The Pareto principle, also known as the 80-20 rule, does not work anymore. This principle states that 20% of the customers bring in 80% of the revenue. Or that 20% of the suppliers supply 80% of the materials. That way, you can do a high volume with a few processes, and that is quite efficient for traditional organizations. In this picture of the Long Tail, you can see clearly that a traditional organization, in this case, one of our former meeting centers in Utrecht, The Netherlands, focused on the “head” of the tail (greyish area). The nitty gritty stuff to the right had to be ignored. It was too expensive to work with.
However in the rising Interdependent Economy of Society 3.0, we see thousands of small and individual buyers hanging in the Tail. In our case at Seats2meet.com, these are knowmadic workers, looking for one dedicated desk for a week, one meeting room per month, and perhaps two desks at a coworking center.
It’s a 1-to-1 situation, if you want the business. C. K. Prahalad called that, as we saw in the previous chapter, N=1.
Why is it that Chris Anderson is so adamant in his book, The Long Tail, that his Long Tail theory will replace the Pareto principle, and thus fulfill the aforementioned Law of Prahalad? His answer is:
“(retail) space for the Long Tail is made possible by the unlimited ‘shelf space’ on the Internet, the first distribution system in history that is suited for both the niche- and mass market. Shelf space is only unlimited if the space does not cost anything. Because ‘marginal costs’ of digital distribution – the extra costs for shipping an extra copy in addition to the ‘fixed costs’ of the required hardware – are almost negligible, we can make unlimited use of it.”
Anderson likes to use Apple’s online music store, iTunes, as an example. This store is not limited by old economic restrictions, such shelf space, opening times, production of leaflets, distribution, and sales staff. Therefore, iTunes is able to present an extremely wide assortment of products, which can be bought 24/7. Even if a track is downloaded just once a year, iTunes earns a healthy profit margin on it. In fact, someone who wants to buy his favorite music is prepared to pay a higher price for it, and so improve the profit margin. Meanwhile, the annual turnover has risen to billions of dollars. And this sales volume was realized without costs for storage, stores, salesclerks and everything else that is needed to run a brick-and-mortar retail chain. That is one incredibly profitable store!
Also, when you realize that these stakeholders and buyers in the Seats2meet.com Long Tail are connected with other individuals, and that all these prosumers and knowmads have their social networks at their disposal, you start to appreciate their real value for our organization. Their and our networks are connected to other social networks, and become a part of The Seats2meet.com Mesh, the domain of value creation within the Interdependent Economy. These knowmads form the only(!) link to new markets, and are therefore of the utmost importance to the Organization 3.0’s right to exist.
With our new, “disruptive” meeting concept, Seats2meet.com, we have focused on the Long Tail of the Dutch market for meeting spaces since this Long Tail does not only hold Euro value in seats sold, but every booker represents a tremendous value (social capital): they appreciate our products and services tremendously, and help us to position Seats2meet.com in The Mesh. They create an enormous flow of buzz on the Web (we used to call that PR in the old days); they feed us with tips, reviews, knowledge, and their time (that used to be called marketing), and actively promote us to other knowmads and to corporate and governmental organizations (that used to be called sales). Whenever they have “real” business, they book their training and meeting rooms at Seats2meet.com locations without asking for a discount.
So, at Seats2meet.com, we no longer have a PR, sales, or marketing and reservation department. How do you think that works out for our operational costs? Moreover, the still-growing army of “fans” who do our commercial activities is staggering.
When we changed the axis “reservation volume” and renamed it “total value,” to our surprise, all of a sudden, a reversed Long Tail showed itself, which, from that point on, we called the Long Snout.