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Long Tail

Long Tail

Long tail is a type of business strategy which focuses on lowering distribution costs and marketing a wide variety of goods to a large consumer group, an approach made easier by the rise of e-commerce and e-retailers. The term long tail comes from a reference to a mathematical graph in which the concentration of a particular item or occurrence is shown, from a short, high head (the concentrated occurrence) to a sloping, drawn-out tail (the area of lower occurrence).

In business statistics, a bell curve is created to illustrate the probability of markets and the results of surveys, polls, averages, and so forth. A symmetrical curve will have two identical tails, both descending away from the highest middle point (the mode, the highest concentration of occurrence or the most popular answer). However, most statistical graphs will show a skewed, unsymmetrical frequency, meaning that the line of the graph will tend more toward one range, creating a long tail. A skewed curve can tend either toward the left, making a positive distribution, or toward the right, giving the graph a negative distribution. The graph in the example below has a positive long tail, the most common example of skewed distributions. Analysts use such graphs to determine what products are most popular, what types of marketing are most effective with customers, and what companies are most effective at selling in their industry, among other types of information.

While many companies attempt to fall within the head of a product distribution (the most popular, best-selling section), other businesses have tried to make money by appealing to a broader audience of consumers with a wider range of goods that, though less popular, can be sold successfully in lower quantities to many niche markets. One of the most famous types of broad-market companies in the early twentieth century was Sears Roebuck. Sears Roebuck produced a famous catalog advertising furniture, appliances, clothing items, houses, and other items to customers across America. The business was run as a mail-order company, so Sears Roebuck was able to concentrate on storage and distribution. Customers could order nearly any item they wanted through the catalog, and have it shipped straight to them. A century later, the Internet revolutionized the same system for many other companies.

Calling such business strategies long tail began in 2004, when Chris Anderson wrote a revolutionary article in Wired Magazine describing long tail effects and abilities. He later followed this with a 2006 book, The Long Tail: Why the Future of Business Is Selling Less of More, which has recently been updated in a 2008 edition. In his original article, Anderson questioned the techniques of companies selling only on the steep head of the graph, the few items statistically proven to be bestselling. He suggested that customers had more individuality than companies gave them credit for, and that nearly any item could find a perfect market if given the right opportunity.

A TALE OF TWO BOOKS

Anderson's first example for his long tail theory involved two popular mountain-climbing books published a decade apart, first Touching the Void in 1988 and then the bestselling Into Thin Air a decade later. Although Touching the Void was nearly out of print, Amazon.com began to suggest the book in their online store as a possible interest for those purchasing Into Thin Air. However, customer reviews and online recommendations for the earlier book soon escalated exponentially, leading to new

enthusiasm. Before long, Touching the Void was outselling Into Thin Air and stayed on the New York Times bestselling list for weeks, all due to the fact that Amazon.com still carried the nearly out of print book for those possibly interested in it. This, according to Anderson, was a perfect example of how selling in the long tail can pay off.

The long tail theory applies to much more than books. Any online company with strong distribution abilities can and often does make use of the myriad niche markets available in today's interconnected world. Anderson also applied the theory to the music industry, which he considered especially open due to the song-by-song basis on which music could be sold. Song lovers, able to find and pick out their favorite tracks, tend to gravitate to their favorite bands regardless of popularity, so that no matter what albums online music stores offer, there is likely to be a group of consumers, somewhere, who will buy songs from that album. Movie distributors over the Internet, such as Netflix, demonstrate a similar advantage.

There are several common marketing theories which Anderson disagreed with in his groundbreaking article, among them the continuance of the hit-driven market and the 80-20 rule. Hit-driven economics occurs in a wealthy, profitable market where there is a varied supply and not enough shelf space. Businesses must choose what products to display, so they choose the hits (the products society has chosen, goods surrounded by the most buzz). Hit-driven economics creates profit, but Anderson suggests that it fails to meet the needs of consumers and is outdated with today's technology. He proposes that businesses now operate in an abundant market where many specific goods, not only the hits, can be made available through the Internet. The 80-20 rule is similar, stating that only 20 percent of available title productssuch as music or book releaseswill become bestsellers and therefore will be worthy of attention. However, Anderson argues that nearly all the titles will sell at least a minimal number of copies, and that the 80-20 rule blinds businesses to sales outside the mainstream.

Fortunately, selling outside the mainstream in online trade is much easier than in space-limited, brick-and-mortar establishments. Cost savings are found through several different methods. Since there is no shelf space, there is no need to pay for anything other than product storage. Since most interfaces are digital, money can be saved by limited personnel and smaller office space. Distribution fees are also either lower or nonexistent, and manufacturing costs can often be lowered.

