@ Supply Chain Management


When the long tail becomes exposed… – Part 1

Got Long Tail? In this article by Robert Cringely – The Next Microsoft: Google is learning too well from the master, Robert Cringely criticizes Google’s missteps when it comes to its recent moves some of which he outlines in his article. Some of the recent steps that Google has taken to protect its business model are here – Google slapping PageRank Penalties, Official: Selling Paid Links Can Hurt Your PageRank Or Rankings On Google, Is There A PageRank Penalty In Your Future?

I’m pretty sure that you’re aware of the Long Tail effect and the dramatic success that firms such as Google have had incorporating this into their strategy and execution.

In gobbledygook speak:

In these distributions a high-frequency or high-amplitude population is followed by a low-frequency or low-amplitude population which gradually "tails off." In many cases the infrequent or low-amplitude events-the long tail, represented here by the yellow portion of the graph-can make up the majority of the graph.

Or in plain ol’ English:

If you added together the total volume of all the very popular items that a firm can sell and compare that to the total volume of all the rest of the stuff that the same firm can sell, you would find that the former is less than the latter.

Of course, it is not always the case that one finds this long tail effect but where one does find it, one needs a technology/strategy/plan that addresses both the high frequency and low frequency population and in the mold of the inimitable Porter competitive strategy model – the Long tail of your suppliers and the Long tail of your customers. Google’s deployment of Adsense (Google advertising network) in precisely this manner is acknowledged as one of the major sources of its remarkable success, even by its CEO, Eric Schmidt:

What Google has done is to find and monetize the Long Tails of both advertisers and publishers. These include millions of small companies and individuals who may never have advertised before, at least not nationally. They were considered sub-scale — too small to be worth a call or visit from an ad salesperson, possible too small to even think of themselves as an advertiser at all. But Google ads are self-service, cheap, and performance based (pay-per-click), which all combine to dramatically lower the barrier to entry.

Matching these advertisers are hundreds of thousands of previously sub-scale "publishers", from blogs to niche commercial sites. Most are too small to have their own ad sales business, but they can now run relevant Google ads by just adding a few lines of HTML to their site. About half of Google’s business now comes from such "partners", rather than from ads sold against search results themselves.

Eric Schmidt, Google’s CEO, explained how these millions of small-to-midsized customers represent a huge new Long Tail ad market. "The surprising thing about The Long Tail is just how long the tail is, and how many businesses haven’t been served by traditional advertising sales," he said. Google now has revenues of more than $1 billion a quarter, a least half of which is made up of Long Tail advertisers by this definition. This is, needless to say, just a glimpse of what’s still to come.

So far so good! Google has addressed the Long tail of the customers (which are the millions of small-to-midsized customers who would like to purchase advertisement through Google’s network) and the Long tail of the publishers (which are the millions of blogs and web-based publishers) in a way that neither has any real bargaining power over Google which sits in the middle. In another sense because Google actually pays the publishers if the ads are deployed on the publisher’s site and clicked, the publishers have an incentive to push Google’s ads as much as possible as well and so in a sense, the publishers are also customers when it comes to Google’s ads.

Well, what Google can do, so can any yahoo – well, one Yahoo (YPN) actually does try to do exactly that but its own success has been, how to put it kindly, so so.

Until now, Google had the supplier and customer sewn up, so to speak – a collection of small to mid-size customer and small to mid-size publishers cannot effectively take on Google, their bargaining power is simply non-existent. But for Google’s advertising customer, their small size (and even smaller budgets) can be a liability because they can go out of business quickly, from prevailing macroeconomic conditions if not from Google’s own missteps. In other words, Google is exposed to considerable risks from its customer base, the advertisers who use Google’s advertising network, even though the risk is distributed over millions of Adwords budgets – small as they are. While Google may use the Long tail effect to its own advantage, the long tail, I argue, is in fact an exposed long tail. But before I get into why it is an exposed Long tail, I need to explore one more salient fact – what contributes to the success of aiming at the Long tail:

The potential for a Long Tail market (or attention) distribution exists when the fixed costs of production, distribution, and buying are reduced by technology or other means. Then you don’t need as many units of whatever to amortize the fixed costs to a competitive point, and niche products are supported with a decent ROI.

And the reason why Google has had remarkable success against Yahoo’s own YPN is probably because of first mover advantages more than anything else. That sort of covers the Industry competitors – Rivalry among existing firms of the Porter’s competitive model.

In the next post, I will explore why I think this Long tail is an exposed long tail.

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Category: Personal Observations


One Response

  1. Matt Keegan says:

    Thanks for the mention!

    As a follow up, it seems that the Google slapping is still going on — some bloggers have found out today that they are now a big, fat PR0. I can’t imagine why Google is continuing to penalize blogs already whacked earlier.

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November 2007