The Long Tail Revisited

Comments Off on The Long Tail Revisited
The Long Tail Revisited

In many industries, ranging from pharmaceuticals to publishing, companies earn most of their profits from a few prominent best-selling products.  This is known as the "blockbuster" strategy.  It has proven its effectiveness over many decades because of a basic fact in the retail business:  There is only so much space on store shelves, so it makes sense to stock the most popular products that generate the most sales.

But a radical new approach, known as the "long tail" strategy, has attracted a lot of attention in the past few years.  It is based on the idea that the basic fact of limited shelf space no longer applies in an online world.  Instead of selling just a few hundred of the most popular books or CDs, for example, a retailer like Amazon can offer millions of titles.  According to this theory, profits can be made at the long tail of the distribution curve, where the least popular products can be found. 

For example, in the physical world of retailing, it is more profitable to sell 1 million copies of one best-selling book than 50 copies each of 100,000 obscure books.  Due to the economies of scale and limits on inventory in a physical store like Barnes & Noble, the blockbuster model is a clear winner.

However, on the Internet, where virtual shelf space is both free and infinite, a company like Amazon can make more money on those 50 copies of 100,000 books, for 5 million units, than it can on the 1 million copies of the best-seller. Of course, Amazon can also sell the best-seller.

A long tail strategy requires a sophisticated back-end order fulfillment process, because it would be expensive and potentially wasteful to stock inventory that is rarely, if ever, sold.  But information products like books, music, and movies are rapidly becoming digitized, meaning that they can easily and cheaply be duplicated, whether they sell 1,000 copies per minute or 1 copy per month.

Most executives first learned of the long tail strategy in 2006, when Chris Anderson, the editor of Wired magazine, published his book called The Long Tail:  Why the Future of Business Is Selling Less of More.1  It caused an immediate sensation, with BusinessWeek2 declaring the long tail theory the most important idea of the year.

Anderson argued that a long tail approach would ultimately disperse demand across the curve.  In other words, as consumers learned that they could buy products that more closely matched their unique tastes, they would buy more and more niche products and fewer blockbusters...

To continue reading, become a paid subscriber for full access.
Already a Trends Magazine subscriber? Login for full access now.

Subscribe for as low as $195/year

  • Get 12 months of Trends that will impact your business and your life
  • Gain access to the entire Trends Research Library
  • Optional Trends monthly CDs in addition to your On-Line access
  • Receive our exclusive "Trends Investor Forecast 2015" as a free online gift
  • If you do not like what you see, you can cancel anytime and receive a 100% full refund