The long tail


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The long tail and it's effects on business'.

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  • Examples: top hits, best sellers, and blockbusters.In the summer of 1897 an Italian polymath named Vilfredo Paretobusied himself in his university office in Switzerland, studying patternsof wealth and income in nineteenth-century England. It was the age ofMarx, and the question of wealth distribution was in the air. Paretofound that the spread of wealthwas indeed unequal in England—mostof it went to a minority of the people. When he calculated the exact ratios,he found that about 20 percent of the population owned 80 percentof the wealth. More important, when he compared that with othercountries and regions, he found that the ratio remained the same.What Pareto had discovered is that there is a predictable mathematicalrelationship in the patterns of wealth and populations, somethinghe called the Law of the Vital Few. So this idea of the paretoditribution is also called the 80 – 20 rule.
  • What we should realise about the long tail is that the amount of content consumed in the long tail swamps the amount of content consumed in the head, so businesses really need to understand when building their business model that it is far better to provide millions of goods to one customer rather than just one good to millions of customers. Therefore businesses should aim to cater for the long tail.
  • We had a great presentation not so long ago on user generated content. All of that user generated content is contributing to the tail and continuously making it longer. A perfect example is wikipedia which is a company that I would suggest lives in the long tail and thrives from it. Whilst many of their pages may only get a couple of hits each quarter, and there is no one popular page, the cumulative viewings of all of those less popular pages which makes wikipedia a massively successful company and you could argue that it is more dominant in todays market than other information sources or encyclopedias such as encarter. Due to user generated content, Wikipedia offers more than 2 million articles in English—compared with Britannica’s 120,000 . Each year 200,000 books are published in English. Fewer than 20,000 will make it into the average book superstore, but this has been made possible with the introduction of the internet and website like amazon which take advantage of the long tail. In 2004, 950,000 books out of the 1.2 million tracked by Nielsen BookScan sold fewer than ninety-nine copies. Another 200,000 sold fewer than 1,000 copies, but it doesn’t matter, because the cumulative profit from selling all of these books will outweight the profit gained from selling the top hits. These are the different type of business aggregators, what you will notice about these companies is that they all cater for the long tail, and the companies mentioned here are arguably the most renowned , and most used sites on the internet today.
  • Physical retailers can only accommodate for the head of the curve. There is an economic cut-off point at a certain point along the curve due to factors such as limited shelf space, or it being not economically feasible to stock certain products. We could say HMV as an example of a physical retailer. Hybrid retailers are those that accommodate for an even larger portion of the product consumption curve because they are able to accommodate for sections 1 and two. These are companies such as amazon who have a large amount of storage space and certain network systems which allow them to store physical and digital products, but they still have certain large overheads such as storage facilities. Pure digital retailers can accommodate for the whole curve including section 1 2 and 3 because they don’t have a physical store nor do they sell physical goods.Historically Blockbuster has reported that about 90% of the movies they rent are new releases. Online they’re more niche: about 70% of what they rent from their website is new releases and about 30% is back catalogue.It’s worth pausing here and considering the Long Tail implications of this. At least 90 percent of LEGO’s products are not available intraditional retail outlets. They’re only available in the catalogs and online, where the economics of inventory and distribution are far friendlierto niche products. Overall, those non-retail parts of the business represent 10 to 15 percent of LEGO’s annual $1.1 billion in sales. But the margins on these products are higher than on the kits sold through Toys “R” Us, thanks to not having to share the revenues with the retailer.
  • Noise: Indeed, if left unchecked, noise—random content or products of poor quality—can kill a market. Too much noise and people don’t buy. One of the most frequent mistakes people make about the Long Tail is to assume that things that don’t sell well are “not as good” asthings that do sell well. Or, to put it another way, they assume that the Long Tail is full of rubbish. After all, if that album/book/film/whatever were excellent, it would be a hit, right? Well, in a word, no. First, let’s get one thing straight: The Long Tail is indeed full of rubbish.Yet it’s also full of works of refined brilliance and depth—and an awful lot in between. Exactly the same can be said of the Web itself. Ten years ago, people complained that there was a lot of junk on the Internet, and sure enough, any casual surf quickly confirmed that. Then along came search engines to help pull some signal from the noise, and finally Google, which taps the wisdom of the crowd itself and turns a mass of incoherence into the closest thing to an oracle the world has ever seen.
  • 1:Lower costs ! – centralised warehouses or no storage2: UGC3:Some customers want to go to stores. Some customers want to shoponline.4: supply a range 5: supply a range6: The difference between an overwhelming shelf of look-alike productsand the bliss of “rank by best-selling” is information7: don’t limit anything 8:The market will build itself up9:Everyone loves free stuff!
  • 1:Lower costs ! – centralised warehouses or no storage2: UGC3:Some customers want to go to stores. Some customers want to shoponline.4: supply a range 5: supply a range6: The difference between an overwhelming shelf of look-alike productsand the bliss of “rank by best-selling” is information7: don’t limit anything 8:The market will build itself up9:Everyone loves free stuff!
  • The long tail

