The Long Tail - Book Summary

Unearth the future of commerce and the power of niche markets.

The age of 'one-size-fits-all' is fading. The popularity of blockbuster products once ruled the roost, but the arrival of the internet has altered this status quo. This seismic shift in commerce has put an end to the era of "the hit."

Chris Anderson, the author of "The Long Tail" and former editor-in-chief at Wired magazine, takes us through a revolutionary shift in the online consumer market. This shift, known as the "long tail" of consumer demand, reveals how catering to a plethora of niche markets with specific needs can potentially yield as much, or even more, commercial success than trying to please a broad audience with a singular product.

As we venture through this narrative, we'll delve into the depths of what the "long tail" means for the destiny of online commerce. We'll explore how inexpensive personal computers have played a crucial role in the upsurge of global content. Additionally, we'll delve into the innovative strategies that online retailers are deploying to boost their chances of success — from bidding on keywords for Google Ads to other online marketing strategies.

Ultimately, we'll uncover how, in today's digital age, a company can do more than just exist - it can truly flourish. The reign of the single blockbuster product is history. Welcome to the new era — the era of the long tail of consumer demand.

The rise of niche markets: How they compete with popular hits in online entertainment

Every industry has a familiar pattern: high-demand items (think blockbuster movies or bestselling books) reside at the head of a demand curve, while lower-demand items inhabit the tail. Traditionally, we think of those at the head — the super-popular items — as the big moneymakers. But in today's economy, there's a new strategy: businesses are thriving by offering a vast array of products that appeal to many distinct groups, however small. This strategy is what we refer to as the "long tail."

Surprisingly, when total sales are measured in an online marketplace, it's evident that a multitude of niche products can compete with their more popular counterparts.

Take Amazon's visionary founder Jeff Bezos for instance. He saw the internet's potential to offer an unparalleled selection of books. While a large bookstore may carry around 175,000 titles, Amazon boasts a staggering five million. Interestingly, the books that aren't typically found on a bookstore's shelf constitute over 30 percent of the market.

Why is this so? In essence, the success of a product is no longer solely dependent on its popularity. Selling a niche product online can be equally profitable as selling a hit.

This is also evident in the music streaming service Rhapsody, which offers over 4.5 million songs. Each track — regardless if it's in their top 900,000 — is played at least once a month. With each track costing the same, it doesn't matter whether 20,000 people buy the same track or each member buys whatever they prefer.

Akin to Amazon, a significant portion of Rhapsody's total sales (45 percent) come from tracks that aren't typically sold in traditional offline retail — implying a strong demand for a wider selection.

This is the crux of the "long tail" concept: an enormous variety of relatively unpopular products can collectively compete with a small number of extremely popular ones.

How democratizing production tools amplifies content creation and extends the long tail.

The dynamics of supply and demand are influenced by the volume of content available in the market. When more content is made available, the tail of our demand curve elongates. The digital era has democratized the process of creating and releasing content, allowing just about anyone to contribute to the expansive tail.

The ubiquitous personal computer has empowered a large number of people in the Western world to create and produce their own unique content, be it music, films, or e-books. For instance, there was a 36 percent surge in the number of albums released in 2004-2005, with more than 300,000 free tracks finding their way onto MySpace.

In addition, the affordability of production tools means that content creators are driven by diverse motives, not just financial ones. When production costs are high, a professional will understandably take economic considerations into account. But when costs are negligible, the driving force behind content creation often extends beyond profit. As a result, we find a plethora of content created for the sheer joy of it, or out of a spirit of experimentation and curiosity.

We also see a shift in the roles of amateurs: they're not just consumers anymore, but are becoming content creators themselves. Take Wikipedia, for instance. The majority of its contributors are amateurs, yet together, they've created the most extensive encyclopedia in human history. To put it into perspective, while the Encyclopedia Britannica has 120,000 entries, Wikipedia boasts more than 4 million.

In our digital era, content is no longer exclusively produced by professionals for consumers. It can be created by anyone, anywhere in the world, with minimal financial outlay.

However, content creation is just one part of the equation. Equally important is ensuring that potential customers can discover this content — and once found, convincing them to make a purchase. Simply put, the battle is also about distribution.

Universal distribution: How it allows access to more content, ultimately enhancing the long tail

Regardless of the amount of content available, finding exactly what we want can often be a challenging task.

In this era, distributors need aggregators — think Amazon or eBay. These are platforms with access to a plethora of products and are able to make them easy to locate and purchase. The more accessibility and discoverability there is for niche products, the higher the chances are that they will be sold.

Aggregators essentially serve as organizers of unstructured markets, creating a system in which any available product can be discovered. In essence, they provide an avenue of distribution.

Suppose you're searching for a very specific book. You would likely not consider hunting in used bookstores due to the slim odds of success. But imagine a system that allows you to simultaneously search all used bookstores out there — your chances would definitely improve, possibly even fetching you a competitive price.

That’s exactly the strategy online retailer Alibris employed by building a database where bookstore owners could list their inventories for customers to search and make purchases from. Consequently, hard-to-find and potentially rare products became much more accessible.

