The long tail is a term coined by Chris Anderson. I have had the privilege of hearing Chris speak and I can tell you that it is one of the best speeches I have heard in how it relates to business.The Long Tail is a theory that suggests that given enough choice and an economic model to service that choice, buying patterns of the population changes. In other words, the 80/20 rule changes.For a long time, suppliers were in control. We watched what was on television, bought what was available in retail stores and didn’t worry about the other 20%. It was either not available or too expensive. What if an economic model existed that changed that? Wouldn’t a company that could increase choice without increasing cost, offer more choice? If this changed the distribution curve, would it not put the customer in control?To see the principle in action, look at television. In the early days of television where there was little choice, most of the television watching population watched the same shows. It was not uncommon to have 70% of the population watching the very same channel. As cost was reduced to provide more channels or “choice”, the channels watched or “distribution curve” changed. Less people watched the top show as more people watched competing shows.A key factor with respect to the long tail is the cost of distribution. When costs are high, it is only economically viable to sell the most popular products. Where costs are low or insignificant, it becomes economically viable to sell more products.Let’s look at books for an example. Traditional bookstores have limited shelf space. With an overwhleming choice of books available, they only keep the most popular books on their shelves. This makes perfect sense.A bookstore that needs to pay for the high cost of a retail location and overhead, needs product that sells often. If its books only sold once or twice a year, it would either be out of business or have to charge a very high price for those books.Now what happens when Amazon.com (a Long Tail company) who does not have the same cost of distribution decides to sell books. It does not cost Amazon more money to offer books that only sell once or twice a year. With virtually limitless shelf space, they are able to build a great business by offering a far wider range of books. In 2007, almost 45% of Amazon’s book revenue came from books that would not be on the shelf of a typical bookstore.Some of the most successful new businesses today are changing industries using this formula.Think of iTunes in music, how much does it cost iTunes to catalogue more music? If iTunes has a platform that can offer more choice in music for less, does the music industry change? There are massive threats and there are incredible opportunities but one thing is clear: the industry will never be the same. Want other long tail companies?How about Google in search? e-Bay in auctions? What other industries will be changed?Read more on the long tail from Chris’s blog: www.thelongtail.comClick HERE for a great video of Chris Anderson on Charlie Rose.
What is the Long Tail?
- April 23, 2008 • Point of View • by