The Rise of the Long Tail

Description:

Edit by Roel Kock (EMBA09)

The Economics of scale are not. Quite simply, it is becoming more and more important to provide an endless range of products - something different for everyone. Why should everybody have a black T-Ford, if you can make an orange racing monster for the one who wants that? Increasingly, it is possible to serve a million niche markets with a highly customizable product, and because there are a million niche markets, it is becoming really profitable to do so.

The term "The Long Tail" refers to the endless right half of a logarithmic graph. On the vertical axis are the number of sales, while the horizontal axis represents products or product versions. Now, if you see the left half of this graph as the mass market - the "hits", with a lot of sales for only a few product versions, then the right half has a lot less sales for a lot more products - the million niche markets. But in theory, the area (money) of this part of the graph is just as big as the left half - and thus just as profitable. This partly caused by the fact that e-commerce decreases the fixed costs and products can be offered by more or less variable costs. This might make the product cheaper then the old fashioned retail shop.

As a result, more and more companies focus on the right half: the niche markets. In 2002 niche retail companies CSN Stores and NetShops are founded with the concept of selling products through several targeted domains, rather than a central portal. You want that orange racing monster? You'll get it. On www.nike.com a customer can even buy tailor made nike's. You want something else on your radio than Britney Spears? Sure, I'll give you an online radio station featuring Mandy Moore. In Open Source: you want Gnome, or KDE, or OpenStep, or CDE, or anything else on your desktop? Pick one. And Microsoft: you want Windows XP home edition, professional, server, media edition, or maybe one of the many many mobile versions? By serving a million niche markets, companies can earn the same amount of money as when serving the big, Economics-of-scale-driven mass market.

The niche market and the mass but tailor made market (e.g. NikeID) are made possible by the internet.

Image and idea courtesy of Chris Anderson

Enablers:

• The Internet (more information on products from different companies), and
• Mass communication in general;
• More efficient production / development methods for tailor made mass market products (e.g. NikeID) and daily made T-shirts (e.g. http://www.shirtvandedag.nl/index.php);
• Bad economy after good economy (more value for money, but spoiled consumers = more careful selection of products)
• More trust in the e-commerce which encourage 'niche' buyers to buy online
• Rise of 'niche' news groups and 'niche' social networks makes it easier to target the niche groups.
• Various website are 'ready to go' niche channels (e.g. e-bay). On YouTube various e-bay instruction video's are posted to help someone to set up a niche market e.g. http://www.youtube.com/watch?v=focQi-rmMuQ
• Various 'old analog' items are being digitalized and can be offered to niche target groups (e.g. http://www.fonos.nl/)

Inhibitors:

• Bad economy (less funding from companies); this might also be an enabler because more people are without a job an starting a business and e-commerce is getting cheaper to start buy using site like e-bay.
• Niche buyers might have sympathie for the old fashion store because it's part of the buying experience
• Niche buyers might want direct, expert advise

Experts:

• Chris Anderson, editor of Wired Magazine.

Web Resources:

• http://longtail.typepad.com/about.html
• http://www.bizreport.com/2009/07/internet_marketing_101_developing_your_niche.html
• Social Media Revolution [1]
• Research Paper: The Rise of the Long Tail