If you're involved with online sales, you have almost certainly run across
the phrase "Long Tail" recently; if you haven't, you soon will. This is a
hot new topic - and something of a controversy - in the blogosphere,
especially among the influential bloggers who write about Internet
Marketing.
Proponents claim that this concept will completely change the way we
think about how to sell online, specifically in terms of product mix and
user targeting. Opponents dismiss these claims as exaggerated, and
dispute the data used to make the claims.
First proposed by Chris Anderson in a landmark article in Wired magazine
(he later followed up with a book), the Long Tail theory has been
generally accepted by the online community.
Basically, "Long Tail" is an economic concept, whose main propositions
are that
(a) the Internet has dramatically reduced the costs of distribution,
storage and retail sales of products; combined with real-time
information about buying trends and public opinion, it is now possible to
offer very low-volume items profitably to users, and
(b) the total sales revenue of these low-volume items ("misses") that
make up the Long Tail, taken together, could be larger than that of
the high-volume items ("hits"), that make up the other end of the
spectrum, the so-called High Head.
The rationale is that although the volume per item is very small for
the fringe items, the number of those items is very large, leading to a
large total volume. Wikipedia has an informative article about the long tail,
which includes a typical distribution graph that highlights the Long Tail
and High Head in different colors.
No one seriously doubts the first point. A tiny online retailer - with no
physical showrooms or retail space, centralized distribution warehouses
and on-demand manufacturing - can now manage a global reach with a
miniscule budget. The costs of making, storing, distributing and
shipping products are a fraction of what they used to be, so that virtual
inventory sizes can explode to hundreds or even thousands of times
what they used to be, without significant impact on cost. Marketing
costs are another matter - whether they are significantly lower is
arguable.
The second point - whether the total sales of the low-volume items
taken together can be greater than the total sales of the high-volume
items - is currently being hotly debated. Anderson says that it is
strongly supported by the data, but others disagree. The venerable
Wall Street Journal has jumped into the fray, with an article by
Lee Gomes that tries to debunk the Long Tail theory; paradoxically, this
has the effect of giving additional legitimacy and weight to the theory,
driving it even more into the mainstream. In true blogging spirit,
Anderson has responded with a touch of class, with better examples and
a clearer explanation, on his blog.
Other industry luminaries support Anderson's position. The esteemed
Tim O'Reilly suggests that data
from O'Reilly's Safari Books Online service
and from Google Book Search
supports the Long Tail theory. Others,
such as LibraryThing and Zillow , poster children of Web 2.0, routinely
refer to the long tail in explaining their strategies.
Industry heavyweights like Google are also keen to leverage the long tail;
CEO Eric Schmidt says that Google is addressing both ends of the long tail
spectrum. Others, like Yahoo and Amazon are not far behind.
If this theory is correct, then it means that (i) you could build up your
small business pretty significantly by addressing the unmet need for
unpopular items which are not easily available from the mega-stores,
and (ii) if in fact, you are the mega-store, then by focusing on the hits
and not addressing the need for unpopular items, you could be missing
an opportunity with significant profit potential.
This is especially great news for small business, for whom the long tail
has traditionally beean an area of strength. In a specific niche,
it is possible for a small business to compete very effectively with a
much larger player, and win!
Given that the experts can't yet agree on the validity of the Long Tail
theory, though, does it matter? Would it be better to wait on the
sidelines until the data is all sorted out and the academic debate is
resolved?
For the small business with an online presence, it is becoming clear
that the long tail does matter, and it could change the way you
approach online sales. Regardless of how exactly the numbers come
out - whether the total sales for the Long Tail are indeed greater than
those for the High Head, or vice versa - there is mounting evidence
that it is already having an impact. Apart from the obvious media
industries like books and movies, where the long tail effect is
well-documented, examples can be found in a wide variety of
industries, including maps , healthcare , Canadian music and even
poker .
An increased understanding of the Long Tail can help the small business
owner in several ways:
- It allows you to leverage low-volume items to boost your overall sales
- It allows you to compete more effectively with bigger players - the
Amazons and the Wal-Marts - by focusing on specific niches
- It has a significant effect on your SEO plans
- Most important, it allows you to create separate strategies for the
two ends of the spectrum, tailored for the hits and the misses
For now, the discussion and debate about Long Tail continues. For hard
data and long-term trends, we have to wait and see; empirical evidence
suggests that this theory is certainly true in certain market segments. If
it turns out to be pervasive across a majority of vertical markets, then it
will have very broad implications for all internet retail sites, especially
regarding decisions about product mix and target users.
Others have written about the effects of Long Tail and the ongoing
debate; e.g. here's Danny Sullivan's excellent article in Search Engine
Watch. The companion website, www.SoftwareAbstractions.com, has
a list of some of the better resources and examples about "Long Tail".
This list is regularly updated as the debate continues.
You can now get a
business degree
online from home if you want to brush up on your business knowledge.
