Response #5 – “The Long Tail”

The Long Tail

“Less is More!”  You don’t hear that line everyday…

If you have not read “The Long Tail,” it’s a must-read for any business professional.  The premise of the book goes against every macroeconomic principle of supply and demand.  It theorizes that demand follows supply, and several times throughout the book, discusses the business model of Walmart and Sears, to name a few.  In Walmart’s case, everyone knows that they built their reputation on offering many versions of a product at low prices.  For example, Walmart’s music industry has about 60,000 tracks – tracks of the most popular music, or “hits.”  But, we all know that there are many, many more tracks out there.  What about a customer who wants something that was produced 20 years ago and still has somewhat of a loyal following?  Well, they would log onto Rhapsody or iTunes, who houses well over 1M tracks for would-be customers.   The model for these types of businesses is based on the idea of “the biggest money is in the smallest sales,” according to venture capitalist and former music industry consultant Kevin Laws.   The new growth market consists not only of Walmart’s model, but also that of the model of companies like Rhapsody, Netflix and Amazon – all offering products you cannot find anywhere by on the Internet.   According to the Long Tail, 45% of Rhapsody’s sales, 25% of Netflix’s, and 30% of Amazon’s total sales come from products not available in the largest offline stores. 

The above is a (long) example of the long tail.  Generally speaking, the long tail is essentially a bell curve, with the head of the curve on the verticle axis at the far left exemplifying large “hits”, and as the curve comes down it “tails” along the demand horizontal axis, exemplifying “niches,” or a large amount of small “hits.”  The idea is that there is an infinite amount of “niches” in society (i.e. music), but all collectively at times outnumber the “hits.”  The birth of the Internet gave way to this unlimited selection in cyberspace, and this unlimited selection is revealing  what consumers actually want.   The ultimate test is how do companies reduce the costs of reaching those niches.  Because, if the cost is minimal, the profits will be maximal. 

In today’s world, you can see The Long Tail all around you online.  From iTunes to Netflix, Google to eBay to Amazon.  The Long Tail is working all around us – on Facebook and mySpace – enabling today’s generations to go beyond the mainstream and reach the niches where their interests lay.  Today’s generations are all about “against the norm” and “out of the mainstream.”  This has enabled the Long Tail theory to flourish. 

 

 

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