    1. 1. The Long Tail<br />Presented by: Luke Stephenson<br />
    2. 2. The Long Tail<br />“The world is a popularity contest” <br />Industry examples:<br />Music<br />Books<br />Films<br />VilfredoPareto - 1897 observed the 80 : 20 rule<br />Distribution pattern present because of:<br />1. Variety (there are many different sorts of things)<br />2. Inequality (some have more of some quality than others)<br />3. Network effects such as word of mouth and reputation, which tend to amplify differences in quality<br />
    3. 3. The Long Tail<br />Pareto distribution <br />Great for ‘brick and mortar’ companies – limited shelf space <br />But the internet is bringing change…<br />
    4. 4. The Long Tail<br />Changing the 80-20 rule<br />1. Increased ability to produce <br />2. Increased ability to distribute <br />3. Connection of supply and demand<br />
    5. 5. The Long Tail<br />Business application<br />Business’ must cater for the long tail<br />User generated content is key<br />Wikipedia vs. Britannica<br />2,000,000 vs. 120,000 (articles )<br />Business aggregators<br />1. Physical goods (e.g., Amazon, eBay)<br />2. Digital goods (e.g., iTunes, iFilm)<br />3. Advertising/services (e.g., Google, Craigslist)<br />4. Information (e.g., Google, Wikipedia)<br />5. Communities/user-created content (e.g., MySpace, Facebook)<br />
    6. 6. The Long Tail<br />Retailer types<br />90% of LEGO’s products only available online <br />
    7. 7. The Long Tail<br />Problem with the long tail<br />Noise<br />Can be overcome by filters (Google) <br />
    8. 8. The Long Tail<br />9 Rules of a successful Long Tail aggregator<br />Rule 1: Move inventory way in . . . or way out.<br />Rule 2: Let customers do the work. <br />Rule 3: One distribution method doesn’t fit all.<br />Rule 4: One product doesn’t fit all.<br />Rule 5: One price doesn’t fit all.<br />Rule 6: Share information.<br />Rule 7: Think “and,” not “or.”<br />Rule 8: Trust the market to do your job.<br />Rule 9: Understand the power of free.<br />
    9. 9. The Long Tail<br />Conclusion<br />The long tail is a concept which demonstrates that the tail of a distribution curve is long relative to the head.<br />The long tail exists everywhere – and applies to most businesses<br />The tail is getting longer, flatter, therefore changing the initial 80:20 ratio<br />Businesses should aim to cater for the long tail <br />Utilisation of the internet<br />Follow and understand the rules <br />The amount of content in the tail swamps the amount in the head , therefore providing an opportunity for the generation of more profit.<br />
    10. 10. The Long Tail<br />Recommended reading <br />Chris Anderson’s book: The Long Tail<br />
    11. 11. The Long Tail<br />?<br />Questions<br />?<br />