account of how new technologies are changing the economy.

The “old economy” emerged in the early 1800s with the shift from cottage industries to factories. Then, about a century ago, Henry Ford launched a second revolution with his invention of the assembly line. It took the complex tasks in a factory, broke them down into their constituent parts and arranged them in a line.

Ford’s brilliant insight was that the assembly line would let him produce a particular item – the Model T – cheaply enough to make it affordable to the average American. The era of mass production, distribution and marketing had arrived.

Over the last few decades, business has been through yet another organizational revolution, moving from factories to networks. Nike is a striking example. It is more of a ‘brand identity’ than a manufacturing firm, using legions of contractors to handle the actual production of running shoes and clothing while it concentrates on design, organization, marketing and promotion.

Nevertheless, while companies like Nike may have left the factories to build networks, they still have one foot in Henry Ford’s world. The supply chains Nike manages still aim at mass-producing and mass-marketing consumer goods. They are, in effect, global versions of Ford’s assembly line.

According to Anderson, the next revolution is already well under way. If supply chains allow a company like Nike to concentrate on what it does best, e-commerce is pushing that to its logical conclusion.

In the new model, businesses definitely should do what they do best; but not only as part of a supply chain producing, say, millions of running shoes. In the New Economy there is a market – a niche – for just about anything. All you have to do is find it.

For example, Amazon.com hosts a network of specialty bookstores from around the world.

People everywhere use it to find obscure books. All they need is the title, the author or a few key words and they can search the database, find it in minutes, and have it delivered in a few days.

Before e-commerce, it just didn’t pay to run such a bookstore, unless you were in a city the size of New York or London. Today, a scholarly bookstore that belongs to Amazon’s network could as easily be located in Kapuskasing as New York, because its real market is thousands of people scattered around the globe.

Moreover, there are thousands of obscure books on Amazon’s inventory list that no one is actually looking for, yet it successfully markets them by programming its system to form profiles of the users. It then uses these profiles to recommend other titles from the list that may match a customer’s tastes. As a result, a big chunk of Amazon’s sales now comes from obscure texts, many of which sell only a few copies a year.

Obscure books, it turns out, are very big business.

According to Anderson, this is part of a massive two-step process that is changing how business is done around the world. First, the Internet lets a supplier like Amazon offer consumers a vast supply of some item, such as rare books; second, various e-tools are used to help them find similar books within the mountain of books on file.

Whereas in the past sellers found buyers through advertising, today e-commerce gets the buyer to drive the process. But when clients start seeking new products, they look for ones that are specially suited to their tastes, not mass-marketed ones. The result is exponential growth in niche markets – and a buyer for almost any product. This, concludes Anderson, is the way of the future. Small is beautiful.

From a small-business perspective, the possibilities are huge. We can see, for example, that it doesn’t take deep pockets to become a player of this sort in the global marketplace. Increasingly, it is open to very small entrepreneurs, who in principle can use it to market everything from home-made quilts to astrological advice.

So over the last three centuries we have gone from cottage industries, to factories, to assembly lines, to global supply chains, and now – we are back to cottage industries.

Don Lenihan is president of the Crossing Boundaries National Council, a not-for-profit forum focused on a more citizen-centred approach to government. He can be reached at dlenihan@crossingboundaries.ca

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