The document discusses the concept of the "long tail" which refers to the large number of niche products that collectively can make up a significant market share. It provides the example of eBay, which allows many niche products and merchants to find an audience. Finally, it outlines strategies for businesses to succeed in the long tail by having a large selection, low inventory costs, and tools to help customers discover niche offerings.

1. The Long Tail
HEC MBA Interview Presentation
Pierre-Antoine Antonini
30/12/08

2. The Long Tail
§ What is the long tail?
§ The long tail: a potential market
§ A long tail business example: Ebay
§ Can you make money in the Long Tail?
§ How to build a consumer paradise
§ Conclusion
§ References

3. What is the « Long Tail »?
§ Concept first expressed by
Chris Anderson in October
2004 in Wired Magazine
§ In a market with a high
freedom of choice, the
selection and buying pattern
of the population results in a
power law distribution
curve, or Pareto distribution
(80-20 rule)
§ Products with low demand
or low sales volume can
collectively make up a
bigger market share that
can exceed the bestsellers’
one

4. The Long Tail: a potential market
§ There are far more niche
goods than hits
§ New technologies breed:
§ The costs of reaching those
n i c h e s i s n o w f a l l i n g
dramatically
§ Filters can drive demand down
the Tail
§ Consequences:
§ The demand curve flattens
§ The tail widens
§ Natural shape of demand is
revealed
è Long tail is just culture unfiltered by economic scarcity

5. The three forces of the long tail
1. Democratize the tools of production
§ PC: everyone is a producer or publisher
§ Available offer is growing
2. Democratize distribution
§ Internet: everyone is a distributor
§ Reaching customers is becoming cheaper
3. Connect Supply and Demand
§ Search engines and recommandations tools
§ Search costs of finding niche content is becoming
cheaper

6. A Long Tail Business example
§ Every day:
§ 60 million active users are selling or buying
§ 30 million items
§ $100 million in transactions
§ Ebay is long tail of products and long tail of
merchants:
§ Most of goods can’t be found on the shelves of big traditional retailers
(cf Wal-Mart)
§ Most of people selling aren’t traditional retailers
§ Ebay is the facilitator (aggregator) for a user-created
marketplace
§ Distributed inventory: buyers and sellers meet and agree on the price
(inventory cost / item is almost zero)
§ Self-service model: sellers create their own product listing, packaging
and mailing
§ Efficient filters to help buyers find what they look for

7. Can you make money in the Long Tail?
§ Determinant of curve dynamics: Industry’s degree of openness and competitive
intensity
§ In fact a bigger number of competitors and consumer choices does not tend to
flatten the curve, but the larger the system, the larger the gap between the
number-one and the median spot
§ Greater openness may create a more level playing field at first, but progressively
greater differentiation and consolidation tend to occur over time

8. The Winner-Take-All society
§ The Winner-Take-All Society by Robert Frank and
Philip Cook (1995)
§ Broad, fast communication and easy replication
create dynamics whereby:
§ popular products become disproportionately profitable for
suppliers
è when the marginal cost of reproducing and distributing products
is low, the cost advantage of a brisk seller is huge
§ customers become even likelier to converge in their
tastes and buying habits
è people are inherently social
è The superstar effect

9. How to build a Consumer paradise
1. Digital Inventory
§ iTunes, Amazon
§ Inventory costs / item ~0$
2. Let customers do the work
§ Wikipedia, Ebay
§ Crowdsourcing
3. One distribution does not fit
all
§ Digital / hard product
4. One product does not fit all
§ Large choice of similar products
5. One price does not fit all
§ Buy now at a discounted price,
Buy 2 Get 1 free
6. Share information
§ Ranking by prices, best-selling...
§ Enable consumer feedback
7. Think « and », not « or »
§ Provide Hits and Niches
§ DVD + extras
8. Trust the market to do your
job
§ Post-filtering instead of pre-
filtering
9. Understand the power of free

10. Conclusion
§ PCs and Internet have enabled:
§ More offer available
§ Customers’ needs reachability
§ Niche producers won’t be rich
§ Aggregator systems offering both Head and Tail
will differentiate
§ Still unclear whether the long tail will flatten and
widen

11. References
• The long tail by Chris Anderson, Wired, October 2004,
http://www.wired.com/wired/archive/12.10/tail.html
• The Long Tail, wikipedia entry http://en.wikipedia.org/wiki/The_Long_Tail
• The Long Tail, Why the future of business is selling less of more by Chris Anderson, Hyperion,
2006
• Power Laws, Weblogs, and Inequality by Clay Shirky, February 2003,
http://www.shirky.com/writings/powerlaw_weblog.html
• Goodbye Pareto Principle, Hello Long Tail by Erik Brynjolfsson, Yu (Jeffrey) Hu, and Duncan
Simester, December 2006, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=953587
• Should you invest in the Long Tail? By Anita Elberse, Harvard Business Review, August 2008
http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?ml_action=get-
article&articleID=R0807H
• Using ‘power curves’ to assess industry dynamics, by Michele Zanini, November 2008, The
McKinsey Quarterly,
http://www.mckinseyquarterly.com/Strategy/Growth/
Using_power_curves_to_assess_industry_dynamics_2222#AboutTheAuthors
• Online shopping and the Harry Potter effect, by Richard Webb, December 2008, New Scientist,
http://www.newscientist.com/article/mg20026873.300-online-shopping-and-the-harry-potter-
effect.html?full=true
• The long tail by Chris Anderson, Wired, October 2004,
http://www.wired.com/wired/archive/12.10/tail.html
• The Long Tail, wikipedia entry http://en.wikipedia.org/wiki/The_Long_Tail
• The Long Tail, Why the future of business is selling less of more by Chris Anderson, Hyperion,
2006
• Power Laws, Weblogs, and Inequality by Clay Shirky, February 2003,
http://www.shirky.com/writings/powerlaw_weblog.html
• Goodbye Pareto Principle, Hello Long Tail by Erik Brynjolfsson, Yu (Jeffrey) Hu, and Duncan
Simester, December 2006, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=953587
• Should you invest in the Long Tail? By Anita Elberse, Harvard Business Review, August 2008
http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?ml_action=get-
article&articleID=R0807H
• Using ‘power curves’ to assess industry dynamics, by Michele Zanini, November 2008, The
McKinsey Quarterly,
http://www.mckinseyquarterly.com/Strategy/Growth/
Using_power_curves_to_assess_industry_dynamics_2222#AboutTheAuthors
• Online shopping and the Harry Potter effect, by Richard Webb, December 2008, New Scientist,
http://www.newscientist.com/article/mg20026873.300-online-shopping-and-the-harry-potter-
effect.html?full=true