But Alibris isn't the only game in town. There are different types of aggregators, each offering varying levels of access to niche products. The two primary types are hybrid aggregators, which sell physical goods online (like Amazon, Alibris, or eBay), and digital aggregators, which deal exclusively with digital content online (like iTunes or Rhapsody).

Theoretically, digital aggregators can provide nearly limitless access to niche products because they face minimal economic constraints: adding more to their offering doesn't increase their costs.

However, for hybrid aggregators like Amazon, economic realities still exist. If a book only sells one copy a year, it still requires storage, which may incur costs that surpass the value of offering the book in the first place.

The power of filters: Guiding customers to find and acquire what they truly desire

In today's world, where niche products and content are available in abundance, we need assistance to navigate through this sea of options and find the ones that truly align with our tastes. This is where filters step in.

iTunes' genre-specific top 10 lists, a blog reviewing a newly released album, Google's ranked search results, or customer ratings on Amazon — these are all filters designed to help us discover something we might love amidst the overwhelming array of choices.

Consumer life, however, hasn't always required such guiding mechanisms. In earlier times, pre-filters were employed to predict consumer behavior, pre-selecting products and content before they even entered the market. Today, post-filters shape and stimulate consumer behavior, organizing and sifting through the available options in the market.

Take the example of music executives. They act as pre-filters, predicting consumer behavior to decide whether or not to sign a particular band. On the flip side, a music blog, a customer review, or an online playlist can all be considered post-filters — they shape and guide consumer demand towards the products and content that individuals are actively seeking. A successful post-filter steers demand towards niches, aiding consumers in discovering content or products that cater to their unique needs and desires.

Imagine how chaotic and overwhelming the online marketplace would be without the guidance provided by post-filters such as reviews and recommendations. Overwhelmed by an immense variety of options, we as consumers rely on the experiences of others to narrow down our choices and pinpoint exactly what we truly want or need.

In essence, post-filters provide the ideal link between supply and demand. As a consumer navigating a saturated marketplace, post-filters ensure that you're not being manipulated or pushed into purchasing something you don't truly desire. Instead, it's you who retains complete control and authority over your purchases.

Why traditional retail falls short: The cost of shelf-space and neglect of customer preferences

Digital marketplaces can tap into the potential of the long tail, unlike traditional stores which are often hampered by the conventional overhead costs of retail — such as the cost of shelf space.

Shelves come with various hidden costs. For a company to break even, each square foot of shelf space must generate between $100 and $150 every month. There are also "opportunity costs" for those products that a customer cannot locate. Chances are, when shopping at your local grocery store, you might not always find what you're looking for, either because it's in an unexpected location or it's not adequately visible. This imbalance between supply and demand is a recurring issue in traditional retail.

To stay afloat, a conventional store must prioritize the visibility and accessibility of their top-selling products. They mostly follow the Pareto principle — only 20 percent of the products they sell contribute to 80 percent of their revenue. It makes business sense, then, to spotlight this 20 percent to ensure enough profit is generated to cover distribution costs.

This retail strategy inadvertently leads to a limitation in consumer choices as only the highest-selling products get shelved. Take a movie rental store, for example, which spends about $22 annually to stock a single DVD, with only a few titles being rented often enough to recoup the costs.

This method of operation has led traditional retailers to fall short in meeting the diverse interests of consumers.

Consider an average supermarket that stocks approximately 30,000 items, organized for efficient delivery and stocking, and to maximize profit within a limited space. However, a product can only occupy one place at a time, although it might logically fit in several categories. For instance, a can of tuna could potentially be categorized under "low fat," "under $2," "canned food," and "fish." Another downside of traditional retail, like supermarkets, is that a product cannot be highlighted as a possible match for other purchases — a capability digital retail is armed with.

As you can see, while physical shelves work for traditional retail, they also come with economic burdens that are non-existent in the long-tail strategy of online retail.

The economics of the internet: Lower inventory costs and tailored offerings

The internet — with its seemingly infinite "shelf space" and excessive choice — is the perfect platform for the blossoming of long-tail economics.

The limitless virtual shelf space reduces the profit margin a business needs to break even or make profits. Let's consider the example of movie studios. They charge the same acquisition costs per title to companies offering digital subscription services as they do to physical rental stores per DVD. However, unlike these stores, digital subscription services don’t incur a recurring cost of $22 per year to offer a title, allowing them to make it available indefinitely.

This boundless online "shelf space" also means a company can provide consumers with an extensive choice of goods since no title ever needs to be taken off the digital catalog.

This vast array of choices caters to the unique desires of a diverse customer base without incurring extra costs. If a company can offer nearly everything a customer might want, its customers can discover the products they truly love. In traditional retail, such a company would likely be a specialist store.

Consider the niche market of documentary films — a genre that caters to very specific consumer interests. You would probably find only a handful of documentary films in a physical video rental store. But Netflix, with its almost endless content options, accounted for almost half of the revenue for some documentaries in the United States in 2003.

But what if traditional retail could find a way to evade shelf-space costs? Would this model work for them as well?

Simply put, no.

Research indicates that in traditional retail, an overwhelming array of unfiltered choice confuses customers and leads them to purchase less.

