Joe Kraus, the founder of JotSpot, recently described the potential of the long tail in (business) software on the supply side.
These three facts
- every business has multiple processes
- processes that are similar in name between businesses are actually often highly customized
- there exist a large number of processes unique to millions of small clusters of industries.
means that there is a combinatorial explosion of process problems to solve and, it turns out, little software to actually support them. Said another way, there is a long tail of very custom process problems that software is supposed to help businesses solve.
In the past, software’s long tail has been generally inaccessible because software has been
- Too difficult to write
- Too expensive to write and distribute
- Too brittle or expensive to customize once deployed.
It just hasn’t been economical for someone to create a custom software company to help architecture firms. That’s why, in the software business, the traditional focus has been on dozens of markets of millions instead of millions of markets of dozens.
So, my tip for entrepreneurs? It’s all about the long tail. Whatever business your starting, think about how to serve millions of markets of dozens instead of dozens of markets of millions. Serving the head isn’t a bad strategy. You can build a great business. But, figure out how to serve the tail of your market efficiently and you’ve got a blockbuster.
The Economist reports on Softwide, an example of a business exploiting the long tail in software on the demand side. But the software in this case is not limited to just business/utility software, but educational and entertainment software as well.
Softwide is a kiosk-based approach to selling software on the high street that makes obscure but useful titles available to a far larger market. Set up by Daniel Doll-Steinberg in 2002, this long tail business is a hyrid of electronic storage (online as well as on local hard disks) and online as well as offline distribution through physical stores. Here's how The Economist describes Softwide's business.
Mr Doll-Steinberg originally set out to increase the range of software that could be sold in existing shops. With limited shelf space, most shops stock only a few dozen titles. So his firm, SoftWide, devised a kiosk-based system that can store thousands of pieces of software on a hard disk, burning a disk only when a customer wants to buy a particular title. The first kiosks were tested in WH Smith, a British retail chain, and in Fnac stores in France. But having some titles in boxes on the shelves, and others provided by kiosks, was confusing. So Mr Doll-Steinberg decided that SoftWide should open its own chain of shops. The first two opened in London in 2002, and have since been followed by three more.
In computer superstores, 60% of software sold is games, and about 35% is business software. In SoftWide's stores, in contrast, 50% of the software sold is educational and reference software (much of which is otherwise only available by mail order), 30% is business software and only 20% games. More than half of SoftWide's customers are women, and many are pensioners.
SoftWide's unusual model has a number of benefits over superstores and online downloads, Mr Doll-Steinberg insists. It makes it possible to offer customers advice, which is hard to come by in big superstores where shelves must be kept stocked. Users feel more comfortable with physical disks than with downloads, which can go wrong, cannot be resold, and are unsuitable as gifts. And popular products cannot sell out.
Mr Doll-Steinberg believes he has discovered a huge untapped market. In Britain, the educational and reference market is worth £50m ($96m), and has been in decline since WH Smith pulled out in 2000. Its stores stocked only 50 titles; SoftWide's kiosks hold more than 2,000, including programs to help people learn yoga, stop smoking, design a garden, prepare for a driving test, write business plans and complaint letters or fill in government forms. "Most of the people who come into our stores have never bought software before," says Mr Doll-Steinberg. "They say: 'I didn't know you could do that on a computer'." Such software, he says, should not be relegated to an obscure niche. He estimates that the market could be worth more than £600m.
The article does not say if business/utility software is also sold through Softwide, but it certainly can be, and its quite likely that it is already happening.
Specifically, in a market like India, apart from educational and entertainment software, business/utility software targeted at the large number of very small businesses and homes will require support for installation and help in teaching the users how to use the software. I think Softwide's model can be suitably adapted to build the software distribution network for SMEs in India with the kiosks serving as both demo outlets as well as sales outlets.