I was flying to Austin, Texas via Atlanta, to take a short notice trip to Vignette's HQ. By the way, one day very soon the company will complete the migration of its corporate www site to its V7 flagship product and I might actually be proud to link to it. In the meantime its just a courtesy. This introduction into my travel schedule is also an implicit excuse for a lack of posts over the next few days.
On the flights, fired by a lack of carry on luggage (I don't need the extra hassle of buying toothpaste and other necessary items every time I travel, so I'm happy not to have to fight the masses for another piece of prime real-estate, an overhead bin), I ploughed through the first 178 pages of the book. Which only leaves me about 50 for the return trip - best do some real work I suppose!
In any case, the book made me start thinking (and I apologize if this is addressed in the last 50 pages) how the Long Tail might be applied to financial products. I'm not thinking bank accounts, since I believe they probably need a bank to be relatively pervasive to work effectively right now, as I don't wan't ATM charges every time I need cash. More effective would be items like loans, insurance, mutual funds and annuities.
Financial product Long Tail
The Long Tail probably can apply quite effectively, assuming I limit the scope a little. For any of financial product where I invest my own money, I would suggest that the Long Tail applies to the multitude of products from recognized and reputable institutions that fall outside of the Top 500 'Hit' products. I don't want to include marginal or unheard of institutions into the mix since the risk of me losing my shirt is far higher than buying an unwanted birthday present from someone unknown on eBay. Although it has to be said that Zopa has a good model for investing in loans that people seem to trust, despite its relatively unknown status.
There are financial institutions that have built their brand on the ability to sell a vast array of securities, independent of popularity or ranking. Go to Fidelity, E*Trade, or another online brokerage and they will offer stock in many companies that could be considered to be in the mid-portion of the Long Tail, all as part of their standard low-cost service. And they provide many of the filtering and advice tools that Anderson suggests are necessary to help customers when facing a bewildering array of options.
This meets two of the requirements for the Long Tail according to Anderson (page 57):
- Democratize distribution - e.g. Fidelity is just an aggegator of stock for sale
- Connect supply and demand - e.g. E*Trade provides tools to enable customers to select stock based on many sources of information
The discontinuous Long Tail
Sliding down the slope to the more distant end of the LT appendage will place you into the 'penny' stocks. These don't meet the rules or the volume of trading that would have them listed on the Nasdaq, therefore making it more difficult to find out information about them, or even their current value. Given that, E*Trade for example will allow you to buy them online, although the restrictions really separate these stocks from those higher up the ranking. This is not the seamless LT that we see with iTunes, where rank does not affect the ease with which I can buy a track. With penny stock the LT is a little discontinuous, where we can no longer apply the common structure and rules of NASD to the items we want to buy. Its a bit like iTunes trying to sell vinyl albums when you get to an imaginary point in their database where the item you want exists but has not yet been digitized.
Complex products have more to gain
With complex products like annuities, where the number of combinations of securities components coupled with insurance components is enormous, the rules and potential benefits of LT could really kick in. Advanced consumers could benefit greatly from matching the endless array of products to exactly their requirements, if the information and access to products through a single online access-point was available. In this mode though there are many other issues that do not face Amazon and Google, like licensing of advisors and agents, assessing suitability for a product and so on.
The Long Tail could be enabled by the work that NAVA is doing to prepare the annuity industry for online account opening and management. Fidelity and E*Trade could for example start assembling and selling a far greater range of annuities, at a far lower cost of production. This matches the requirement for a LT to reduce the cost of production, with the brokerages standards for aggregating distribution and provide filtering to match products with people.
Financial products have probably followed a partial Long Tail model for a while, especially around the online stock brokerages we are familiar with. The costs of production may have risen, but to the customer the distribution costs and filtering / information tools have provided a far enhanced and more varied environment to trade in.
Other more complex products like annuities could greatly benefit from the Long Tail dynamics. The manufacturers of these items require a significant push, both in terms of standards, but maybe also something (or someone) else to put them into a state where they can benefit from this new model of selling 'less of more'.
[UPDATE: Apparently I messed up a couple of the links. All fixed now. Sorry!]