In contrast, online shopping comes with an integrated filter — a system of recommendations and rankings. This filter aids consumers in organizing a massive array of products based on their preferences, simplifying their purchasing decision.

Niches and long tails: More widespread than you think

While the long tail economic model seems prominent in the entertainment sphere, it's not confined to it. The concept applies to a variety of industries, including manufacturing and advertising.

Let's delve into the manufacturing industry, and more specifically, LEGO. LEGO capitalizes on the long tail concept by catering to niche markets and empowering users to produce their own items. Their online store features over a thousand products, 90 percent of which you wouldn’t find in a regular store.

Consider LEGO's innovative service, LEGO Factory. This initiative allowed anyone, not just professionals, to design their own LEGO models. After creating and uploading the model, you would receive all the necessary bricks to bring your design to life. Other LEGO fans could purchase your design, and the most popular models were even rolled out as official LEGO products. Despite its discontinuation, LEGO Factory facilitated the creation of more than 100,000 unique LEGO kits.

Now, let’s explore the application of the long tail in the advertising world, through the lens of Google’s self-service advertising model. Google's approach deviates from the traditional model of creating a few ads linked to popular search terms. Instead, it offers millions of ads associated with unique search terms.

Incredibly, the top ten search terms on Google represent merely 3 percent of all searches. The remaining 97 percent encompasses tens of millions of other search terms.

To promote a product or business on Google, companies need to buy keywords through an automated auction. Opting for a less common, specific search term for your ad costs significantly less than choosing a popular one. Additionally, since the ad is purely text-based — devoid of images or banners — it's inexpensive to create and place on websites.

Applying the long tail to your business: Expand offerings and enhance customer accessibility

You've learned about the benefits of long-tail economics, and now you may be wondering how to incorporate this approach into your own business strategy.

To utilize the long tail effectively, the first step is to centralize and expand your inventory, thereby reducing the costs associated with offering a vast array of products.

Maintaining a centralized inventory is the most cost-effective way to offer diverse products online. The physical location of the product becomes irrelevant, as long as it's showcased alongside your other offerings. Taking it a notch higher, you could transition to an entirely digital inventory, following in the footsteps of platforms like iTunes and Rhapsody.

If you're dealing exclusively with digital media — like music, ebooks, and movies — consider offering the same product in several digital formats (such as mp3, flac, m4a, and wav). Given the variety of customer preferences, this strategy can enhance your chances of satisfying each customer's specific needs.

The second step to fully harness the power of the long tail involves ensuring that potential customers can access your products or services anytime, anywhere.

Take modern TV viewing habits as an example. Today, people watch TV shows in a plethora of ways: on-demand, streaming, downloading (like on iTunes), or on DVD (for rental or purchase). Gone are the days when TV programming dictated people's schedules. In the present age, individuals enjoy their favorite shows and hobbies at their convenience.

Hence, the ideal distribution system is one that enables a customer to buy a product regardless of their location or the time of day. Take cues from Amazon, eBay, and iTunes, which have perfected the model of providing unrestricted, round-the-clock access to customers everywhere.

Niche marketing: A powerful alternative to one-size-fits-all advertising

Long tail marketing zeros in on specific niches, instead of aiming for the broadest possible audience. This approach enables businesses to connect with potential customers on a more personal level, crafting narratives that resonate with their unique needs and preferences.

One such marketing strategy harnesses consumer-generated advertising, which not only helps define a brand’s identity but also sparks conversations around it.

When Chevrolet needed a web advertisement, it turned to its consumers, giving the public the chance to create their own TV ads using professionally prepared footage. The result was over 30,000 user-generated videos, many of which aligning with the company’s initial goals. Some of these ads took a subversive approach, addressing critical issues such as global warming, the oil crisis, and social responsibility. These entries stirred a viral conversation, boosting consumer awareness of the brand, and reducing the average selling time for a Tahoe to just 46 days, from the previous year’s four months.

Another niche marketing strategy hinges on the premise that revealing individuals' unique experiences can resonate with others.

In 2005, Jeff Jarvis's blog about his frustrating experiences with Dell computers, aptly titled "Dell Hell," caught the attention of mainstream media. Soon, "Dell Hell" had permeated the online lexicon, with nearly 2,500 comments added to Jarvis’s blog posts.

In response, Dell now has a team dedicated to addressing online complaints about their products. If a Dell user reports an unresolved issue on their blog, it's highly likely a Dell employee will get in touch to solve the problem.

Microsoft also underwent an image transformation with Channel 9, a platform for its employees to blog and talk about their work. Attracting around 4.5 million unique visitors each month, Channel 9 shattered the image of Microsoft as a monolithic entity. Now, with unprecedented transparency, customers can delve into any area of interest — be it Xbox programming, font use in the Media Center, or SQL issues.

Wrapping it up

The core concept of this book is quite straightforward: The future of commerce and culture lies in niche products that cater to a small, yet specific audience. In essence, the future is tethered to the long tail of the demand curve. This 'long tail' strategy is a common denominator among the most successful companies in recent years. The era of mass appeal, where products are fashioned for the broadest audience or the 'hit' monopoly, is swiftly becoming a thing of the past.