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Don’t let the Long Tail wag your SaaS dog

There has been a fair amount of pondering over how Chris Anderson’s thesis on the Web’s transformation of the Long Tail in consumer markets might be applied to their business-to-business counterparts, and to B2B on demand software in particular. I’d like to take a slightly different approach and try to clarify where it does NOT apply, in order to better highlight its potential impact in areas that it does.

In my first Chaotic Flow blog post, I claimed that SaaS was fundamentally a mass market, commodity business. On the surface, this statement seems to run completely contrary to the Long Tail thesis. How can I possibly cite Google, Amazon, eBay and MySpace, the most notable enablers of the Long Tail phenomenon, as commodity SaaS providers. The answer lies in which products/services we are talking about.

The table below illustrates the potential source of confusion:

Company Commodity SaaS Long Tail Product
Google Web Search -Ad Serving Web content – Ads
Amazon Virtual Store Books, CDs, etc.
eBay Online Auction Aftermarket, niche and rare items
MySpace Social Network Friend content – Ads

Put a different way, while every Web page, song, and friend may be unique and appeal to a specific group of individuals (niche market), HTML code, MP3 files, and XML profiles are essentially the same and shuffling them around cyberspace is a mass market, commodity business. In fact, this inherent sameness is a critical element of the interoperability that has driven down the cost of information distribution and processing to nearly zero and thereby enabled the Long Tail phenomenon.So, how does the Long Tail fit with SaaS? In his thought-provoking book, Anderson identifies three primary forces driving the Long Tail: democratization of production, democratization of distribution, and connecting supply and demand. Or, in terms of on demand software: tools ala TypePad, aggregators ala Amazon, and filters ala Google respectively. All you have to do is ask yourself one question: “Am I a tool, an aggregator, or a filter?” For the majority of B2B SaaS application providers, such as Salesforce.com or WebEx, the answer is obvious: “I am a tool.” (Sorry, too easy ;)) In fact, under this framework, it becomes clear that B2B SaaS mashup and mult-tenant platform plays, such as Salesforce’s force.com, are not only tools, but they are tools designed specifically to go after the Long Tail opportunity by democratizing production through self-service mass customization.

The core value proposition of the vast majority of enterprise SaaS application vendors, who are uniformly targeting the SMB market, lies in their ability to deliver basic (read commodity), enterprise-class capabilities ala to Siebel, Oracle, and SAP at a fraction of the cost. Attempting to address the Long Tail too early in their evolution could easily undermine this cost advantage and drag them into the “customization hell” that plagues traditional enterprise software vendors. That said, SaaS vendors are by far the best positioned to go after the B2B Long Tail as the sector evolves, because their base offering is a commodity. Into this plain vanilla code base, they can easily inject any number of unique flavors through mass customization techniques, such as extensive self-service configuration and standards-based interoperability.

There is a corollary to this proposition. Tools by their nature are flexible. They can be used to build a lot of different things, even other tools. If you are providing a B2B SaaS application that can easily be duplicated by more general, democratic tools, such as mashups, force.com apps, etc. Get out! You are about to get wacked by the Long Tail, because you will soon be competing with a multitude of do-it-yourself SaaS applications, widgets, and mashups. Better yet, take your thinking to the next level and become an aggregator or a filter. If the Long Tail phenomenon has any legs at all in B2B SaaS, one day there will be more on demand micro-apps than we know what to do with. (BTW, if you think this sounds crazy, get your creative juices flowing by paying a visit to sourceforge.net to see what a real, Long Tail software aggregator looks like in the open source world.)

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