Week 3 - Chris Anderson's Long Tail

The podcast of 'The Long Tail' by Gil Frisbie and Frank Acito of Indiana University was very interesting and it led me to explore more about the phenomenon online. This article by Chris Anderson explains the phenomenon in brief.

Essentially, the distribution of sales by volume looks something like this:

The red portion of the graph shows the most popular products by volume. The yellow portion (Long tail) contains the not-so popular products. With the advent of ecommerce and Internet, the Tail is rising and getting fatter. The reason for this is two-fold. The first is that Internet provides increased variety of goods. The second factor is the consumers are demanding increasingly unique and customized products as they become savvy shoppers online.

This phenomenon of the Long Tail is going to work in favor of e-retailers.

98% Rule

The 98% rule states that 98% of your revenue comes from the Long Tail. Traditional rule is the 80-20 rule where 80% of your revenue is derived from the 'Head' rather than the 'Tail' of the graph above. After the advent of the Internet, the tail has become so long and fat that your major revenue source is the tail.

Lessons for businesses

1. Your major revenue source is still the 'Head' but you must pay attention the the 'Long Tail' as it will become increasingly important for driving revenue.
2. Customer satisfaction is driven by the 'Long Tail'. If customers find the unique product they are looking for in the 'Tail' on your website, it is more likely that they will buy the regular 'Head' products from your site also.
3. Social Media works against the Long Tail by concentrating traffic to the most popular items in the 'Head'. Advertising works in the same manner.