The Longtail Theory
What is the Longtail Theory?
The term was first coined by ‘Wired’ magazine editor Chris Anderson in 2004, and was used to describe and explain various business models used by a number of online businesses.
What does it mean?
At the time, Chris Anderson described businesses such as Amazon and Netflix as those using the Long Tail Theory.
He also described that 80/20 split, where 20% of the catalogue generated 80% of the sales. However, he identified that the other 20% still held value, and therby businesses using the Long Tail would be able to offer a large array of products without the issue of shelf space and limited storage. Here a diagram shows how the Long Tail works:
The main body reperesents how many businesses work; by offering the most popular products, sales will be higher than selling the less demanded and obscure products. This is often the case when businesses have limited space to store items.
However, Chris Anderson realised that with the World Wide Web, a number of web based businesses were using the opportunity to offer not only the more popular products, but the less demanded items as well (known as the Long Tail). This creates a massive database of products that could potentially be bought by the customer.
He also explained how only 2% of products fail or struggle to sell (making them less worthy of being listed) and showing how many of the usually neglected items will still benefit the business, should it be prepared to sell them.
Who does it benefit?
More than anyone, the customer. When a potential of infinate products listed on one website, the customer needs not look elsewhere as they know they will be able to find what they want in one place, and once they discover this, the website in question will become their fist port of call when looking for products. Thereby gaining a good reputation.
As well as gaining a good reputation, the business will benefit for the Long Tail as it continues to sell it’s more popular products whilst those less in demand will still bring in extra revenue. This way of working is very cheap to do, as the cost of listing 1 extra item on the site is next to nothing and will be redeemed over time.
Image source: http://nonsmokingarea.com/blog/wp-content/uploads/2006/07/longtail2.png