STEPS IN UTILIZING THE LONG TAIL

Anderson describes three driving forces in his book, three technological innovations recently developed that enable companies to access the long tail in a profitable way. These advances have changed the business market in fundamental ways, according to Anderson, allowing successful strategies to be centered away from mainstream items:

  1. Tools of production. Certain tools of production have been developed in recent years that enable nearly anyone to create certain kinds of goods. Camcorders have become smaller and of higher quality, and they are available at lower costs. Software creation programs have become more common, and the number of those trained in computer programming has also increased. Along with the open source perspective many online businesses are taking, this allows nearly anyone with proper skills to make improvements and innovations to online structures. Many new software packages enable users to create their own music, publish their own articles, or form their own blogs. As a result of these changes, a vast number of small, niche products has risen with their own marketing possibilities. The key, naturally, is to locate and distribute the high quality products that others will be interested in.
  2. The Internet aggregators. Internet aggregators include most online e-retailers, Internet stores that are able to gather a large number of products or services to sell. There are many types of aggregation. Some online stores, such as Amazon, offer many different types of products in one centralized location, much as the Sears catalog did a century ago. Others, such as eBay, gather not products but potential long tail sellers, making money off the services they offer. Some aggregators specialize in a particular good, such as iTunes and their wide variety of music. The key attribute of Internet aggregators is their ability to offer the long tail items all from a single, virtual store. These are the businesses which can follow long tail strategies.
  3. Software connecting supply and demand. These are the necessary players that help connect small-time producers using tools of production, Internet aggregators with the ability to offer all their products in one online store, and consumers who have particular demands and interests. All types of Internet systems can function as connectors of long tail supply and demand. Social networking sites provide a platform where people can share knowledge and interests, increasing the size of many niche markets. Blogs spread information concerning cultural fads, hobbies, and various pastimes that can also affect long tail markets. Many search engines and e-mail providers, such as Google, also provide necessary connections between consumers looking for certain goods and companies offering them.

In addition to these three driving forces of long tail strategies, Anderson also gave three general rules for

companies trying to profit by their long tail business. These rules apply mostly to entertainment industries, where niche markets are the most widespread, but can be used in any situation where long tail sales are a goal:

  • Make everything available. An online aggregate should attempt to offer every type of its product line possible. If the e-retailer is selling movies, or renting them as Netflix does, they should offer every type of movie they can, especially those marketed to a small audience (such as documentaries, independent movies, and foreign films that buyers would not be able to find in an average video or retail store). Almost anything is worth offering on the off chance it will find a buyer, Anderson says, and when accessing the long tail this is a necessary step. Every genre and subgenre should have representation, and the more esoteric it is, the better the chances are that the product will have a particular niche market.
  • Cut the price in halfnow lower it. Anderson's second step is to lower prices to the point where they accurately reflect the costs involved in distribution. Since long tail distribution costs are naturally low, long tail e-retailers should have naturally low prices for their products. Anderson uses the music industry as an example: as of 2008, iTunes allows customers to download song tracks for 99 cents. The music industry could offer songs at lower pricesAnderson estimates about 79 cents insteadbut stay away from lowering prices too much for fear that CD manufactures and distributors would be displaced, causing ramifications throughout the record industry. However, this might not be the case. The music industry, especially in the long tail, may be elastic enough to increase in demand equal to lowered prices. E-retailers, in other words, can sell more by dropping prices, and many niche markets depend on such low prices. Anderson also points out that the older tracks (or movies, or books), already invested in, can easily stand price cuts that make them more noticeable to possible customers.
  • Aid customers looking into the long tail. Long tail businesses must avoid the tempting problem of only offering products lying within the long tail part of statistical graphs. This is not a successful strategy, since customers are not drawn to the smaller business niches in a direct process, but rather through a series of introductory steps, often beginning with more popular items closer to the head of the graph and progressing down to less significant products closer to the consumers' taste. This is often done through a series of recommendations. When a customer accesses an online store to search for a popular itemthe new release of a book or movie, for instancethe e-retailer gives them several recommendations of similar, lesser known products that curious customers can inspect. These recommendations in turn lead to other, even rarer product recommendations the customer can search through until he or she finds the right good, possibly located far down the long tail. Without offering popular products and recommendations in the first place, e-retailers cannot attract consumers to lesser known items.

THE LONG TAIL DEBATE

In 2008, Professor Anita Elberse wrote an article in the Harvard Business Review that sparked a series of debating posts between her and Chris Anderson over the applicability of the long tail theory. Elberse began by proposing that Anderson's ideas, while sound, were not nearly as effective as he theorized. Her own research led her to downplay the effectiveness of a long tail strategy and suggest that the long tail is too flat and extended to be useful, that profitable business is not moving toward niche markets but is instead staying firmly in place near the head, where the bestselling products are. Since Anita Elberse had both collaborated with Anderson in his book research and conducted detail analysis of the music industry herself, her argument attracted a large amount of attention in the business world.

Chris Anderson replied with an article refining his definition of long tail and head, and he challenged Elberse's interpretation of music industry percentages. According to his view, the prominent head of Elberse's argument technically counted as only a small portion of available products, the few percentage points of successful goods found on the shelves in brick-and-mortars. The total of other goods, what Anderson referred as the tail, sold overall more copies (and made a higher profit) than the total of the head, which still confirmed his theory. Anderson used the same logic on the other studies conducted by Elberse, splitting the head and tail into percentages that agreed with his views.

