What is the “Long Tail of Business” Theory?

Anderson’s Theory The “Head” of the Demand Curve:  Pre-Internet, old economy firms turned out a small number of “hits” or blockbuster products The “Tail” of the Demand Curve:  Internet-era, new economy firms offer a broader range of niche products.

The Head Prior to the Internet, production, distribution, and consumption focused on a few hits because of scarcity of resources:  there simply was not enough time, space, or money for businesses to offer everything for everybody.  The 80/20 rule was the dominant model—20 percent of a business’s products accounted for 80 percent of its sales (and usually 100 percent of its profits).

The Long Tail In markets where technology dramatically reduces the costs of reaching niches through one or more of these powerful forces:  democratizing the tools of production greatly expands the universe of content  democratizing distribution greatly reduces the costs of consumption  connecting supply and demand by lowering search costs of finding niche content drives demand down the tail. But how do you lower the search costs?

The Long Tail  In the long tail model, these forces allow online businesses to greatly increase the variety of their products. Anderson argues that 98 percent of a long tail business’s products sell at least one unit in a quarter on a cumulative basis, these small numbers of sales of large numbers of niche products generate enormous revenues and profits.

To Summarize: In virtually all markets, there are far more niche goods than hits The cost of reaching those niches is now falling dramatically. Simply offering more variety does not shift demand by itself. Consumers must be given ways to find niches that suit their particular needs and interests. A range of tools and techniques—from recommendations to rankings—are effective at doing this.

Once there’s massively expanded variety and the filters to sort through it, the demand curve flattens. There are still hits and niches, but the hits are relatively less popular and the niches relatively more so. All the niches add up. Although none sell in huge numbers, there are so many niche products that collectively they can comprise a market rivaling the hits. Once all of this is in place, the natural shape of demand is revealed. That shape is far less hit- driven than we have been led to believe.

Is there a Long Tail? hosts more than ten thousand reviews and its Web traffic statistics show that even the most popular film represents less than 1 percent of their business.  In June 15, 2006, "The Da Vinci Code" and "Brokeback Mountain" were tied at 0.8 % of page viewsThe Da Vinci CodeBrokeback Mountain  the next most requested reviews in 2006 have been for "V for Vendetta" (0.7)V for Vendetta  "X-Men: The Last Stand" (0.6)X-Men: The Last Stand  "An Inconvenient Truth" (0.5).An Inconvenient Truth The lesson: People are curious about a lot of different movies."

Is there a Long Tail? The Long Tail of Holiday Music.  eMusic has 1,226 holiday albums in the catalog  1,128 have been downloaded over the past month.  That's 92% of the catalog! Source: Digital Audio InsiderDigital Audio Insider