December 16, 2006

The Long Tail of Photofinishing

Chris Anderson notes the long tail that exists in the photofinishing business. A business where 80% of the transactions are not so profitable but the margins/profits on the niche transactions are much higher.

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Because these kiosks are simply virtual storefronts for what is essentially a digital good (different variations of bits sent to the same printer), they've got infinite capacity for product variety. And as if often the case, the niche goods have the highest margins--it costs little more to print a photo "storybook" than a standard print, but you can charge just $0.19 for one and several dollars for the other. Margins for a 4x6 print, which sell for about $0.19 each, are just 10-15%. But the average margin for "beyond 4x6" products is a whopping 85%.

As more and more customers use these kiosks, companies such as Lucidiom are finding inventive ways to drive demand down the tail of photo products, where the real money is. Today, says Giordano, the market share of the bestselling 4x6s prints is falling by 3% every six months as customers shift to these new alternatives. A classic Long Tail market in action! Who knew?

A final interesting factoid: I had assumed that the vast majority of people printed their digital photos at home or used online services such as Shutterfly. It turns out that of the 20% of the digital photos that are actually printed--as opposed to just sitting on your hard drive--about half are printed at home. Another 5% are printed using online services. A full 45% are printed via kiosks. Surprisingly, about half of those come in on CD-ROMs rather than memory cards--people find it easier to burn a CD with photos they want printed than to upload them or take the card to the drugstore every time it gets full.


(* I would, however, argue that every industry needs to have a strategy for Long Tail marketing, reaching niche customer segments through increasingly word of mouth means. But I'll save that for another post...)

Posted by Chris Anderson | Permalink

The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of "hits" (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into one-size-fits-all containers. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly-target goods and services can be as economically attractive as mainstream fare.

Posted by staff at December 16, 2006 09:35 AM