I'm often asked for Long Tail examples outside of entertainment, especially those that apply to physical goods, not just digital bits sent down a broadband connection. There are quite a few (aside from eBay, the obvious one), but perhaps my favorite is Lego.
If you just know Lego from kids' birthday parties and the display shelves of a toy store, you've only seen half of the company. The other half is the Lego that caters to enthusiasts, ranging from kids who want more than the stock kits to adults who have turned to bricks as the ultimate prototyper's toolkit.
It all starts with Lego's mail-order business, which began as a traditional shop-at-home catalog and is now increasing organized around its website. In a typical toy store, Lego may have a few dozen products. On its online store, it has nearly 1,000, ranging from bags of roof tiles to a $300 Deathstar (shown). If you want to see how different the online market is from the traditional retail market for Lego, check out their topsellers list. Only a few of those products are even available in stores, and most of those are inexpensive items added to other purchases to bring them over $50 and thus qualify for free shipping.
It's worth pausing here and considering the Long Tail implications of this. At least 90% of Lego's products are not available in traditional retail. They're only available in the catalogs and online, where the economics of inventory and distribution are far friendlier to niche products. Overall, those non-retail parts of the business represent 10-15% of Lego's annual $1.1 billion in sales. But the margins on these products are higher than the kits sold through Toys R Us, thanks to not having to share the revenues with the retailer. And because the virtual store can carry products for all Lego fans, from kids to adult enthusiasts, and not just the sweet spot of nine-year-old boys, the range of prices can be a lot greater online, from $1 bricks to the aforementioned $300 Star Wars kit.
The next level of Lego obsession is joining one its two clubs. One gets you the monthly Lego magazine and catalogs. The other is the online club, where all the games and other cool stuff is. Basic membership for both is free, but if your kids are really into Lego you might want to consider upgrading to the Brickmaster level, which brings a bigger magazine with a lot of DIY projects (like MAKE for bricks), five exclusive kits that show up at your door, and a ticket to Legoland.
After that, it's time to start getting serious about your own creations. Lego has a long history of offering tools online to encourage model trading and other collaborative peer production. In 2000, its "My Own Creation" project led to a contest for the best user-created model. The winner was blacksmith shop that Lego licensed from its creator and offered for a while as a commercial kit. After that, it offered Lego Mosaic, which allowed users to upload images that were converted into 2D Lego brick patterns, downloadable by all.
Earlier this year, Lego launched its most ambitious peer-production effort of all, Lego Factory.
The idea is that you download software that allows you to design and
build virtual creations, then upload them to the company. A week or so
later, you get a kit with the necessary parts delivered in a box with
an image of your creation on the front. What's especially cool is that
others can buy your kit, too, and there's a nice selection of
user-created models, such as this truck, available for purchase. More than 77,000 models have been designed this way, and some of the best of them are also being released as official Lego products (Lego pays the creators a royalty).
However, all is not what it could be in Factory land. Mass customization is cool, but when you have 7,000 possible parts in 75 possible colors (that's more than a half-million possibilities), the fulfillment challenge of offering users full freedom quickly becomes overwhelming. So Lego limits choice in two ways. First, each model can only be built from a single set brick palette, such as car parts. Second, those parts come in pre-packaged bags of a fixed number of bricks, so you'll likely get more than you needed. If you're not careful, a simple vehicle that might cost less than $10 in retail can turn out to cost nearly $100 in Lego Factory simply because it uses those bags of parts inefficiently.
Fortunately, there's a hack-around. Lego enthusiasts compiled a database of what bags were in which palettes and created software that helped builders use those bags efficiently, avoiding having to buy an expensive bag of parts for a single brick. And to its credit, Lego encouraged this. But that's still too hard and limiting for most people (including me), so Lego is now considering how to improve the experience, starting with easier-to-use design software.
I asked Michael McNally, Lego's senior brand-relations manager,
whether Lego saw parallels in any other company's of approach to
catering to niche market segments and encouraging peer production.
Interestingly, he gave Apple's iTunes as an analogy. iTunes lets you
download individual songs, not just albums. Although you can't upload
your own music to iTunes, there are plenty of companies that can do that for
you. And can make your own playlists and share them with other users, which is a bit like a custom Lego creation from standard parts.
"What iTunes does for music, Lego Factory is doing for people who like
to build," McNally says.