The long tail principle
1 July 2007
The 'long-tail principle' is a term from the world of statistics which describes a specific form of distribution. Chris Anderson coined the term in business and financial context in an article published in October of 2004. He there claimed that products sold individually in small amounts can serve collectively as a substantial unified force. In other words, products with low demand and small sales volume can be united into a market share that can compete and even surpass best-selling products if the distribution channel is large enough.
A long-tail is marketing potential that can be actualized via online sales and distribution channels. This is the Web 2.0 way to describe niche marketing. The term describes how a product considered unpopular due to low sales tension can become a large share of online sales since some of the share of "unpopular" products in online sales is substantially large. Until recent years, physical stores have always focused on selling the popular products since selling them involves many expenses (storing, handling, overhead, etc) therefore it is worthwhile to keep a large amount of "safe" products in stock.
The age of internet, specifically of virtual sales channels, have turned the tables. The cost of storing products for online sales is minimal, so that it is actually more practical and therefore more worthwhile to market niche products.
If, for example, we compare your random neighborhood bookstore and Amazon, we will find that the book store holds a large stock of mainstream products since it must repay the monthly investment spent on the store's location. On the other hand, a large portion of the online store's sales is derived from hidden books that are certainly not best sellers and therefore cannot be found in physical stores. While a physical store must pay many expenses due to its physical location, the cost of storing products in a huge storage space in a desolate location is minimal. Thus, the virtual store merely pays for cheap storage from which it sends books ordered online.
The bottom line is that selling niche products directly to the client with no mediating factors makes them cost effective and worthwhile to store. Since storing a product at a mediating factor is highly expensive, it is safe to assume that this mediator will hold some popular products and niche products.
Do not be mistaken: the cost for online stores which sells niche products are not necessarily lower. In these cases the consumer pays for the feeling he/she is receiving service from professionals that know the product from up close. Therefore, the focus is not money and they might agree to pay a little more. The added value that the client receives in niche websites is high and therefore the client agrees to pay for it.
Beside the financial aspect, the long tail principle can be viewed as representing the internet world. This module assists in creating and cultivating niche marketing in a way that was impossible in the past by enhancing the role of hyperlinks as a central element of the world of Web- the ability to link content items to each other serves as the infrastructure for creating a huge sequence of content based on the individual information segments of each item.
The best example is Wikipedia, the most comprehensive encyclopedia and certainly the most updated one. This encyclopedia is entirely comprised of wisdom of the crowds and their collective knowledge and is updated based on the readers' readiness to share. The links between the entries creates a comprehensive picture which in the past couldn't be achieved. The key to controlling the markets in the age of Web 2.0 is derived from the forces affecting the web, which in turn are derived from the contribution of users-little by little, creating the collective intelligence.
In the world of internet websites, there are a few big websites which are used by a great mass of users while there are millions of websites which register a low number of entrances. The small websites are the lion's share of internet content and the narrow niches are the central component of the possible applications on the web. Combining these two facts encompasses the advantage of marketing directly to the consumer- the ability to scan all ends of the web rather than focusing solely on its center. This is similar to the move from the Parto principle (80:20) to the long-tail principle- a move from using a "head" to many "tails".
The long-tail principle emphasizes the assertion that the future of business lies in selling little to many.
Beside the commercial advantage the long-tail principle offers, the move from "center" to "periphery" as an actual cultural change. When this principle is applied, the taste of numerous and varied target audiences is expressed. This way, the choice given to consumers is tenfold greater than that given to them only several years ago. For example, the more TV channels available and the more content available in different mediums, the greater the cultural diversity.
In the past, families used to gather around every evening around the same single channel which broadcasted its routine programs. Nowadays, there is (at least) one channel for each viewer’s specifications and preferences (e.g. the gardening channel, the Indian movies channel); nowadays, there is no need to compromise for something general which doesn't address the consumer's specific desires since meticulous specification is nowadays possible.
Moving from concentrating on a number of central products to an endless number of products is a living example for the cultural change caused as a result of information technology and internet marketing. Long-tailing has begun with large companies such as Amazon moving to online, direct-to-consumer sales; the next stage is for small businesses to move to intermediated business. Small businesses are closer to their target audience and can therefore fulfill needs that the larger "players" cannot.
It is safe to forecast that the long-tail will only grow longer as the internet branches out into additional niches and provides the consumer audience a solution for more needs.