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internet makes niches viable and more…

hi guys, so i recently read a book called the long tail I liked the ideas in it (even though I was put off by how long it was which could have been 30 pages.)

also read a study/paper on HBR and wanted to share my learnings..

The book raises an interesting observation that I think while feels like common sense, it's not intuitive and something to be cognizant about.

It's has always been a case that due to limited physical space almost all sorts of businesses have tried to promote products that appeal to widest set of customers to generate most profit. It's understood that niche products wont make business big. niche products are targeted when mainstream categories are already dominated and it's what's left.

But due to internet being free of physical space's constraints and there being more than billion users, the author discovered that even niche products/content/etc get constant stream of users to point that cumulative profit from niche is sometimes higher than of main stream products. And businesses don't have to make a choice between selling either mainstream or a niche product.

TLDR of book: internet makes niche categories big enough to be viable..

Then i read this article, which is basically a follow up: https://hbr.org/2008/07/should-you-invest-in-the-long-tail

it says…that while what the author of book claims is plausible there is also another theory that says the opposite should happen.

The other theory says that internet promotes winner take it all, now competition is global and fiercer. Playing field is bigger. you become small fish in very large pond. Therefore, few winners will take it all and other products will loose out. If everyone has access to better product then why would they choose something inferior. The tail should become more steeper. So before digitalization/internet 20 percent product brought in 80% profit then now 10% products will bring in 90% of profit.

These two ideas seemed to contradict each other, so paper analyzed actual customer behaviors and learned that both are true.

the sales of winner/hit products did go up, more concentrated, but niche products at bottom half also sell more now.

then follow up idea was that niche sales are simply due to loyal customers and internet allows loyal user from around the globe access this niche

but it found that most of traffic in niche category wasn't from increase in loyal/niche seeking customers but instead there were two types of customers, one type made up lion share of customers for niches. Heavy users vs light users.

Light users stuck to top hit stuff. Heavy users used all the top stuff and then went onto find other niche stuff.

TLDR: competition is fierce on internet, but there are people who love to consume/buy anything even if they have no real interest in the category.

Earlier I kinda said that business had to find products that appeal to mainstream to survive in physical space… that's is not true under certain conditions. For example, if you open a bookstore with only books about russian authors in 19th century next to say starbucks, you will have a hard time. But if you open that same store in a market entirely dedicated to books, you might even thrive. Book market is a place where people specifically come for books. Your target customers have higher chances of being there. ( people seeking books > ppl seeking russian > ppl into 19th century)

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Startups – Rapid Growth and Innovation is in Our Very Nature!

Oscar Health’s initial IPO price is so high, it makes me want to swear

Amidst all the hype that Lemonade (IPO), Root (IPO), Metromile (SPAC-led debut) and other insurtech players have generated in the last year, it’s been easy to forget about Oscar Health. But now that the company founded in 2012 is approaching the public markets, one of the early tech-themed insurance companies is catching up on the attention front.

The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.

So this morning we’re digging into Oscar Health’s first IPO pricing interval, hoping to understand how the market is valuing its unprofitable health-insurance enterprise.

Recall that Oscar Health was valued at around $ 3.2 billion in March of 2018. That datapoint, via PitchBook, is dated. Oscar Health raised hundreds of millions since (per several venture-capital tracking databases, including Crunchbase) but we lack a final private valuation for the company.

Regardless, with Oscar Health now targeting a $ 32 to $ 34 per-share IPO range, we can get our hands dirty.

Let’s get some valuation numbers and then decide if Oscar Health feels cheap or expensive at that price.

Billion-dollar IPO

Oscar Health is looking to reap as much as $ 1.21 billion in its IPO, a huge sum. The company is selling 30,350,920 shares, with 4,650,000 additional shares reserved for its underwriters. Existing shareholders are selling another 649,080 shares.

This means that after the IPO, Oscar Health will have 197,037,445 Class A and B shares in circulation, or 201,687,445 after counting shares reserved for its underwriters.

Using the company’s $ 32 to $ 34 per-share range, we can calculate a valuation minimum of $ 6.31 billion for the company (lower share count, low-end of price range) and $ 6.86 billion (higher share count, high-end of price range). That’s the company’s simple IPO valuation.

Oscar Health may also sell up to $ 375 million of its shares at its IPO price to three different funds. The company advises that the “indication of interest is not a binding agreement or commitment to purchase,” so we can ignore it for now.

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