The Long Tail of, er, Photofinishing

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.

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 (* 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...)

Comments

[Todd W.]

I wonder if Lucidiom has made any estimates or plans for how long it will take for the 5X7 print to become the de facto standard low-end print. Will it attempt to hold the price umbrella up on that size or do they project a steady erosion of the pricing for that slightly larger print to the point it becomes the 19-cent print?

Or, will the "head" compress to the point where all profit is squeezed out of the 4X6 and they are STILL forced to bring the 5X7 down to earth, simply cutting out a fair portion of "tail" revenue without any foreseeable extension at the far, far end?

[M Neto]

I'm glad you added "that every industry needs to have a strategy for Long Tail marketing".
I have a Promotional Marketing Agency in Brazil, and every time I talk to my clients about the long tail (heavy weights like Unilever and Volkswagen) they fell like it does not fit their business. It's so obvious to understand the concept when you think about digital music and digital photos, but becomes trickier to shelf-priced products.
The fact is, in the long term, it is possible that every category will develop customization to reach certain niches. Even your "Economy of the abundance" makes clear that will be easier to develop those brand extensions in the years to come.
A quick example: for one of our clients, we developed a store at Second Life. In two days, we had more visits than at the real store in three months. A niche that would never visit the real store.
Even Unilever is cutomizing there products to aim (providing an option) to a broader range of consumers.
I really would like to hear your opinion on how the long tail applies to a shelf-priced product like Tyde.
Best,
Neto

[Irene Grumman]

Isn't a factoid something spurious? Do you not believe the information given in the final paragraph? I suppose a factoid could also be information that is trivial, or misleading, but that doesn't seem apply.

[ipod accessories]

Any chance you can rotate the picture to level to really see true lean angle? Why do these shots get tilted?