Blog Posts

Minority Report: how a long tail of mobile applications can boost femto success

Author: on
Category: Business models, Femto cells



Femtocells offer much more than improved capacity and coverage: they provide a doorway to a new world of location and presence specific value-added applications. By opening femtocell APIs to third-party app developers, operators can tap into the long tail effect that is propelling Amazon and Ebay.

Femtocell APIs can allow applications to see subscribers’ status – whether they are in a femtocell, or where the femtocell is located. This presence and location data is becoming valuable. But rather than restricting the use of femtocell APIs to a small number of parties, operators should make it easy for the armies of iPhone and Android app developers to access this data.

That is not to say simple femtocell applications will not be successful – in fact, they may even be hits – but there is potentially a much larger market, cumulatively, in niche apps.

What we can learn from The Long Tail

In Chris Anderson’s book, The Long Tail, he explored the notion that the 80/20 rule has been turned on its head. In traditional commerce, where there is limited space available in stores, a small number of successful products (hits) generate the vast majority of revenues. The revenue generated from selling an unpopular CD, book, shoe or computer that shifts only one unit per month, is far less that the cost of producing, merchandising and storing it. Simply put: you lose if you have duds on the shelves.

The internet changed that. Consider Amazon: it has a massive audience (i.e the whole internet) and huge, low cost warehousing. It can stock ten times more books or CDs than the very largest book or record stores can do. Consequently, Amazon soon found that the majority of its revenues came sales of products that you would not call hits, and about 20% of sales from books you simply could not buy from a store.

Another example is Netflix, which offers rental DVDs by mail and video-on-demand, and has a much larger inventory than any storefront retailer or video hire company. Studies of its extensive catalogue of films – from Hollywood blockbusters and raspberries through to Swedish art-house, Japanese manga and alt.documentaries – revealed that 15% of its sales were from films ranked between 3000 and 18,000 in sales. This is the long tail***.

It has been amplified by tapping into the physical storage of third-parties. Amazon Marketplace and Ebay are great examples where the shopfront is everything. Amazon does not need to stock everything available in Marketplace, and so now it’s Long Tail is limited only to the number of sellers it can recruit.

Digital means longer tails

When the media was digitized – audio books, iTunes, video on demand – the ability to store millions of items with virtually no warehousing overheads, saw an ever great shift to niche rule. The cost of selling and distributing an unpopular product is exactly the same as a popular product.

The niche is successful because of all the recommendation tools that have emerged – from Amazon’s “Someone who bought this, also bought….” to Facebook Like, tweeting, blogs and so on.  These various filters help to separate the good niche products (the 10%) from the 90% dross we’re not interested in.

The Long Tail can be found everywhere: Ebay, Google, Audible and iTunes. And the success of the Apple app store is also based on the Long Tail: hundreds of thousands of niche applications with micro-appeal. But collectively, it’s a hugely profitable business for Apple because it controls the filters.

Continued tomorrow…..

(***It’s true that some academics have tried to prove that there are still great rewards in hits, for instance Anita Elberse of Harvard Business. But that does not undermine the point that the long tail is profitable now where it once wasn’t)

Stewart Baines is a writer with Futurity Media.

Add your Comment