The Long Tail Hits E-Commerce -- Small E-Tailers Gaining Share (AMZN, EBAY, GOOG, YHOO)

"Of the $26 billion in sales that are projected for Internet retailers this holiday season, about 45 percent will go to small retailers, according to Forrester Research, up from 42 percent last year." So reports Bob Tedeschi in the New York Times (no reg req'd version). There are two key reasons:

1. It's now cheaper and easier than ever for small retailers to get online. E-commerce software is now hosted, rather than requiring installation, and its price has fallen dramatically. Hosted e-commerce solutions are offered by Yahoo Stores, eBay's ProStores, NetSuite and others.
2. Small retailers can attract traffic by buying keyword ads from Google and Yahoo.

Analysis and Stock Impact:

This is the competitive impact of the Long Tail hitting e-commerce. Every investor should ask one question about Internet companies: Do they benefit from or compete with the Long Tail? A quick survey of the leaders:

AMZN: Amazon has tried to benefit from the Long Tail of e-commerce by hosting stores in its Z-Shops area; but that hasn't been very successful. It's done better by enabling the sale of used books on its web site, and has recently formulated a more thorough Long Tail strategy. However, as the leading pure-play e-tailer, Amazon has most to lose from the rise of smaller competitors.

EBAY: eBay's success is entirely in the Long Tail: the growth of small retailers that use eBay as a sales platform. eBay provides the two necessary ingredients: an e-commerce platform plus traffic. eBay's goal is to maintain its position as the small e-tailer platform of choice. The challenge comes from the low-cost hosted e-commerce platforms from other providers combined with traffic from search ads from Google and Yahoo.

GOOG: Google's entire business can be viewed as a Long Tail business: it generates profits from small and large retailers purchasing its ads, and as the number of web sites proliferates Google search becomes more indispensable to web users.

YHOO: Yahoo benefits from the e-commerce Long Tail in two ways: by offering its own hosted e-commerce platform, and by selling search-based ads to small companies. Yahoo's challenge is that it isn't the leader in either: eBay dominates the platform space, and Yahoo is losing search market share to Google.

Question: How are the smaller e-tailers impacted by the Long Tail, such as Red Envelope, Blue Nile or Communicate.com?