EDI study – Walmart = 100k CDs to make a profit; Movie theater wont show movie attracting < 1500 people (price of the rent)

source: http://www.imakenews.com/edi/e_article001180887.cfm?x=bddLpQB,b4GS8rM4,w

Source: The Long Tail – Chris Anderson 2006

Chris Anderson states that in the traditional brick and mortar retail model, selection was limited by the “tyranny of the lowest-common-denominator.” In other words, historically selection was driven by economics rather than actual end-user demand. For example:

· “Wal-Mart must sell at least 100,000 copies of a CD to cover its retail overhead and make a sufficient profit; less than 1 percent of CDs do that kind of volume.”

· “An average movie theatre will not show a film unless it can attract at least 1500 people over a two-week run, that’s essentially the rent for a screen.”

In The Long Tail Anderson proposes that entertainment industry is shifting away from the traditional mass-market model towards a broader market of niche-oriented, micro-segments. The change is made possible by the unlimited selection of books, movies and music available through Internet channels.

The Long Tail concept applied to B2B

I believe that a long tail effect also has developed in the B2B e-commerce community. During the early history of B2B in the 1980s and 1990s, EDI was the dominant standard. There were several variants of EDI utilized in different geographies, most notably ANSI X12 in North America and UN/EDIFACT in Europe and Asia. Adoption of B2B was concentrated primarily amongst the largest of companies. And data exchange was limited to the use of third party VANs (value added networks) whose applications only supported EDI. The relative immaturity of the technology and limited demand by the market combined to create economics discouraging the development of alternative standards. In many respects, the B2B e-commerce ecosystem suffered from “the tyranny of the lowest-common-denominator effect” throughout the first few decades of its existence.

In the late 1990s, the Internet began to enjoy widespread adoption. With the Internet, the economics and technology paradigms for B2B fundamentally changed. Documents could be exchanged using Internet protocols such as SMTP, FTP and HTTP liberating B2B from the traditional private networking models. XML was created offering unparalleled flexibility to model new transaction types and business processes. New groups of non-profit organizations (Dot Orgs) were formed with the goal of developing a successor to EDI. Together these Dot Orgs have introduced dozens of new XML-based standards designed to meet the specialized needs of industry subsectors. Examples of the new standards include PIDX in the Oil & Gas market, CIDX in the chemicals industry, SPEC2000 in the aerospace sector, RosettaNet in the high tech industry, GUSI in the consumer products sector and papiNet in the forestry market. The new XML standards offer a level industry specialization and technology flexibility not possible with traditional EDI. Despite the benefits offered, the new XML standards have failed to achieve critical mass. In many vertical industries XML has yet to grow beyond 10-20% total volume with the remaining B2B transactions still EDI-based. If you were to plot the various B2B e-commerce standards on a long tail diagram, the result would be the diagram below:

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