The Long Tail or long tail is a retailing concept describing the niche strategy of selling a large number of unique items in relatively small quantities – usually in addition to selling fewer popular items in large quantities. The concept was popularised by Chris Anderson in an October 2004 Wired magazine article, in which he mentioned Amazon.com and Netflix as examples of businesses applying this strategy. Anderson elaborated the Long Tail concept in his book The Long Tail: Why the Future of Business Is Selling Less of More (ISBN 1-4013-0237-8).
The distribution and inventory costs of businesses successfully applying this strategy allow them to realize significant profit out of selling small volumes of hard-to-find items to many customers instead of only selling large volumes of a reduced number of popular items. The total sales of this large number of "non-hit items" is called the Long Tail .
Given a large enough availability of choice, a large population of customers, and negligible stocking and distribution costs, the selection and buying pattern of the population results in a power law distribution curve, or Pareto distribution. This suggests that a market with a high freedom of choice will create a certain degree of inequality by favoring the upper 20% of the items ("hits" or "head") against the other 80% ("non-hits" or "long tail"). This is known as the Pareto principle or 80–20 rule.
The Long Tail concept has found some ground for application, research, and experimentation. It is a term used in online business, mass media, micro-finance (Grameen Bank, for example), user-driven innovation (Eric von Hippel), and social network mechanisms (e.g., crowdsourcing, crowdcasting, peer-to-peer), economic models, and marketing (viral marketing).
A frequency distribution with a long tail has been studied by statisticians since at least 1946. The term has also been used in the insurance business for many years.
Statistical meaning
The long tail is the name for a long-known feature of some statistical distributions (such as Zipf, power laws, Pareto distributions and general Lévy distributions). The feature is also known as heavy tails , fat tails , power-law tails , or Pareto tails . In "long-tailed" distributions a high-frequency or high-amplitude population is followed by a low-frequency or low-amplitude population which gradually "tails off" asymptotically. The events at the far end of the tail have a very low probability of occurrence.
As a rule of thumb, for such population distributions the majority of occurrences (more than half, and where the Pareto principle applies, 80%) are accounted for by the first 20% of items in the distribution. What is unusual about a long-tailed distribution is that the most frequently-occurring 20% of items represent less than 50% of occurrences; or in other words, the least-frequently-occurring 80% of items are more important as a proportion of the total population.
Power law distributions or functions characterize an important number of behaviors from nature and human endeavor. This fact has given rise to a keen scientific and social interest in such distributions, and the relationships that create them. The observation of such a distribution often points to specific kinds of mechanisms, and can often indicate a deep connection with other, seemingly unrelated systems. Examples of behaviors that exhibit long-tailed distribution are the occurrence of certain words in a given language, the income distribution of a business or the intensity of earthquakes (see: Gutenberg-Richter law).
Chris Anderson's and Clay Shirky's articles highlight special cases in which we are able to modify the underlying relationships and evaluate the impact on the frequency of events. In those cases the infrequent, low-amplitude (or low-revenue) events — the long tail, represented here by the portion of the curve to the right of the 20th percentile — can become the largest area under the line. This suggests that a variation of one mechanism (internet access) or relationship (the cost of storage) can significantly shift the frequency of occurrence of certain events in the distribution. The shift has a crucial effect in probability and in the customer demographics of businesses like mass media and online sellers.
Chris Anderson and Clay Shirky
The phrase the Long Tail was, according to Chris Anderson, first coined by himself. The concept drew in part from a February 2003 essay by Clay Shirky, "Power Laws, Weblogs and Inequality", which noted that a relative handful of weblogs have many links going into them but "the long tail" of millions of weblogs may have only a handful of links going into them. Beginning in a series of speeches in early 2004 and culminating with the publication of a Wired magazine article in October 2004, Anderson described the effects of the Long Tail on current and future business models. Anderson later extended it into the book The Long Tail: Why the Future of Business is Selling Less of More (2006).
Anderson argued that products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, if the store or distribution channel is large enough. Anderson cites earlier research by Erik Brynjolfsson, Yu (Jeffrey) Hu, and Michael D. Smith, that showed that a significant portion of Amazon.com's sales come from obscure books that are not available in brick-and-mortar stores. The Long Tail is a potential market and, as the examples illustrate, the distribution and sales channel opportunities created by the Internet often enable businesses to tap that market successfully.
An Amazon employee described the Long Tail as follows: "We sold more books today that didn't sell at all yesterday than we sold today of all the books that did sell yesterday."
