The world rightly marvels at Google's ability to scale its service up to handle billions of searches a month on megascale server farms of tens of thousands of densely-packed machines. But an equally impressive feat is an entirely different kind of scaling: its ability to build a business that works as well for its smallest customers as it does for its largest.
In traditional business, small customers are all too often a barely-tolerated distraction on the road to getting big customers. They can cost as much to serve as their richer counterparts but generate less revenue. But digital businesses can be efficient enough to serve people who generate no revenue at all. Even if only a tiny fraction of them convert into paying customers, a small percentage of a very large number can still be a big number.
I call this "scaling down", and it's a core Long Tail competency. Traditional businesses target the top end of the market--the biggest hits and the richest customers--for the same reason that Willie Sutton robbed banks: because they think that's where the money is. If you have only so many salespeople and only so many marketing dollars, such a discriminating approach makes sense. But the lesson of the Long Tail is that, as Nobel physicist Richard Feynman predicted, "there's a lot of room at the bottom."
Just as a Long Tail of product offerings emerges when the costs of distribution fall radically, making it economic to offer practically everything, so does a Long Tail of customers. C. K Prahalad calls one of these markets, the global poor, the "Bottom of the Pyramid" and marvels at its size and untapped potential (I discuss that here). But there are countless others.
Google, for instance, realized that there was more to online advertising than simply stealing share of existing advertisers from other media. There were also millions of potential advertisers out there too small to show up on the radar of any ad salesperson; indeed many of them may not have thought of themselves as potential advertisers at all until the lure of five cents per click lowered the barrier to entry far enough to attract them.
There were also million of potential ad-driven publishers (aka: blogs) too small to have an ad salesforce, but perfectly able to copy a few lines of Adsense HTML to their sites and wait for the Google check. And thus emerged a market that now accounts for nearly half of Google's revenues--a market that didn't exist before because it was considered too insignificant to bother with.
Many of the biggest success stories in the current online era have built their business on markets that were previously dismissed as uneconomic. Teenage ramblings. Personal videos. Used Pez dispensers. Ride-sharing requests.
Here are some classic scaling down tactics:
- Self-service: give customers all the tools they need to manage their own accounts. It's cheap, convenient, and they'll thank you for it. Control is power, and the person who wants the work done is the one most motivated in seeing that it's done properly.
- "Freemium" services. As VC Fred Wilson puts it, "give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base." Free scales down very nicely indeed.
- No-frills products: Some may come for the low cost, others for the simplicity. But increasingly consumers are sophisticated enough to know that they don't need, or want to pay for premium brands and unnecessary features. It's classic market segmentation, with most of the growth coming at the bottom.
- Crowdsourcing. From Amazon reviews to eBay listings, letting the customers do the work of building the service is the best way to expand a company far beyond what employees could do on their own.
(image taken from this book, which isn't related but has a nice cover)