There are no doubt plenty of industries where Long Tail effects don't play out in any real way, at least at the product level *. Consumer packaged goods, for instance, can only be made in so many variations and Detroit carmakers, who abhor unsold inventory and have never figured out how to do BMW-style mass customization, still long for the day when you could have any color as long as it was black.
But I continue to be amazed by how many non-obvious industries do turn out to have strong Long Tail potential. And the most delightful part of this is that it tends to be the people in those industries that do the analysis and bring it to my attention, fully formed. One of the best recent examples of this was, to my total astonishment, photo finishing.
Steve Giordano, the CEO of Lucidiom, stopped by the office last week to explain why. Lucidiom is the largest manufacturer and operator of photo finishing kiosks of the sort that you find in many drug stores and supermarkets--insert your camera's memory card or a CD-ROM and it lets you select the prints you want, sending them to an adjacent high speed photo printer. Because all these machines are all connected via Lucidiom's network, Giordano has an enviable statistical view on an industry that prints more than 2 billion pictures each year.
The traditional photofinishing business is highly hit-driven in terms of its products. The 4x6 print accounts for 91% of the photos printed in mass-market retailers such as drug stores. Even in independent photofinishers, such as Ritz Camera, the 4x6 print accounts for 77% of the volume.
But the revenues picture is very different. Photofinishers can charge a lot more for other sizes and photo packages, from sheets of various size prints to photo albums. Although just 23% of the prints at independent photofinishers are for print styles beyond the 4x6, in aggregate those niche products make up a full 52% of the revenues. Today there are more than 200 products available through a typical Lucidiom kiosk, ranging from different sizes and combinations of prints available in the store to entire birthday party kits that include matching paper plates and other table decorations that you order along with the photos-based invitations from the kiosk for later delivery to your door.
Because these kiosks are simply virtual storefronts for what is essentially a digital good (different variations of bits sent to the same printer), they've got infinite capacity for product variety. And as if often the case, the niche goods have the highest margins--it costs little more to print a photo "storybook" than a standard print, but you can charge just $0.19 for one and several dollars for the other. Margins for a 4x6 print, which sell for about $0.19 each, are just 10-15%. But the average margin for "beyond 4x6" products is a whopping 85%.
As more and more customers use these kiosks, companies such as Lucidiom are finding inventive ways to drive demand down the tail of photo products, where the real money is. Today, says Giordano, the market share of the bestselling 4x6s prints is falling by 3% every six months as customers shift to these new alternatives. A classic Long Tail market in action! Who knew?
A final interesting factoid: I had assumed that the vast majority of people printed their digital photos at home or used online services such as Shutterfly. It turns out that of the 20% of the digital photos that are actually printed--as opposed to just sitting on your hard drive--about half are printed at home. Another 5% are printed using online services. A full 45% are printed via kiosks. Surprisingly, about half of those come in on CD-ROMs rather than memory cards--people find it easier to burn a CD with photos they want printed than to upload them or take the card to the drugstore every time it gets full.
(* I would, however, argue that every industry needs to have a strategy for Long Tail marketing, reaching niche customer segments through increasingly word of mouth means. But I'll save that for another post...)