Jeff Bier’s Impulse Response―Is the Long Tail Getting Longer for Chip Suppliers?

The phrase "the long tail" has come into prominence in the past few years to convey the concept that in some markets, a large number of niche products, each sold in low volume, can create a larger aggregate opportunity than that represented by a small number of blockbuster high-volume products. In the retail world, the long tail has become larger - and consequently has grown as a business opportunity - as the costs of maintaining inventory and delivering products has fallen.

To quote from Chris Anderson’s 2004 article defining the concept of the long tail:

The average Barnes & Noble [retail book store] carries 130,000 titles. Yet more than half of Amazon's book sales come from outside its top 130,000 titles. Consider the implication: If the Amazon statistics are any guide, the market for books that are not even sold in the average bookstore is larger than the market for those that are. In other words, the potential book market may be twice as big as it appears to be, if only we can get over the economics of scarcity. Venture capitalist and former music industry consultant Kevin Laws puts it this way: "The biggest money is in the smallest sales."

By "the economics of scarcity," Anderson is referring to the fact that traditional retail stores cannot afford to stock thousands of items that sell in low volumes. But on-line merchants can.

Lately, I've begun to suspect that the long tail is getting longer in the electronic equipment industry. If so, then over time, a growing percentage of (for example) embedded processor chips will be consumed not by the iPads and Droids of the world, but by a large number of lower-volume products.

I'm led to this idea by what seems to me to be an accelerating pace of electronic system product innovation in niche areas. Take the Nest thermostat, for example. It's a brilliant, innovative product. But it's a thermostat; it's never going to reach the kinds of volumes achieved by products like cell phones and DVD players. The aggregate market represented by hundreds of products like the Nest, however, may be a larger opportunity for chip suppliers than that represented by a single blockbuster category like portable music players.

E-commerce reduced the costs of stocking and delivering products to consumers, thereby unleashing the long tail in retailing. Similarly, the cost of access to the resources needed to develop electronic system products has fallen dramatically, enabling a "democratization" of product development. If you can afford $100 a month, in many locales these days you can get access to a "hacker space" or "Maker space" equipped with plasma cutters, oscilloscopes, milling machines, etc. - and often populated by creative, enthusiastic people more than willing to share expertise and critique ideas.

Chip suppliers are increasingly embracing the idea of reducing the barriers to entry for system designers. I've written before about the Beagle Board, a $149 open-source-supported embedded computing platform that has helped Texas Instruments embrace the long tail. More recently, the "Beagle Bone" took that concept a step further, using a simpler processor and lowering the price to $89. And how's this for lowering the price: STMicroelectronics offers an entry-level microcontroller development kit for $10.

If my hunch is right and the electronic systems long tail is getting longer, there will be significant implications for chip suppliers. We'll explore those implications in next month's column.

Is there a "democratization" of electronic system design - are you part of it? Or am I just too caught up in the latest issue of Make Magazine? Either way, I'd love to hear from you. Write to me at editor@InsideDSP.com or leave a comment on this page.