The Paradox of Choice Vs. The Long Tail
Businesses for some reason think that more products mean more revenue. So they invest in making more products.
These are some of the phones from Nokia...
They had one for everyone.
This is Steve Jobs, presenting the Apple iPhone
The iPhone also has a lineup, but not a lineup of different options that are presented to the customer to choose from.
Instead, it is evolution through iteration.
Instead of making more products, they improved the same product repeatedly until a point where everyone in the world wanted to own an iPhone.
Having fewer products makes it clear to the customer. Having more products confuses the customers.
- Nokia's Valuation: $28B
- Apple's Valuation: $2,360B (50% of Apple's revenue comes from the iPhone)
Let's look at General Motors. They have 4 major car brands.
Within Chevrolet, they have a lot of different categories.
Within the SUV category, they have 7 models.
GM would be having 100+ models collectively across all brands and categories.
Let's look at Tesla.
Just four models. S,3,X,Y. That's it. (Read: S.E.X.Y. They couldn't call Model 3 Model E because of a trademark issue).
Let's look at how they are doing right now.
- GM's valuation is $55B
- Tesla's valuation is: $740B
Companies for some reason take pride in launching a "suite of products".
More options to choose from is not necessarily a good thing.
When you have more options for the customer to choose from, you are basically bringing in a paradox of choice.
The customer is overwhelmed by the options, and the best next action step for the customer is: to do nothing.
But at the same time, you might be thinking "What about the long tail?"
The long tail can be in the form of software and content.
For example, inside an iPhone, it's not like you only have 10 apps to choose from.
- Nokia had more phone models, but inside the phones, they had fewer apps.
- Apple has fewer phone models, but inside the phones, they have more apps.
And that made all the difference.
Because it is easy to build a long tail with products and services that are digital. When you have digital products, you are capitalizing on the unlimited shelf space on the cloud.
- Amazon Kindle has a few options for the hardware, but infinite options inside the book store. Because Amazon is not making the content. The authors are. And there are a LOT of authors out there.
- Apple iPhone has a few options, but inside the app store, they have millions of apps. The apps are digital, and there are hundreds and thousands of developers building apps for the platform.
- Spotify: one simple subscription product. Inside: Millions of songs.
- YouTube: Free version. Premium version. Simple. Options for content inside the app: technically infinite.
- Netflix: One simple subscription, thousands of content options to choose from.
Here's the long tail illustrated:
The long tail is important for expanding the total addressable market size. In terms of content, apps, music, movies, and games, different people will have different choices.
However, making too many products in-house creates complexity for the company building it and confusion for the customer building it.
The long tail is best built by the "creator economy". Apple App Store, Amazon Kindle, and Spotify capitalized on the long tail of creators and consumer needs. And focused all their efforts on making a platform for the long tail to thrive. But the platform itself is not the long tail.
(Tesla's long tail is their supercharger station. Same car, thousands of places to go. Thousands of supercharger stations to keep going. Same product, different ways to use it.)
Building a platform that enables a large number of creators to reach a large number of consumers is one of the best business models there is. (Read the book: The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power)
Where Nokia went wrong is that instead of going long tail in the content and apps part (which is digital and easy to produce, store, and distribute), they went long tail on the product and short tail on the content within the product.
Having multiple products means you have to:
- Advertise each product separately
- Estimate the demand for each product
- Get raw materials for each product (maybe some are interchangeable, but still, it's complex).
- Distribute the products to all the retail outlets and sales channels
- Realize that the demand/supply equation is different for different regions
- Deal with the unsold inventory for all products (manage waste)
- Discontinue products that have got outdated, and replace them with a newer product
- Repeat the entire process
You can't ignore the long tail. But you can't ignore the short tail either. Consumers want options, but given too many options, they will decide not to take any action.
What you want to make sure of is that you have fewer options (for the products you have), but more options on how the product is used. But you need not burn your fingers if the consumer chooses not to use the product in a certain way.
Many games are launched inside the app store, some game makers make a massive profit when their products become popular. Some games just don't take off. But it doesn't matter to Apple at all. They keep making their platform (the iPhone) better and the options for the apps inside the iPhone keep growing. Consumer choices for the apps change, but the medium doesn't (and doesn't need to).
- At LearnToday, we are building a platform for learners.
- At TeachToday, we will be building a platform for Digital Mentors.
- At ApplyToday, we will be listing available jobs in the ecosystem to encourage people to get their dream jobs (or upskill at LearnToday if they cannot).
I will be writing one more post to explain how we are building a simple product offering with a recurring subscription and at the same time bringing in the long tail into the mix to make sure that we increase our TAM (total addressable market size).