Chasing Your ‘Tail’ in Business– Anatomy of the Long Tail Business Model: Taste for Obscurity or Overwhelm with Choice…

The ‘tail’ matters– the ‘long tail’ business model which is about finding hidden customer demands that are obscure in the far reaches of the Internet. Some of the most successful Internet companies leverage long tails as an important part of their business strategy.  

The long tail concept has gained popularity for describing an Internet online retail strategy for selling small quantities of a relatively large number of unique or lesser known items… as opposed to selling a small number of highly popular items in very large quantities– in traditional terms it’s a ‘niche’ business model…

The long tail is the colloquial name for a long-known feature in statistical distributions theory that says– a ‘long tail’ of some distributions of numbers is the end portion of the distribution having a large number of occurrences far from the ‘head’ or central part of the distribution. The feature is also known as heavy tails, power-law tails, Pareto tails… 

The concept of the long tail was popularized by Chris Anderson in his book; The Long Tail: Why the Future of Business Is Selling Less of More. According to Anderson; when consumers are offered infinite choice, the true shape of the demand curve is revealed. And demand is less ‘hit or blockbuster’-centric than you might think. People gravitate towards niches because it satisfies their narrow interests better than generalized offerings… 

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The Internet companies that are often associated with the use of the long tail concept in business strategy are, e.g.; eBay (auctions), Google  (web search), Amazon (retail), Netflix(movies), Apple (music)…  According to Eric Schmidt;  the surprising thing about the long tail is just how long the tail actually is, and how many businesses have not been served by traditional business models… But, how real is the long tail and how relevant is it to your business?

The long tail phenomenon is real as evidenced by success of major companies, and the Internet is the enabler, which allows online retailers to stock virtually a limitless number of ‘things’ or ‘niche’ products– such that the number of available ‘niche’ products outnumber the ‘hit’ products by many orders of magnitude. Those millions of niches are the long tail, and they are largely neglected by most businesses. The shift from ‘hit’ to ‘niche’ is a rich seam of opportunity that should be engaged by many more companies…

In the article The Long Tail: Why the Future of Business Is Selling Less of More by Chris Anderson writes: The long tail is a powerful force in the economy: it’s the rise of the niche. As the cost of reaching consumers drops dramatically, markets are shifting from a one-size-fits-all model of mass appeal to one of unlimited variety for unique tastes. From supermarket shelves to advertising agencies, the ability to offer vast choice is changing everything, and causing business to rethink where the markets lie, and how to get to them. Unlimited selection is revealing the truths about what consumers want, and how they want to get it…

However, this is not just a virtue of online marketplaces; it’s an example of an entirely new economic model for business, one that is just beginning to show its power. After a century of obsessing over the few products at the ‘head’ of the demand curve, the new economics of distribution allow business to turn focus to the many more products in the ‘tail’, which collectively can create a new market as big as the one you already know…

The long tail is really about ‘economics of abundance’. New efficiency in business is essentially resetting the definition of what’s commercially viable across the board. If the 20th century was about ‘hits’, the 21st will be equally about ‘niches’.

In the article The Wrong Tail by Tim Wu writes: The long tail theory is so catchy it can overgrow its useful boundaries. In most entertainment industries (e.g.., films, music, books… ) a few ‘hits’ make most of the money and then the demand drops off quickly… Demand, however, doesn’t drop to zero. The products in the long tail are less popular in a ‘mass’ sense, but still popular in a ‘niche’ sense. What that means is that some businesses can make money not just on big ‘hits’, but also by the long tail… However, this insight for many can only go so far, but like many business concepts commits the sin of overreaching. At times, the long tail becomes the proverbial ‘hammer’ looking for nails to pound…

The long tail as a business model is effective when; 1) the price of carrying additional inventory approaches zero. 2) the consumer has strong and heterogeneous preferences. When these two conditions are satisfied, a company can radically enlarge its inventory and make money raking in the ‘niche’ demands. This is the lifeblood of a handful of products and companies, e.g.; Apple’s iTunes, Netflix, Google… among others, all are basically in business of aggregating content, e.g.; it doesn’t cost much to add another song to iTunes– having 10,000 songs available costs about the same as having 1 million… But it’s important to remember that many industries don’t rely on the weird economics of information products… The long tail isn’t useful as a ‘theory of everything’…

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In the article The Long Tail by Yaro Starak writes: The long tail is the transition from a ‘hit’-focused marketplace to a millions of niches marketplace. While the majority of profits previously were made by selling a handful of products (the hits) to a lot of people, now millions of products are being sold to smaller number of people based on ‘niches’.  It’s ‘niche’ marketing in it’s purest form– a general economic transition brought about by an opening up distribution channels and creating a near-frictionless and abundant source of product variety…

The long tail exists because in certain industries supply and demand have come to a point where supply is no longer limited by how much shelf space there is, or how much it costs to manufacture, transport, store, deliver… a product.

