Tara from HorsePigCow has a great post about marketing to niches and defining your target market as thinly chunked as possible:

The issue arises when companies take a look at the diagram and think, "I want the fat part". For instance, everyone talks about wanting to 'target' the MySpace generation these days. With numbers like 20 million this and 500,000 new members everyday, dollar signs dance in the heads of entrepreneurs. With that kind of traffic, imagine what kind of money one could make...

...but you aren't the only company with that thought. In fact, the competition for this larger group is totally fierce:

The pie here represents the piece of this market you may be able to actually attract with your product/service. Generously + for simple calculations, I've broken this up into 16 slices.

Let's assume that there are 2 million people in this segment. That means, if you were to attract 1/16th of them, you would have 125,000 customers.

Another strategy may be to talk to a smaller, less 'targeted' segment. Say, "Young women on MySpace." Perhaps you have created an online scrapbook that imports their MySpace photos and friends:

The advantage here is that you can have a slightly better idea of who your market is and what they need. The disadvantage is that it is still a pretty obvious 'play' and there are probably still quite a few others who are trying to attract this group.

Let's assume that there are 1 million young women in this segment. If you can attract 1/8th (still being generous) of them to use your scrapbooking tool, you would end up with...hey...125,000 customers. Hmmmmmm.

It's looking like there isn't much disparity between the number of customers you can win, even though the market segment is half the size. ;)

It's interesting that she uses myspace as an example. Myspace has become a place for marketing to micro-chunks. For example, today I stumbled upon a RI event production company that specializes in weddings. Their top 8 friends are all their suppliers. And they network using myspace to people targeting brides-to-be just like the person I got a message from today about demonstrating at my company's events, who sells skin care products.

Companies are using myspace as a marketing tool to market to these niche networks of people. Not too dissimilar from the Creative Reporter contributed post about the inline skating company.