It’s about time I give my take on The Long Tail. I find myself referring to it on a regular basis as I write articles about blogging and business in general and if you have been following the recent fuss about the evolution of Internet marketing (or known as it’s “death”) or read a handful of popular blogs about business or economics, you have no doubt heard the phrase “The Long Tail” before. It’s certainly having a significant impact on the economics of doing business online and is a buzz term uttered by many of the coolest people in the online business world. In case you haven’t heard the term before here is my introduction for you in good old simple Yaro speak and my attempt to be one of the cool people too.
I can’t remember which blog I read first that introduced me to The Long Tail, but certainly the first place I read anything about it in-depth was from the person credited with creating the term, Chris Anderson, in his now seminal Wired magazine article – The Long Tail. This is certainly the first place I recommend you go to if you want the five-page medium sized story about The Long Tail and if you want the really long story he has a new book out, strangely enough called, The Long Tail, which I will provide a mini review of later in this article as I have just finished reading it.
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 amounts of people based on niches. Yes that’s right – it’s niche marketing in it’s purest form, although it goes beyond merely setting up content sites to attract niche traffic and make a quick buck from it – we are talking about a general economic transition brought about by an opening up of distribution channels creating a near-frictionless and abundant source of product variety.
The Long Tail exists because in certain industries supply and demand have (finally) come to a point where supply is no longer limited by how much shelf space there is, how much it costs to manufacture, transport, store and deliver a product. The product is now “virtually” abundant and produced at such a low cost that business no longer has to place emphasis on the big hits, the huge mass-market blockbusters as the main source of profits. It becomes possible to make 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 and delivery out-weighed the potential revenues.
Before we get too excited it is important to explain that Long Tail markets are only emerging now as a result of the Internet. The prime examples are companies and retailers like Amazon, iTunes and NetFlix, where the cost of storing and/or making available the entire range of products in a given category is near zero, hence even if only one or two units of a particular product are sold each month there are still profit margins to be made. Multiply those one or two units by a few million niche categories and together you have more revenues than what the hits produce, or at least a significant enough profit that successful businesses have launched online specifically to take advantage of Long Tail markets.
The reason this works, for example, is because it doesn’t cost iTunes much to make available music in digital form. The cost of servers and computer equipment is so low that from an infrastructure point of view iTunes can carry any piece of music provided there is a potential niche audience for it – and that audience can be near zero, as long as there are sales, profits can be made. Compare this to a mainstream bricks-and-mortar music retailer like HMV, which has limited shelving space and as a result has to focus on carrying only the biggest hits in order to maximize profits, not to forget the cost of running a physical retail outlet (employees, rent, signage, insurance, etc). Essentially that is the key difference, while we used to calculate things in physical reality, we now can do it in a digital world using bits and bytes, which don’t have the same limitations.
The Long Tail isn’t just restricted to digital product though. Amazon sells virtually everything and started out with a very physical product – books. What made Amazon able to capitalize on Long Tail markets was the reduction in the cost of distribution using just-in-time inventory management systems, cheap factory storage and an online store inventory of virtually the entire marketplace of products. Using recommendation systems, search technology and filtering tools, Amazon can cater to virtually any taste within any category or sub-category in any niche that a person has a need or want in. Thanks to the reduction in the cost of supplying and storing goods, Amazon can make profits in the Long Tail of markets.
The Long Tail of niche markets doesn’t always equate to more than the short tail of hits, but the important point is that the Long Tail is now accessible and significant – as business people working online this is what really matters – and it’s important to realize what impact this is going to have on the future of online commerce. We now have the technology that can match a consumer with exactly what they want. This level of satisfaction and abundance has never been seen before and as big business start to leverage this technology and serve niche markets, it will become harder and harder to be successful as a generalist.
From a small business or solo-entrepreneur point of view, there has never been a clearer need to carefully define your niche and USP and become the specialist in your area or risk losing large chunks of your customers as they go in search of even better refined niche satisfaction. Today you may be the best marketer in the “search engine optimization” world, but very quickly tomorrow you may lose out to the Google SEO specialist, the Yahoo SEO specialist and the MSN SEO specialist as your once lucrative niche is further subdivided into smaller markets along The Long Tail.
