The Steinhorn Stare

“The Long Tail” Explained

Along with “Web 2.0,” the big buzz phrase going around technology marketing circles these days is “The Long Tail.” Now, unlike Web 2.0, there is a set of meaningful and useful concepts behind The Long Tail, and since I’ve had a couple people ask me about it recently, I wanted to take a quick moment to explain some of those concepts and how they are changing our industry.

The term The Long Tail, as applied to trends in content consumption and the impact on business models that emerged from these trends, was first used by Chris Anderson back in 2004 (Chris is editor of Wired magazine, and first discussed The Long Tail in a Wired article). Chris noted that in the physical world, the economics of consumption is in many ways driven by popularity. When you walk into a bookstore, the selection may seem large, but compared to the millions of book, newspaper, and magazine publications that have been released throughout modern history, the selection is actually a very, very small percentage of what could be made available. The reasoning behind this is simple – retailers have limited shelf space and limited up-front cash and therefore must provide inventory that appeal to the widest market of consumers.

The largest percentage of demand is for a very small percentage of available items. With limited cash and inventory space, retailers are forced to stock that small percentage of stuff that has the broadest demand. As such, the majority of items that exist in that space are not made available to the consumer, despite the fact that the aggregate demand for those unavailable products might prove greater than the demand for the all the available (most popular) items. This is represented in the diagram below…

The x-axis represents all available products in a market, and the y-axis represents the demand for each product. With limited cash and shelf space, retailers will stock items all the way to the left (in red) to ensure the greatest appeal (and ultimately greatest sales) of their inventory. The inventory that doesn’t “make the cut,” and the demand that is ultimately ignored in this model, is referred to as The Long Tail (in yellow).

Sadly — for both consumers and retailers — the total demand and value of the unavailable stuff (yellow) may outweigh the value and demand for the available stuff (red); in terms of market dynamics, this is a severe point of friction.

Businesses that don’t require shelf space and don’t require up-front cash for all their inventory are freed from the tyranny of The Long Tail, and can feed demand for that massive set of long tail inventory. Recently, a number of Internet retailers (think Amazon, Netflix, etc.) have proven the theory that being able to cater to the long tail can provide a huge competitive advantage over their physical world counterparts.

Taken a step further, new technologies are emerging (often referred to as Web 2.0 technologies) to allow content providers to mimic the business models created by The Long Tail retailers. For example, with the popularity of RSS feeds and readers, many web users are choosing to aggregate a bunch of small content outlets (news sources, blogs, wikis, etc.) to get their daily dose of information, instead of going to the larger, historically more popular, news outlets like CNN and The NY Times. Again, the Internet has made it possible for these smaller content producers to thrive, where in the physical world they wouldn’t have even been able to survive by only serving The Long Tail of demand.

In the future, The Long Tail is sure to drive new business models that test the ability for established players to serve to huge market of demand that is currently ignored.

And by the way, it’s probably worth pointing out the company that has likely been the most successful at serving and monetizing The Long Tail over the past ten years is eBay…

This entry was posted on Thursday, December 22nd, 2005 at 12:00 pm and is filed under Technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to ““The Long Tail” Explained”

Best of eBay Blogs » Blog Archive » “The Long Tail” Explained Says:
December 22nd, 2005 at 4:15 pm
[…] Originally by Jason from The Steinhorn Stare on December 22, 2005, 12:00pm […]
Michael Barr Says:
December 25th, 2005 at 4:28 am
There’s an interesting side issue here, which I have not seen anyone write about. IF the long tail exists in the market for a certain type of good AND the total dollar value of that tail (dollars per specific narrow sliced product x all specifics) is large relative to the total dollar value of the popular goods, THEN when the long tail of the market is served, demand will fall for the popular goods. This assumes, of course, that consumers of that type of good face limits on their total spending in that category.

For example, music is said to be a market with a long tail. And if I suddenly take a liking to “Derek and The Long Tail Bandits” along with a few thousand other music consumers, then the money I spend on their songs displaces at least a portion of my spending on my least favorite of the more popular artists. On a macro scale, this could have a tremendous effect on the profitability of record producers or book publishers or anyone who serves the popular market through physical goods and distribution and is faced by new competition by “unpublished” artists selling online.

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“The Long Tail” Explained

2 Responses to ““The Long Tail” Explained”

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