Monday, March 14, 2005

Bnoopy: The long tail of software. Millions of Markets of Dozens.

Bnoopy: The long tail of software. Millions of Markets of Dozens.

The way most items are distributed can be depicted by the famous bell curve. Students are often familiar with the bell curve of grades. Students have typically been selected by several measures such as age and success in the prior grade. Those with extraordinarily high or low IQ's have been "filtered" out of the the typical class. Furthermore the grade a student can make is always from 0 to 100. However, the songs stocked in a store may vary widely. The songs may be of every genre from classical music to hip hop. Wall-mart typically stocks 38,000 songs. Real Networks offers 785,000.

The long tail is a fascinating topic. Businesses like NFLX, AMZN, GOOG and others take advantage of long tails. If you have ever gotten lost in the stacks of a major university library, you have an idea how many books have been published and how many books are seldom used. Google print search will dramatically increase the likelihood that an old book will be accessed. This is a good thing for people, productivity, publishers, authors, Google and Google shareholders.

The Bnoopy site is a site about starting a business to make money. Google, by providing open access, is about to spark the start-up of many small businesses. Within ten years, millions of folks will have started small businesses where the major resource is a home computer. People will live where they want to live, perhaps at the beach, work the hours they want to work, and consume less oil and gas commuting. The lucky and smart will make millions.

The cost for NFLX to keep a few copies of Ben Hur on a warehouse shelf is small. With 22,000 similar movies on the shelf, NFLX is often paid to provide movies that Blockbuster cannot afford to stock in 9,000 stores. Blockbuster stocks 3,000 popular movies. These movies are rented and re-rented often and all major rental companies are forced to buy 100's of copies of the most popular selections. NFLX stocks those 3,000 and another 22,000. Every time a NFLX customer selects one of the 22,000 movies, NFLX can serve one more customer who demands one of the 3,000. It makes the same sense for AMZN to keep a few pairs of size 22 shoes in a warehouse even though it makes no sense for a shoe store to stock these in every store.

Finding the way to provide both segments, the most popular and the least popular, is often the winning strategy. Brick and mortar stores such as Wal-Mart and Blockbuster are seeking ways to sell more goods online. In the old days, the attempt was to be able to order the off size or unpopular selection from a warehouse. This process required employee time. The online process is more efficient; offering the best price. If the product can be down-loaded over the internet, the distribution savings can be huge.

Thus the struggle to win the distribution wars. Will songs be delivered to your cell phone, pc or i-pod? Will books be printable or readable online? The answers are yes. Will you buy your books from AMZN or GOOG or Wal-Mart?

In the stock market, the most popular stocks are being "pushed" by investment firms. A lot of stocks are "out of sight and out of mind". In our Stock of the Week selection process, we try to filter out the "hot" stocks. We want to buy stocks that have good prospects for doing well and then if they become "hot" stocks, so much the better. Some of you always prefer to pay $8 for a ticket to the latest "hot" movie. The fact that the price of the latest movie is $8 per person versus $1 for a group does not mean the $8 movie is the best movie available for viewing. The distribution of stocks and movies have long-tail characteristics. Learn to take advantage of the concept of long-tails and you will make millions.