Idea 30 - The long tail
The
Internet changes everything, they used to say in the 1990s. That was just
before they discovered that it didn't. But it changes quite a lot of things and
one of them - according to the long tail theory - is the ability, over time, to
make money out of very small niches.
There was a time when the profitable niche was commonplace,
but the age of mass production and mass marketing has crowded it out, most
notably in consumer markets. Consolidation has produced powerful retailers.
They choose to stock only those items that sell in large numbers, and have
reduced the variety of their ranges accordingly. Many small producers have
fallen by the wayside in the process.
This phenomenon has been especially visible in the media and
entertainment industries - in book and music publishing and in film production.
We live in the world of the bestseller, the blockbuster, the hit. The argument
of the long tail is that, in an Internet world, niche products can not only
survive but their cumulative sales can equal or even surpass those of the hits.
The man who put the long tail on the map was Chris Anderson,
editor-in- chief of wired magazine. In 2004, he fleshed out the idea in an
article, subsequently worked up into a book. Both were called The Long Tail and
both kicked off with a story about how touching the Void, a book on mountain
climbing, became a bestseller ten long years after it was first published. The
reason was a spiralling wave of recommendations on Amazon.com, prompted by the
recent publication of a similar book. This was not merely an attractive feature
of online bookselling, Anderson wrote, but 'an example of an entirely new
economic model for the media and entertainment industries, one that is just
beginning to show its power'.
Amazon had carried out two useful functions here. One was
that it helped to circulate information about the book and the other, even more
important, was that it actually stocked it. For a physical book store, shelf
space is at a premium, so the tendency is only to stock sure things. As a
virtual book store, Amazon can afford to have a vast warehouse in the middle of
nowhere, carrying many more titles than the shop in the high street. Add in
digital books (or albums) and the stock capacity soars.
The 98% rule
This has a marked effect on the pattern of its sales. A team led by
Massachusetts Institute of Technology professor Erik Brynjolfsson looked at the
relationship between Amazon sales and Amazon sales ranking, and found that a
large proportion of sales came from books that were simply not available in
traditional bookshops.
Anderson tells another story, about Ecast, which operates
digital touch screen jukeboxes in bars and clubs across America. What
percentage of its 10,000 albums 'sells' a track at least once a quarter? The
smart answer is 20%, if you believe in the 80:20 rule. The correct answer is
98%. Anderson maintains that this '98 percent rule' applies within a few
percentage points to sales by other online merchants including Amazon, music
retailer iTunes and Netflix, which rents out movies. In a world of instant
access, consumers will look at almost everything. For students of marketing's
four Ps this sheds new light on the 'place' proposition.
The extended, flattish element is known as a power-law tail,
a Pareto tail (after Pareto's 80:20 rule) or a long tail. The hits, clustered
on the left in what Anderson calls the short head, get a lot of downloads in
the brief summer of their popularity. The tail, on the other hand, can stretch
to hundreds of thousands of products; enjoying lower-frequency downloads year
after year - if merchants choose to stock them. It may even eventually, rival
the head in value.
Anderson says there are two big principles to remember when
creating a thriving long-tail business:
·
Make everything available
·
Help people find it
He claims that the benefits of the long tail apply to many
industries other than media and entertainment, and he quotes the example of
Lego, the Danish toy manufacturer. Traditional toy stores typically stock a few
dozen Lego products, with their interlocking plastic bricks. Lego's mail order
business, increasingly organized around the Web, stocks nearly 1,000. And only
a few of the products on its top-sellers list are available in the stores. Children
can design their own products, which are then posted on the website for others
to buy.
There is even a long tail of kitchen mixers, courtesy of
KitchenAid. Stores usually stock three colours of KitchenAid mixer - black,
white and one other colour that is often exclusive to the store. Though it can
provide over 50 colours, retailers are conservative in their choice, so that
each year only six or seven colours in all are available in the traditional
marketplace. But the company now offers all its colours online and, because a
long tail appears, they all sell well. In 2005, the top-selling colour was one
that is not available in any store - tangerine.
Reference: 50 Management Ideas You Really Need to Know
Book by Edward Russell-Walling
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