Investing In Sportscards: The Long Tail

I’ve been thinking about writing this for a while, but I’m not sure how to approach it or how to fill it with content. This requires very little  mathematical knowledge, but at least a decent grasp of logic. Your brain has to be able to put one-and-one together. That’s not asking too much, right?

The Premise:

It’s a fairly standard – Pareto principle — belief that 80% of your sales will come from your top twenty clients or from the top-20% of your products.

Essentially, you sell what’s popular. In the sports card industry and in particular your local Hobby Shop, the majority of their sales come from the top-20% of products. Brick and mortar stores have to weigh the cost of stocking an item versus the probability of selling an item. They just don’t have the shelf-space to display hundreds of boxes of junk-wax that’ll sell once every couple of months.

The internet has changed the playing field, though. In October of 2004, Chris Anderson made an observation in Wired magazine about the long-tail and how the internet changed absolutely everything.

The main problem, if that’s the word, is that we live in the physical world and, until recently, most of our entertainment media did, too. But that world puts two dramatic limitations on our entertainment.

The first is the need to find local audiences. An average movie theater will not show a film unless it can attract at least 1,500 people over a two-week run; that’s essentially the rent for a screen. An average record store needs to sell at least two copies of a CD per year to make it worth carrying; that’s the rent for a half inch of shelf space. And so on for DVD rental shops, videogame stores, booksellers, and newsstands.

But now with the internet in full effect, what if space didn’t matter? What would happen to a hobby shop if retail space was made practically unlimited by a webpage? Well, you’d end up with a place like Blowoutcards.com. Blowout cards can practically stock every conceivable product and it’s product page that lets the customer know it’s there takes up absolutely no space. By and large, boxes of cards in a low-rent warehouse in some downtrodden manufacturing city cost almost nothing to store so Blowout’s been able to increase their inventory but they’ve only made their way just barely into the tail. They’ve done enough to out-pace almost every hobby shop and realistically, that’s all they need to do.

But what about singles? Singles take up far less than a box of cards. A 5000ct box of cards takes up a couple of square feet. You can conceivably stock one-hundred of these boxes in your basement without interfering with your life. If you plan on making this a business down the future, you can categorize and stock even more. This is where investing in sports cards meets the long-tail.

This is where you can take a peek at the Rhapsody example:

Chart Rhapsody’s monthly statistics and you get a “power law” demand curve that looks much like any record store’s, with huge appeal for the top tracks, tailing off quickly for less popular ones. But a really interesting thing happens once you dig below the top 40,000 tracks, which is about the amount of the fluid inventory (the albums carried that will eventually be sold) of the average real-world record store. Here, the Wal-Marts of the world go to zero – either they don’t carry any more CDs, or the few potential local takers for such fringy fare never find it or never even enter the store.

The Rhapsody demand, however, keeps going. Not only is every one of Rhapsody’s top 100,000 tracks streamed at least once each month, the same is true for its top 200,000, top 300,000, and top 400,000. As fast as Rhapsody adds tracks to its library, those songs find an audience, even if it’s just a few people a month, somewhere in the country.

If you add up the amount of sales outside of Rhapsody’s top 40K music tracks  it’s actually greater than the big sellers (The Pujols, Mantles, Topps Chromes of the card world).

The prevailing view is that there’s just no demand for the overproduced cards of the 1990′s or junk wax and therefore, there’s simply no money to be made. However, there is a demand for these cards even if it’s tiny but when you add up the demand for highly niche products, you’re left with a business model that works.

As an online card retailer, you’ll have issues outselling the big-boys that can fluctuate the prices of the most popular cards to drive sales, but can the big-boys compete with your innovative approach to selling incredibly hard-to-find niche cards?

Well, just ask Check-Out-My Cards. COMC’s inventory is gigantic, but they’re still only partially down the tail. They rely on people paying a small storage fee which often dissuades sellers from sending in various low-cost cards.

What if you made it your goal to stock the cards that other people don’t sell? Well, that would be impossible — or — would it?

The key to long-tail dynamics is to force your users to do the work for you. Your goal, essentially, is to drive users further and further down the tail. Someone that wants a 1995 Donruss Super-Holo-Foil must not only be able to find it, but must also be presented with other options while they’re down there.

Here are the three steps that should be applied:

1. Make Sure Your Online Store-Front is Easily Searchable

A gigantic inventory does you absolutely no good unless people can find exactly what they’re looking for within seconds of it entering their mind. Thankfully, with the various internet platforms and databases optimizing searches takes seconds.  You can become competent in database software in under a day and almost all of the checklists from these sets are available online.

2. Make Sure The Cards are Highly Networked and properly linked

This is the key of the selling via the long-tail. While someone’s down at the end, make sure they stay down there and hunt and peck. People are forgetful beasts and often do not even know that they wanted an item until they see it with their very own eyes. This is a bit tougher than simply inputting cards into a database and keeping track of your sales. Of course the standard “People that bought this, also bought this, this and that” works, but that’s just step one. It’s about quantifying what exactly people are looking for when they go to purchase “Random Pacific Card.” Are they searching for Pacific cards? Are they searching for a certain player? Are they searching for a certain foil look? A certain year?

This is where you have to know your customer base and know exactly what they’re looking for in order to create a workable algorithm which leads us to…

3. Make Sure The Users do as much of the work as possible

Here is the absolute key to making a long-tail business work. Long tail businesses take a tonne of work and if you look at a business like eBay, they’ve got this down pat. All eBay does is list the cards and provide the market. The users scan, list, ship and communicate. However, eBay’s war on sellers and increasing fees have opened up the market for genuine card-only businesses.

So how do you get your users to do all the work?

The weird thing about people is that they want to help you, they want to improve the community they reside within. This is why Gilmore at Freedomcardboard.com can ask for a hand and have to start declining offers. If you build it, they will help you. People, without a doubt, want to belong to something greater than themselves and it’s your goal (I suppose) to exploit their generosity.

You’re probably balking at the idea of users scanning handfuls of cards for you, but they’ll do it. After a certain point, you’ll have to incentivize the procedure and this is where a community like Sports Card Forum takes the cake. They give you completely worthless points for doing their business. The one thing that people love more than performing acts of altruism to establish their presence in a community is establishing a hierarchy to reflect their contributions.

Beyond the simplicity of uploading scans, you’re actually after crowd-sourced opinion to fully refine your algorithm. Your community will tell you that people that collect Set X also collect Set Y and they’ll be glad to tell you why.

This only leaves you with the act of building and fostering a community which is an article unto itself.

In the end though, it is theoretically possible to make money and establish a business with the premise of providing a niche-driven card market. It will take work, but it’s a definite alternative to simply selling the top cards to a large user base.

…just some food for thought.