Anderson has explained the term as a reference to the tail of a demand curve. The term has since been re derived from an XY graph that is created when charting popularity to inventory. In the graph shown above, Amazon's book sales or Netflix's movie rentals would be represented along the vertical axis, while the book or movie ranks are along the horizontal axis. The total volume of low popularity items exceeds the volume of high popularity items.
Research by Brynjolfsson, Hu, and Smith
Effects of online access
In his Wired article, Chris Anderson cites earlier research by Erik Brynjolfsson, Yu (Jeffrey) Hu, and Michael D. Smith, who first used a log-linear curve on an XY graph to describe the relationship between Amazon.com sales and sales ranking. They found that a large proportion of Amazon.com's book sales come from obscure books that were not available in brick-and-mortar stores.
They then quantified the potential value of the Long Tail to consumers. In an article published in 2003, these authors showed that, while most of the discussion about the value of the Internet to consumers has revolved around lower prices, consumer benefit (a.k.a. consumer surplus) from access to increased product variety in online book stores is ten times larger than their benefit from access to lower prices online. Thus, the primary value of the internet to consumers comes from releasing new sources of value by providing access to products in the Long Tail.
Goodbye Pareto principle, the new distribution
In a 2006 working paper titled "Goodbye Pareto Principle, Hello Long Tail", Erik Brynjolfsson, Yu (Jeffrey) Hu, and Duncan Simester found that, by greatly lowering search costs, information technology in general and Internet markets in particular could substantially increase the collective share of hard-to-find products, thereby creating a longer tail in the distribution of sales.
They used a theoretical model to show how a reduction in search costs will affect the concentration in product sales. By analyzing data collected from a multi-channel retailing company, they showed empirical evidence that the Internet channel exhibits a significantly less concentrated sales distribution, when compared with traditional channels. An 80/20 rule fits the distribution of product sales in the catalog channel quite well, but in the Internet channel, this rule needs to be modified to a 72/28 rule in order to fit the distribution of product sales in that channel. The difference in the sales distribution is highly significant, even after controlling for consumer differences.
Economics and markets
Demand-side and supply-side drivers
The key supply-side factor that determines whether a sales distribution has a Long Tail is the cost of inventory storage and distribution. Where inventory storage and distribution costs are insignificant, it becomes economically viable to sell relatively unpopular products; however, when storage and distribution costs are high, only the most popular products can be sold. For example, a traditional movie rental store has limited shelf space, which it pays for in the form of building overhead; to maximize its profits, it must stock only the most popular movies to ensure that no shelf space is wasted. Because Netflix stocks movies in centralized warehouses, its storage costs a
Internet Law for the Business Lawyer
Internet Law for the Business Lawyer ... Practical advice on constructing compliance plans and drafting online ...
UNITED STATES: FTC Will Study Experiences of Identity Theft Victims ...
... of the functions of the agency, including whether the information has practical ... © 2001-2008 Internet Business Law Services, Inc. All Rights Reserved. Privacy Policy Terms of ...
George Eyre - Toronto Computer Internet Lawyer / Attorney - Cyberlaw ...
... Practicing in Internet Law Cyberspace Law Computer and Information Technology Law Intellectual Property Entertainment Law Business ... George C. Eyre, Law Offices provides practical ...
Practical Internet Law for Business: Amazon.ca: Saunders: Books
Usually ships within 1 to 3 weeks. Ships from and sold by Amazon.ca. Gift-wrap available.
Journal of Internet Law David B. Rockower, Mark Radcliffe | Wolters ...
Every month, the Journal of Internet Law provides practical analysis of the legal issues and business developments brought about by the emerging online systems and computer networks
IP Osgoode » Researching internet law in an online business context ...
Researching internet law in an online business context – My summer legal ... The exercise was a practical lesson in how to ... Overall, I have to admit that internet law needs to ...
Browse Content from Internet Law - Business - Wholesale Trade Online ...
Internet Law - Business - Wholesale Trade Online (B2B), Internet Business Law ... Abstract: E-businesses are very diverse, with specific business sectors, customers, etc. The practical ...
Practical Internet Law for Business Telecommunications Library: Amazon ...
Practical Internet Law for Business Telecommunications Library: Amazon.co.uk: Kurt M. Saunders: Books
Amazon.com: Practical Internet Law for Business (9781580530033): Kurt ...
http://www.unex.Berkeley.edu/ Learn Marketing Anywhere- Online with UC Berkeley Extension!
Amazon.com: Internet Law and Business Handbook: A Practical Guide ...
Amazon.com: Internet Law and Business Handbook: A Practical Guide (9780963917331): J. Dianne Brinson, Mark F. Radcliffe: Books