I was listening to a question and answer session in my coaching club with Rich Schefren and one of my fellow students, who had read Chris Anderson’s book, The Long Tail, just after it was released was asking Rich whether the 80/20 Rule still applied since it appears the Long Tail changes the way the game is played. We had recently covered a module that included the 80/20 Rule in some depth as it related to our businesses and at the time Rich had not read The Long Tail book (I think he has since then). Rich didn’t really argue either way since he had not read the book and simply restated the importance of focusing on the few things that are responsible for the majority of outcomes in your business – the core principle of the 80/20 Rule or Pareto Principle (you can read a detailed explanation of this principle in my article – What Is The 80/20 Rule And Why It Will Change Your Life).
At the time I heard the Q&A call I was halfway through The Long Tail book and was quite familiar with the concept and if I could, I would have loved to have explained my take on the relationship between the 80/20 Rule and the Long Tail to the people on the call. I do not believe the two principles directly influence each other, rather they both describe concepts important to doing business online. Here’s how I see it:
The 80/20 Rule means that the minority of triggers cause the majority of reactions in virtually every aspect of your business. The Long Tail refers to the movement away from hits to the larger marketplace of millions of niches. It could be said that yes, if you looked at the Long Tail in an overall industry sense, the 80% that used to be ignored by companies are now focused upon as a potentially high source of revenues since the cost of accessing the niches is now so low.
However I believe it makes more sense to look at the 80/20 Rule as it applies to each niche within The Long Tail, which is where the 80/20 Rule is still as relevant as it ever was.
If you are a niche company there will still be a minority of customers responsible for a majority of your sales. If you looked at each niche category, or better still, each sub-niche category within each niche, there is an 80/20 Rule in effect. The top revenue sources in the electro section of the larger category of dance will still follow a 80/20 relationship, in that the biggest selling electro hits will account for the majority of sales. However in the past it was just not possible to service the electro category in a profitable business model, it would have only made sense to carry the top 10 overall dance tracks as opposed to the top 10 tracks in electro, house, techno, trance, etc (and believe me there are hundreds of sub-categories of sub-categories in the dance music category – I never know exactly what I am listening to, I just know I like it).
The 80/20 Rule will always be valid whenever we discuss the inner workings of a company. A small number of employees will account for the majority of output. If you run your own business as a solo-entrepreneur then no doubt a few activities you do each day are directly responsible for the profits you make.
The Long Tail specifically applies to the economics of an industry and focuses on the reduction in the cost of distribution making it profitable to service millions of consumer tastes, breaking down niches into ever smaller sub-niches and comprehensively covering the entire marketplace. This results in it being possible to make profits in areas that were not profitable previously. It is still possible to locate 80/20-like relationships in ever smaller (micro-economic) events within ever smaller niches. The Long Tail explains a change in the economics of doing business, the 80/20 Rule still holds true for the overall practice of business as long as humans are involved. One principle does not make the other obsolete.
One area of the Long Tail that really spiked my attention was the frequent use of the term “abundance”. Long Tail economics exist because supply becomes limitless, at least in terms of its relationship to demand. Although it’s of course not infinite in capacity, in terms of the size of the market, i.e. the humans able to consume, there is more than enough for everybody who may ever need or want a certain category of product that exists in The Long Tail.
I haven’t mentioned it before on my blog, but those who know me personally know that I am a big fan of The Secret. I’m going to do a proper review of The Secret since I’ve lost track of the number of times I have watched it – it makes me feel that good – but for now I’ll direct you to the person who first introduced me to The Secret, Steve Pavlina and his blog post about it.
One of the core principles in The Secret is the idea of abundance and it’s a concept I’m seeing mentioned more and more in books and movies from a whole range of topics – not just self development. I believe a lot of the world’s problems are caused by the general attitude most people have that there is scarcity, hence we need to horde what we have and develop an “us versus them” mentality. This happens at both the micro level when we work so hard for individual success on a day-to-day basis and spend most of our working lives in service to ourselves, at least in western culture, and also to a macro scale of country vs country, where wars are fought over resources and other countries are considered enemies who must be protected against for fear of them stealing or destroying what we have.
I certainly don’t consider myself blameless – I work most of my time for my own benefit, usually for money to help me get more. I see what others have and it makes me want more. Worse still, the fear of losing what you have because you have worked so hard to get it, causes you to act guarded and fearful and forces competition instead of sharing. It’s a difficult thing to change because it’s so entrenched in the way we think, the way we are raised and of course what we consider to be our current reality. Afterall we are born with nothing and once the marketing kicks in we are well aware of all things we would like to have that we can’t unless we earn big dollars, and we see what our peers have, thus creating even more feelings of greed, competition and jealously – not good emotions. It’s a vicious cycle all brought about because we believe everything is scarce.
