The Long Tail and Web 2.0

Historical economic rules are shifting. As the internet makes the world's information accessible, certain well-established marketing and distribution dynamics are radically changing. The constraints of product to shelf space, television shows to lineup schedules, and newspapers to circulation are being broken. The internet is having an effect on consumer products, channels, and news sources and it's breaking all the rules. Chris Anderson, senior editor of Wired magazine has a new book coming out in July called "The Long Tail." We've written about the Long Tail's effect as it relates to search engine optimization, but that's only one aspect of the Long Tail's broader economic impact. The Long Tail effect happens when the exponentially growing availability of stuff, like news, consumer products, entertainment and even software becomes readily available to well, just about everyone.


Let's start by examining the Long Tail as it relates to the world of consumer products. Retailers like Border's, Blockbuster and Tower Records have to carefully decide what products to include in their inventories. Managing shelf space constraints is a tricky job. Retailers have to figure out which, among all the vast options available, will sell. Despite careful research and analysis, most retailers will confirm that ultimately only 20% of their inventory will account for 80% of their sales. The most popular books, biggest hits, and blockbuster movies deliver the bulk of sales. This has been a consistent retail reality for brick and mortar establishments. But now, the internet has made shelf space an obsolete limitation. Online retailers can now "stock" far more than what they could have otherwise kept in inventory or put out on display racks. But if only the most popular items make up 80% of sales, why should a traditional retailer worry about an online competitor with a vastly larger inventory? In the end aren't huge inventories just distributing the left over 20% of sales among a lot more items? So what's the big deal?


The big deal is that when a much larger pool of options becomes available something remarkable happens to the 80%-20% rule. It shifts closer to 50%-50%. Chris Anderson's article "The Long Tail" and his blog www.thelongtail.com goes into detail about this effect. I'll try to summarize.

The shorthand reason why 80% of the less popular inventory of traditional brick and mortars only adds up to 20% of sales is that they've had to radically shorten the tail of available items due to shelf space constraints. They have only so much room, so while there may be hundreds or thousands possible books, movies, and CDs the actual in-store choices are limited to just a few thousand.

For example, let's compare a real world Tower Records with an imaginary one. A real Tower Records has only so many racks to store and display their CDs. If we were to view a chart representing their monthly sales we would see a tall head at the beginning of the chart representing the high sales of the most popular items. After the head a quick sweeping descent would drop down close to the base line but extend to the right as the remaining 80% of less popular products contribute their meager sales to the total. The combined sales of the under performing inventory ultimately only add up to 20% of total sales. The sales chart starts with a tall narrow column followed by a longer tail.

But interestingly, the humble sales percentage of the larger block of under performing inventory is actually a consequence of shortening the tail due to inventory constraints. The tail ends abruptly at the exact point where inventory ends. The sales chart stops when there are no more products to report on. Unstocked items obviously have no sales at all.

Now imagine walking into the biggest Tower Records you've ever seen. This Tower Records has just about every record ever made. Whether you're looking for the latest releases or an old folk ballad, you'll find it there. (For this illustration to work this immense Tower Records would also have to be just around the corner from everyone on the planet.) Some items at this mega Tower Records sell like hot cakes, but the older or more obscure titles don't sell nearly as much, maybe just once or twice a month. While these less popular items aren't selling fast, they do all sell - albeit just a little. If such a store could exist, the sales receipts would show that the most popular items no longer add up to 80% of sales, surprisingly they now make up only 50% of overall sales. The remaining 50% is made up from a little of everything else. The fact that the long tail of products is not limited by space constraints means the low selling tail goes on further to the right than it otherwise would. Much further.

But interestingly as the tail extends to the right with very low sales levels, the items at the end of the tail still sell, the tail doesn't drop to zero sales until the very last segment of the sales chart. The long tail, because it is not chopped off at the physical inventory limit, continues to add sales. Until, at final count the combination of piecemeal sales totals 50% of overall sales. To get why this shift is so dramatic you need to see just how long the long tail gets.   next >