Long Tail of Latent Demand

I'm a huge fan of The Long Tail, but the demand it represents is nothing new.  What's new is how we discover it.

Latent Demand (also known as Induced Demand) is the potential earnings if a market is served efficiently.  Its the stuff business plans are made of, but its a difficult intangible to value.  Back when developing internet businesses in Eastern Europe, we argued that the fall of the wall unleashed the latent demand for technology that was pent up for years.  That argument proved true with how quickly consumers embraced the internet and mobility.

The argument was abused by the telecom market during the boom.  Gilder, Level 3, Nathan Myrvold and, well, just about everyone embraced Says Law: "Supply creates its own demand."  A "if you build it they will come" mentality ensued with a large-scale herd.  The notion that bandwidth could be a vacuum sucking in demand, without drawing indeflating competition was like saying lightbulbs suck dark.  It also blew a bubble.

But I happen to believe that the Long Tail represents a different kind of latent demand for several reasons:

• you don't create demand, you discover it
• what you discover mostly already exists and is largely measurable
• discovering latent demand doesn't require expensive tangible assets
• it does, however, require a different focus of attention within the power law (focusing on and within the other 80%)
• when its not discovered by the supply side, as Doc says, "the demand-side supplies itself"

The Long Tail represents more demand than we have realized, but its premised on market efficiency that brings competition.  So when someone comes to you with a business plan saying they are targeting the tail say: fine, go prototype it and bring me back some numbers and how you will be able to sustain the trend with competition.  That's the difference between a tale and tail.

But if you have an existing business, think about how you will participate in the early days of discovery before your new competition does.  You probably have one layer of data analyzed and at your disposal (e.g. unfilfilled auction bids), but probably miss social discovery and how to map it to supply.