The product is now ‘virtually’ abundant and produced at such a low-cost that business no longer have to place emphasis on the big hits, the huge ‘mass’ market blockbusters, as the main source of profits. It becomes possible to make good margins from products that in the past were not profitable because not enough people would buy them, the niche was just too small to cater to and the cost of production, delivery out-weighed the potential revenues…

it is important to explain that long tail markets are only emerging because of the Internet… and it’s important to realize how much of an impact this is going to have on the future of online commerce…

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In the article The Long Tail– Curled by Grant Wickes writes: The Internet has changed the way you do business, and the idea of a long tail is exciting because it brings hope for more opportunities, and it engenders greater confidence for sustainability… But when it comes to competition and survival, you can come to just one conclusion: the more things change, the more they stay the same…

Business people always see their offerings as changing the world, and while the initial hype may create a lot of buzz, eventually it regresses to just another widget— there are in the ‘mean’. Hence, there is no such thing as— ‘this time, it’s different’– things don’t last forever, e.g.; advances in technology, competition, change in customers behavior… eventually, ‘change’ wins out over time… Business models like the long tail, which focus on the fringes of markets, of course, can help make business more sustainable and it goes a long way to improve efficiency, drive sales…

But while the long tail helps explain the phenomenon of an early mover opportunity, it fails to consider the long-term competitive dynamics of markets, i.e.; the tail will eventually ‘curl’ and the opportunity will consolidate into just a few major market players (even for a niche), then your strategy most be nimble enough to make proper adjustmentsYesit’s fun to think about this ‘tail’ thing, but remember that the tail will ‘curl’, it won’t stay ‘long’ forever, be prepared to bring on the next new ‘thing’…

The long tail is a useful concept and many business people often talk about it, but very few actually implement the strategy in their business… According to Serguei Netessine and Tom F Tan; the presence of the long tail effect might be less universal than one may be led to believe… The long tail effect may be present in some cases, but few businesses operate in a pure digital distribution system. Instead, they must weigh supply chain costs of physical products against the potential gain of capturing single customers of obscure offerings. Businesses must also consider the time it takes for consumers to locate off-beat items they may want…

The Internet is capable of matching consumers with ‘things’ that are exactly what they want. This level of satisfaction (and abundance) has never been seen before, and as more businesses leverage the Internet to serve niche markets, it will become more difficult for business to be successful as a market ‘generalist’… And that leads to the question; Is the core principle of the 80/20 Rule or Pareto Principle still relevant in the world of digital commerce? Many experts say– Yes: The 80/20-like relationships are still very relevant, but in ever smaller (micro-economic) events within ever smaller niches… Even within the long tail there are market leaders, followers such that basic law of Pareto Principle still apply.

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According to Anita Elberse; consumption of long tail offerings is more prevalent among people who tend to stick to a particular genre… No matter how you slice and dice the customer base; the long tail theory increasingly influences business models, especially in sectors, such as– media, entertainment… It’s undeniable that online commerce has significantly broadened customers’ access to products of all varieties, including the most obscure. However, some research suggests that it would be imprudent for businesses to up-end traditional market practices and just focus on the demand of obscure products… The data show that in most cases it’s very difficult for most businesses to profit when their only focus is on the ‘tail’…

Long tail business models, which sells small quantities of many items are the antithesis of blockbuster business models, which sell large quantities of a few items… A long tail model is a classic disruptive innovation– catering to people who over-shot their existing offerings with an inexpensive and highly accessible service that excels on a totally distinct set of performance criteria…

According to Stephen Wunker; the long tail business model is compelling territory for disruptive innovation, but like any other business model it has a life cycle, and if the business is not fleet-footed and watchful, the disruptor can become the disruptee…