The business of niche services

The Services Business consists of services provided by service providers to buyers, typically in a customized manner as defined by or as required by the buyers. Services is big business - 60 per cent of Indian GDP and 67 per cent of the US GDP comes from services. Cross border services business, especially knowledge-based services, is well acknowledged and growing rapidly from India.

The nature of services can vary substantially between commonly delivered services and very rare areas of expertise or niche services. For example, accounting is a very common service that every business needs, and hence the volume of business in accounting is very high, whereas Japanese garden landscape designing services is probably a very low demand activity. 

The following figure depicts the Long Tail of Services.

Volume of business in a category

No. of providers in a category - in descending order

In the Long Tail curve of services, the vertical axis represents the volume of business being undertaken in a particular category of services. The horizontal axis represents the number of providers in a particular category in descending order.

The Long Tail curve (in the figure above) has two parts to it:

• The Short Head consisting of the steep portion of the curve on the left depicting the high availability and high volume skills and services. These are addressed by large number of service providers, and that are needed by many buyers of services as part of their business requirements. Examples of such services are: website design, accounting services, logo design. The main challenge for a provider is how to differentiate itself. The overall challenge is that of "improving the quality of market".
• The Long Tail part of the market is the portion of the curve that tapers down slowly towards the right and consists of niche players providing niche services that are required by only certain buyers of services in special circumstances. Examples of such services are: Autocad Arm programming, Japanese garden landscape design, thermal design for electro-mechanical devices. The main challenge is for providers and buyers find each other - "how to make the market".

The theory of the Long Tail (by Chris Anderson) is that our culture and economy is shifting away from a focus on a relatively small number of "hits" (mainstream products like a Star Wars movie and services like accounting or website design) at the head of the demand curve and toward a huge number of niches in the tail.

The new internet paradigm results in the following business trends for services:

• Niche service providers can be found easily:
  Services sold on the Internet, especially niche services, can be found by buyers more easily through better searches and filtering mechanisms, recommendations from social networks and word-of-mouth viral effects.
• Reduction in the cost of marketing:
  The cost of marketing for the services sold on the Internet can be reduced significantly by proper positioning and keyword "tagging" for search. Since these services can now be found more easily by buyers, the cost of marketing reduces.

How to succeed in the Long Tail portion of services business
The exciting opportunity in the Long Tail part or the niche services business is probably that as a group it is as big in terms of the total volume as the Short Head part of the services business.

The following are a few pointers that can help providers that are providing services in niche areas:

• As a provider, the first and foremost focus should be to be found easily by buyers of their services. This can be done by listings on search engines, services marketplaces and specialty sites
• The key words or tags that describe you should be very specific to your expertise rather than too general. For example, if you provide services in business intelligence software using Java as programming language, using tags relevant to business intelligence is more effective than Java, since otherwise you will get inundated with a lot of common Java requirements that are not in your niche area
• Create and showcase a profile that is completely focused on your niche area of expertise, rather than your other peripheral skills. Use case studies, white papers, approach papers, technical papers and other collateral to highlight your expertise
• By undertaking the above and focusing on your core expertise, in the beginning you may not pick up some business in general areas not close to your niche area, but in the longer term it will pay off by generating much more pinpointed leads relevant to your expertise areas
• By being highly focused, you can charge a premium for your services. Any services business focused on niche areas is bound to be more profitable than other general skills based business

How to succeed in the Short Head portion of services business
The Short Head portion of the services business is much more crowded and hyper-competitive. A typical provider in this portion of the marketplace will have to do the following:

• Generate a lot many leads before it can convert a few of them into real projects
• Write a lot of proposals
• Undercut on pricing to win business
• Sacrifice on margins
• Spend more time, effort and money on marketing and sales

The broad approach in this portion of the market should be to continuously differentiate oneself even in general areas of offerings. A few pointers that can help the providers in the Short Head part of the market:

• Gaining domain expertise in certain industries or even in some sub-domains of certain industries. For example, rather than positioning yourself as a mechanical designer, you can position yourself as a designer for automotive transmissions with in-depth expertise in your field
• Process excellence to improve predictability of cost, time, quality and transparency of the services delivered
• Cost effectiveness by automating or re-using components of services being delivered
• Listings on search engines, marketplaces and specialty sites so that buyers can find you
• Create and showcase a profile that clearly defines your areas of strengths as against listing everything. Use tags and keywords to define yourself that are completely relevant to what you can undertake extremely well
• Use case studies, white papers, technical papers and other collateral to showcase your expertise and differentiators
• Only address those requirements and send proposals to requirements that you can deliver extremely well. It is very important to get a reputation of high quality from the customers all the time