Xtra Internet Thoughts

The natural limit of the Long Tail

Recently, Fred Chong proposed a 4th force to driving Long Tail markets (in addition to the three Chris Anderson identifies in his book), which I attempted to clarify in my last post as corresponding to the Price component of marketing’s 4Ps. One of the unique aspects of this particular “P” is that it is the final piece that must fall into place to close a sale. In some ways, it is the dividing line between products that are sold to a market and products that are sold by a salesperson in that if a list price is not set, then a direct negotiation must take place between buyer and seller.

If we take Fred’s proposal seriously (I asked Chris Anderson to check it out and here is his response: “I agree that there is a fourth force, involving dynamic/flexible pricing. I hinted at that in the book, both with the “Rule 2: Cut the price in half. Now lower it.” theme from the original article and the “economic of abundance” chapter and its embrace of free. And, in a sense, my next book, FREE is all about this grand experiment in making money by giving things away. ), then a natural conclusion is that SaaS/Web applications that provide the ability to automate the negotiation process between individual buyers and sellers and set deal-specific pricing in real-time have the ability to drive the Long Tail to it’s natural limit, a market of one. In other words, Web 1.0 made content/information free, enabling companies to profitably service the long tail, but Web 2.0 is making interaction/communication free, enabling them to push out on the Long Tail from mass market to niche market to individual buyer/seller transactions. While it isn’t necessary to use a Web 2.0 approach to achieve this (e.g., eBay arguably was the first hughly successful offering of this nature), it will be interesting to see how much farther out on the Long Tail we can go by leveraging applications that directly connect individuals, such as social networks, chat, VOIP, etc. and offer very flexible and granular pricing capabilities, such as microfinancing and ad serving.

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