If we acted as if everything is abundant, that there is enough for everyone, in fact more than enough for everyone, our lives would be a lot different. There would be no need to fight or to compete for scarce resources and we could all enjoy sharing what we have and focus on creating things for the benefit of others by indulging in our own creative expression. Yes it might be a bit warm and fuzzy and not a real portrait of today, and many people don’t believe that our reality truly is one of abundance or ever will be, but seeing films like The Secret can helps us work towards changing attitudes, which is the first big step in order to create the potential for systems to be established that generate abundance. Awareness of the potential must come first.
I believe concepts like the Long Tail are the initial indications that a world of abundance is possible. Of course The Long Tail talks in economic and commercial terms – we are discussing profiting on the abundance in this case – but at least in principle the idea that there is enough for everyone is realized, an important step towards changing attitudes. Technology brought us The Long Tail and no doubt technology will take it further. Imagine a world where all basic needs were served thanks to technology creating abundance in core areas like food and shelter and delivering abundance in areas like health-care, social services, education, communication, travel and information. It would mean rewriting or at least rethinking the rules of economics, as supply would equal demand with almost zero friction – needs would be met thanks to technology providing abundant resources, which in turn would cause the real shift that is necessary for this to work on a grand scale – a change in the way people think and behave.
You can read samples from The Long Tail book and consume related materials at Chris Anderson’s Blog About Page. I just finished reading the book myself but I won’t spend too much time reviewing it since it really is quite simply the only book you will find about The Long Tail written by the man who probably knows the most about it and has conducted a ton of research into it.
The book is a good read and if you want more concrete statistics and examples to back up The Long Tail I definitely recommend it. It’s a very long winded way to essentially explain one concept and you will certainly learn about it from all different contexts by reading the book – it can be bit much at times since you are being told the same thing over and over again just in different ways. I think I grew bored by about half way through, but as I persevered different case studies grabbed my attention again. If you love Internet marketing and want to keep abreast of the latest trends there is no way you cannot read this book. The Long Tail is current and popular and it has too much buzz to be ignored.
The Long Tail is an interesting book in the way that Malcolm Gladwell’s Blink and The Tipping Point are interesting. You get some great stories – case studies that help to elaborate and verify the core principle. It makes for great dinner conversation and for those who may not be exposed to buzz principles like The Long Tail you can certainly sound very smart and up to date by explaining it and offering cool stories from the book to your less savvy friends. Ultimately though they probably won’t quite understand what you are getting at and will just group the concept along with all the other “geeky” things you talk about.
It’s certainly a relevant book for Internet business owners. If you operate an online business it will make you think about how you can leverage Long Tail shifts in your industry or prepare for them when other companies enter your niches with Long Tail technologies. This is probably more important than you think it is, so don’t be surprised in the near future when large companies with staff, experience and technology enter your niche and very quickly take away your customers by offering a greater selection of products, superior tools to filter and recommend products and smarter marketing techniques that quickly erode the advantages you once had.
As I said previously, it’s never been more important than now to start dominating a niche and maintaining your status as the best in your specialty. If you don’t stay educated – and certainly reading books like The Long Tail is part of this – you may very quickly be replaced by other people who have positioned themselves better than you and present themselves as superior options by appealing to tighter niches in The Long Tail.
I’m personally most excited about what The Long Tail may signify in terms of our society and attitudes towards abundance. It’s certainly early days and perhaps I’m reading way too much into what ultimately is just another way that business can make money, but I prefer to see it as something potentially more far reaching and powerful in a positive sense beyond just profiteering.
From a business stand point it’s hard not to be intrigued and compelled by the potential. Satisfying customers is the key ingredient for a successful company and Long Tail markets have some of the most satisfied consumers around. They enjoy abundant selection and advanced tools to help them find what they need and experiment with to determine what they like. There is no other industry or marketplace that offers the customization and abundance of choice like what is available online today and it should only get better as technology reduces distribution costs in different product categories.
For now I am going to sample some new music from some obscure genre I never knew existed before the Internet came along and it’s all thanks to The Long Tail.
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