Elberse responded to Anderson's retort with another article, in which she agreed with his main tenets but underlined two of her beliefs. First, she emphasized the increasing flatness of the long tail, proposing that the more online retailers offered goods to niche markets, the flatter the tail would become, until businesses would begin struggling to cover all possible products. Second, Elberse pointed out that all light hitters, or infrequent shoppers, preferred the bestsellers by far, and that bestsellers were rated higher by all customers than the rarer tracksshowing that quality counted more than quantity. Her efforts were directed toward moving away from defining all sales as either head or tail, and toward an empirical view of strategic effectiveness.

SMALL BUSINESSES

Although Elberse's argument is based on careful analysis, her points concern mostly large corporations who have the ability to reach across the full length of the long tail. Smaller businesses can make use of long tail strategy to find successful markets for their goods. Anita Campbell explores the long tail advantages of small businesses in her 2008 article, Is it Time to Chuck the Long Tail Theory? and comes to the conclusion that large corporation can afford to concentrate on making and marketing bestsellers, but small businesses cannot afford to pick and choose products. What they can do, according to Campbell, is use the power of distribution to access possible long tail buyers.

In the exhibit shown above, large corporations have the resources to use legal distribution, supply and demand, and capitalism to utilize long tails, while small businesses need to work with independent production and let the long tail market find them. For them, the distribution power and online representation today's technology offers is a step toward introducing their creations up the tail toward the head. Small business's lesser known goods can find niche markets through the online availability (long tail software) and work upward, creating their own popularity.

LONG TAIL EXAMPLES

Amazon.com: With their innovative recommendations list and vast variety of products, Amazon typifies the online retailer making use of long tail strategies.

Netflix: Making a point to carry all titles, not just those for sale in local video rental stores, Netflix has revolutionized online DVD rental services.

Rhapsody: Chris Anderson notes that online music seller Rhapsody dared to attempt his second long tail step of drastically reducing song track prices in an experiment, selling some tracks at both 79 and 49 cents; though Rhapsody lost money on the endeavor, the company made it up by selling triple the number of usual songs.

eBay: The famous online C2C seller allows customers to search for a vast variety of products and, more importantly, provides the services necessary for niche markets to function successfully.

Google: The Internet giant gives consumers the ability to search for whatever particular products they want.

ISSUES WITH LONG TAIL STRATEGY

As Anita Elberse countered in her articles, no matter how much discussion centers around maximizing profit through appeal to the long tail, the statistics show that the money still lies in bestsellers. While long tail products may be able to find a market somewhere in the world, businesses must choose what strategy to invest in, and most find it easier to focus on the head rather than the tail. Consumers simply prefer the blockbuster titles, and no matter how available other products become, the bestsellers appear to receive the best reviews, the highest accolades, and the most interest. For companies with limited resources, investing in the head goods is easier and more profitable, unless an entire long tail system is already in place.

Others predict a failing in long tail markets that will arrive when the costs of communicating and maintaining ever-increasing availability outweigh the profits of appealing to countless niche markets. For instance, social networking sites collect and provide many kinds of content (such as video and audio clips only a step away from entering niche markets as a possible source of profit), which users can share with their friends and create a buzz about. However, as the number of users, the number of generated pieces, and the number possible markets increases, the costs of maintaining the social networking sites also rise. More employees are needed to secure the data and more servers are needed to hold the information, which often leads to a need for more office space and more system updates. Eventually, these rising costs will eat away at the profitability of the social networks, and some content will have to be dropped to save space. Who decides what content will be dropped? The social networking companies will most likely choose some of the oldest informationbut when users discover their shared information is being deleted, they will lose interest in sharing, and the niche markets will disperse, beginning a cycle of loss. This same danger applies to all long tail strategies, although it remains to be seen whether the niche markets will actually dry up in this manner.

BIBLIOGRAPHY

Anderson, Chris. The Long Tail. Wired. Condenet Inc, 2008.

Anderson, Chris. Debating the Long Tail. Harvard Business Publishing. Harvard Business School, 2008.

Anderson, Chris. The Long Tail: Why the Future of Business Is Selling Less of More. Hyperion, 2006.

Asay, Matt. Blockbusters Stomp on the Long Tail, Harvard Business Study Finds. CNet News.com, 2008. Available from: http://news.cnet.com/8301-10784_3-9978874-7.html.

Campbell, Anita. Is It Time to Chuck the Long Tail Theory? Small Business Trends, 2008. Available from: http://www.smallbiztrends.com/2008/07/long-tail-criticism.html.

Elberse, Anita. Should You Invest in the Long Tail? Harvard Business Review, Harvard Business Publishing, 2008.

Elberse, Anita. The Long Tail Debate: A Response to Chris Anderson. Harvard Business Publishing: Conversation Starter, 2008. Available from: http://conversationstarter.hbsp.com/2008/07/the_long_tail_debate_a_respons.html.

Foremski, Tom. Choking on the Long Tail: The Unbearable Burden. Silicon Valley Watcher, 2008. Available from: http://www.siliconvalleywatcher.com/mt/archives/2008/03/saturday_post_c.php.

Godin, Seth. Meatball Sundae: Is Your Marketing Out of Sync? Portfolio, 2007.

Needham, David, and Robert Dransfield. Business Studies. Nelson Thornes, 1994.

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