Tuesday, January 10, 2006

The science of the "Long Tail"


Ever heard of the "Long Tail of the market" ? This phenom is ringing bells recenlty in discussions around the residual value of content aggregation businesses and how content providers like goog derive value etc. I found this useful in thinking about the business model of how economics in emerging market software would look. It is a simple Zipfian distribution if you think about it. the essence of this model is that Rank * Frequency = Constant which essentially means that the perpetuity of the business model tends towards infinity and if you plot it along a logarithimically, it will turn out to be a straight line. so why is this important in the emerging markets setting? it is relevant if you think about how the emerging market opportunties are essentially a compositio of several long tails. Hence one has to keep distribution, sales and maintenance costs to an absolute minimum to derive the maximum benefits of scale.