The Long Tail
I have noticed that many people are not familiar with the long-tail concept. This includes many savvy well educated people that I met, so I decided to write a post about it. It might seem basic knowledge for the techies out there but it’s not really so for many others. I try in this post to summarize the important points in the book “The Long Tail” by Chris Anderson.
What is the long-tail phenomenon?
There are far more niches in the demand for any product than there are hits; this is the heart of the long-tail concept. The long-tail as a phenomenon is basically that for every product or service there are hits which are extremely popular and those are very few and there are also niches (the tail) which are so many in number but each enjoys a small size of demand. A classical example is top 40 songs versus indie rock.
A key assumption –which has been empirically proven in several markets- is that these niches when combined form a significant portion of the market.
What the internet did is it made the long-tail –as a market concept- possible to implement and monetize by providing a new marketing channel for niche products at a much lower distribution cost than the traditional brick and mortar channels. These niches suddenly became profitable due to this much lower cost. To illustrate, the main reason why a store like Wal-Mart does not have many indie movies on its shelves is simply the high cost of this shelf space compared to the small number each of these movies will sell. With the availability of the Internet and its unlimited shelf space (at say Netflix), the cost of distribution drops dramatically.
The above analogy of low distribution costs does not apply only to goods and services that can be digitally delivered like movies, music and content in general but also to physical goods. Thousands of items are sold through Amazon and eBay which the vast majority of retailers would have never carried in their stores. Regardless of whether the story of the broken laser pointer that was eBay’s first sold item is true or not it still clarifies that there is a market out there for almost everything even if it is a very small market.
What is fueling the long-tail?
The main forces behind the long-tail phenomenon are simply the democratization of production, powerful aggregators/distributors and filters than enable the consumers to find the niches they are looking for. Blogs are a classical example of democratized production while Amazon is a great aggregator for millions of items otherwise rarely found on retailers shelves and Google & the recommendations available on almost every website from Pandora to Netflix are exactly an example of filters. Without these three forces, niche products (again think Indie rock band whose album would sell only 1,000 copies) would not be easily produced, stocked for distribution nor found by you. If Pandora did not have this awesome recommendation engine you would not have found this random song for this random Indie band that actually liked a lot.
Some examples of the long tail
Netflix is arguably the greatest manifestation of the long-tail. The online video streaming and DVD rental service adds thousands of movies that only a handful would watch but since their cost of adding is almost negligible with the ever-falling cost of storage and bandwidth it is still worth it. This allows Netflix to attract all those consumers who are not necessarily interested in Batman or Lord of the Rings but interested in an emotionally quirky French movie that never made it to the theatres in the US because it would not have been profitable. The recommendation machine in Netflix works well to filter and suggest content to users driving even further demand.
Google is capturing the long-tail of advertising. Their AdWords program allows even the small advertisers to tailor an advertising campaign within their budget. With its targeting mechanisms (filters) Google can also offer better efficiency to those “tail” advertisers within a budget which was impossible before.