The Long-Tail Model
The long-tail model describes how online distribution can make a large catalog of niche products commercially important. Chris Anderson argued in 2004 that their combined sales could rival or exceed those of a small set of hits; whether that happens depends on the market.
THE IDEA
The Long-Tail Model
The “Pareto Principle” is often expressed as the idea that 20 percent of products generate 80 percent of turnover. In 2004, the editor-in-chief of Wired, Chris Anderson, claimed that nearly everything that is offered for sale on the internet is also actually sold – however bizarre or unnecessary the product. His argument was that low distribution costs could make a wide variety of niche products commercially viable.
Anderson used a demand curve to illustrate his claim. On the far left, the curve rises sharply upward. Here are the best-sellers and blockbusters that account for 20 percent of the market. Then the curve levels out gently to the right. This is where we find the less popular books and films. This part of the curve is much wider, spanning many more products, than the peak. In this illustration, compare the total sales of the best-sellers (20 percent) with those of the “rest-sellers” (80 percent). Anderson’s 2004 argument was that the long tail could generate more turnover than the few hits. The result depends on demand and catalog costs, and turnover alone does not establish profitability.
The internet is the world’s largest library. It’s just that all the books are on the floor. — John Allen Paulos
See also: Pareto principle
When to use it
Amazon's marketplace for books and other products
Netflix's streaming library of niche films and series
Spotify's music catalog, where obscure artists find audiences
Etsy's platform for handmade and vintage goods
FROM THEORY TO EVERYDAY LIFE
In practice
Amazon's Niche Books
An online bookseller such as Amazon can offer niche titles that a store with limited shelf space would not stock. To assess the long-tail model, compare their combined sales and costs with those of the best-sellers.
Netflix's Streaming Library
A streaming service such as Netflix can offer films and series for small audiences alongside popular hits. A long-tail analysis asks how much those niche titles contribute to viewing and subscriptions relative to their costs.
A MOMENT TO REFLECT
Put it to work.
Think of an industry you know well. How does the long-tail model apply to it? Are there niche products that collectively outsell best-sellers?
How has the internet changed the economics of niche products in your field?
What are the implications of the long-tail model for traditional brick-and-mortar retailers?
Often confused with
References
- The Long Tail: Why the Future of Business Is Selling Less of More — Chris Anderson (2004)
CONTINUE THE CONVERSATION
Source texts
- The Decision Book Fifty Models for Strategic Thinking