The Long Tail – the New Economic Model for New Media

Created by Jae Moran.

The notion of the Long Tail has gained popularity since the introduction of Web 2.0 internet technologies. The Long Tail is a retail strategy which allows businesses to distribute a large number of items in relatively small quantities. Retailers also sell popular ‘hit’ items, however these sales normally make up small quantities within the long tail. The Long Tail was popularised in 2004 by Chris Anderson in his article in Wired Magazine. Anderson later adapted this article into a bestselling book and still maintains a current blog on the topic.

Anderson described the results of the Long Tail as an entirely new economic model for the media and entertainment industries which has a lot of potential to influence current and future business models [1]. Anderson argues that products which have low sales volumes can collectively combine to create a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, providing the store or distribution channel is large enough. The Long Tail represents a potential market and the distribution and sales channel opportunities created by the Internet often enable businesses to tap that market successfully. Amazon.com is an example of this hugely successful business strategy of offering consumers unlimited choice on book titles due to its centralised warehouse’s large storage capacity. Academic studies have found that the consumer surplus created by providing access to these relatively obscure book titles exceeds one billion dollars annually [2]. There is now evidence that the distribution and inventory costs of successfully applying the Long Tail strategy can produce significant profit for online companies. Where inventory storage and distribution costs are insignificant, it becomes economically viable to give consumers virtually unlimited product options. For example, traditional movie stores have limited shelf space and usually stock the latest release movie titles whilst still incurring overheads for all store locations. In contrast, Netflix, an online movie distributor, stocks movies in a centralised warehouse, allowing for substantially lower storage costs. Netflix is therefore able to build a viable business stocking a far wider range of movies than a traditional movie rental store. Netflix now has over 25 million subscribers, representing a 70 percent gain year over year [3]. The economics of lower storage and distribution costs then enable the advantageous use of the Long Tail.

Web 2.0 technology such as search engines, recommendation software, and sampling tools are allowing customers to find products outside their geographic area. The technology has the capacity to note patterns in buying behaviour and make personalised suggestions to consumers about other products they would like. This is the amplified effects of the Long Tail, which allow businesses to treat consumers as individuals, offering mass customisation for a low cost [1]. Some of the most successful Internet businesses have used the Long Tail as part of their business strategy [2]. Examples include:

  • eBay
  • Yahoo!
  • Google
  • Amazon
  • iTunes store [1]

However, while consumers certainly do benefit from lower prices online, research finds that they derive far more value from another important characteristic of Internet markets - the ability of online merchants to help consumers locate, evaluate, and purchase a far wider variety of products than they can via traditional brick and mortar channels [2]. The question that everyone is asking is what comes after the Long Tail?

Identifying The Long Tail - Chris Anderson


Comments


Comment 1:

By Wanda Rebolledo (N7181175)

So we have actually moved away from 2.0 and into 3.0 and some even argue that we have entered into internet 4.0.
So what does this mean for the long tail, and making money on the in the new internet.

In might be a worth while to check:
http://www.youtube.com/watch?v=5it8oBMbPrg&feature=autoplay&list=PLA3D01669176CE3D8&playnext=1

What does this mean for the future business on the internet?

Comment 2:

By Sarah Marris (N5122384)

If one aspect of the success of long tail is attributed to the fact that the method allows the large scale distribution of retail products, without the need to leave our homes, it’s interesting to note one particular online venture has continued to attract lack luster attention levels – online grocery shopping.

The following links explain some of the perils of online grocery:
http://www.forbes.com/sites/investopedia/2011/07/27/10-reasons-why-online-grocery-shopping-is-failing/

The article notes one of the reasons for the lack of success is that ‘the right technology hasn’t yet been applied’. Meaning online grocery shopping is just that, an online method for purchasing grocery items, without yet fully embracing all that Web 2.0 technology has to offer.

Comment 3:

By Amie Milton (N7200862)

As Jae says, the ability for consumers to purchase low cost items online with a wide variety of outlets does provide convenience.

Have a look at this study to see the positive effects of online shopping:
http://sais.aisnet.org/2005/Tabatabaei,%20Butler%20&%20Rogers.pdf

However, what does this mean for our traditional shopping outlets? With the rise of online shopping are traditional methods of shopping going to be replaced by online means?

This article explores the growth of online shopping and aims to identify the categories of shoppers and what this means for our shopping centres:
http://jrdelisle.com/JSCR/IndArticles/Shim_N200.pdf

Comment 4:

By Kate Bell (N7187955)

Expanding even further upon Jae’s research, Sonderegger (2005) [4] identifies four key solutions that can be used to manage choice in the long tail. Sonderegger believes that human searching behaviour is an untapped resource and as such, should be utilised effectively to manage choice in the long tail.
The first of these solutions is to remove the complexity of ambiguous search categories and replacing it with a refined list of attributes. This allows users to accurately predict that the items on the next page will share characteristics. Secondly, an integrated search and navigation support adaptation will allow users to modify search strategies. Thirdly, Sonderegger believes users should be able to refine their searches by navigating without ever hitting a dead end. Finally, a spotlighting technique should be used in which site owners throw a ‘spotlight’ on featured items using past user choices to fine tune the promotion (Sonderegger, 2005).


References


[1]. Anderson, C. 2004. The Long Tail. Accessed August 25, 2011.
http://www.wired.com/wired/archive/12.10/tail.html

[2]. Brynjolfsson, E., Yu Jeffrey, H,. And M. Smith. 2006. "From Niches to Riches: The Anatomy of the Long Tail." Heinz Research. Paper 51.
http://repository.cmu.edu/heinzworks/51

[3] Resisinger, D. 2011. Netflix hits 1 million subscribers in Canada. August 25, 2011. http://news.cnet.com/8301-13506_3-20088581-17/netflix-hits-1-million-subscribers-in-canada/?tag=mncol;mlt_related

[4] Sonderegger, P. 2005. Searching the Long Tail. Information Today, Inc. United States: Camden.