In January I spent a week in India in part to wrap my head around
C.K Prahalad's "Bottom of the Pyramid" theory, which in many ways
resembles the Long Tail. Are they in fact the same?
As I mentioned in an earlier post, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, like the Long Tail, is about finding ways to efficiently address sub-economic markets. In this case, Prahalad is talking about how to sell goods and services to the world's 4 billion poor, for mutual benefit. Diagrammatically, the market he's talking about addressing looks like this:
Is the bottom of the pyramid the Long Tail?
Is it, in other words, just another way to draw this:
The similarities are notable. Both theories are based on the notion that if you break the economic and physical bottlenecks of distribution you can reach a huge, previously neglected market. They both recognize that millions of small sales can, in aggregate, add up to big profits. And they're both focused on ways to lower the cost of providing goods and services so that you can offer them at lower price point while still maintaining margins.
But despite the fact that it took me a trip to India to clear my head on this, I think there is a key difference between them that makes them fundamentally incompatible.
The Bottom of the Pyramid (BOP) argument is essentially based on commodification. Take existing goods and services and make them an order of magnitude or two cheaper, either to buy or to make but ideally both. Typically, this means reducing goods to their bare essentials and delivering them on a massive scale.
This requires: 1) low price points; 2) minimal marginal costs (reduce consumables and packaging to the bare minimum); 3) "de-skilling" services so non-experts can deliver them; 4) the use of local entrepreneurs.
The canonical example is the 1 cent single-serve shampoo sachet, but others include the Grameen phone (loan an entrepreneur the price of a phone and she can resell it in minute increments to an entire village), tiny tubes of toothpaste, and "Ruf and Tuf", a $6 size-and-stitch-locally jeans kit that has become the top seller in India. (You can read the article that inspired the book here. Free registration required)
I visited a hospital that was offering advanced health care to the poor by increasing the utilization rates of its expensive CAT scan and X-ray machines by a factor of 100 by running them 24/7 and using digital imaging rather than expensive film. They also brought top-quality consultation to remote villages by having low-skill technicians place sensors on a patient's body while a high-skill doctor evaluates the results in real time via a communications link from a hospital in the city.
In all these cases, the BOP model is focused on taking a single product or service and finding ways to make it cheap enough to offer to a larger, poorer, market. This is why I think it's essentially about commodification.
The Long Tail, on the other hand, is about nicheification. Rather than finding ways to create an even lower
lowest common denominator, the Long Tail is about finding economically
efficient ways to capitalize on the infinite diversity of taste and
demand that has heretofore been overshadowed by mass markets. The
millions who find themselves in the tail in some aspect of their life
(and that includes all of us) are no poorer than those in the
head. Indeed, they are often drawn down the tail by their refined
taste, in pursuit of qualities that are not afforded by
one-size-fits-all. And they are often willing to pay a premium for
those goods and services that suit them better. The Long Tail is,
indeed, the very opposite of commodification.
So the Long Tail is made up of millions of niches. The Bottom of the
Pyramid is made up of mass markets made even more mass. Both
lower costs to reach more people, but they do so in different ways for
different reasons. They're complimentary forces, but fundamentally
different in their approach and aims. The Mystery of the Apparently Similar Theories: Solved.