The Long Tail business model was created as a response to the reversal of the consumer preference phenomena. This model highlights the shift in consumer habits away from the best-selling products to more sought-after items. It is based precisely on the creation of a wide variety of niche products, each of which is sold in small quantities. But what exactly is the Long Tail theory? And what does it have to do with the digital age?
What is the Long Tail Business Model Theory
The Long Tail Business Model Theory (the Long Tail) was introduced by journalist Chris Anderson in 2004, with the aim of describing the changes that occurred especially in the media business. Indeed, for a number of reasons that we will see in a moment, we have moved from selling large quantities of a few popular products to selling a few units of many different niche products.
According to Anderson, the sum of consistent sales of niche products can produce revenue equal to or even greater than sales of best-selling products, making the Long Tail a sustainable business model for different types of companies. Although he has focused primarily on the media industry, Anderson has shown that the Long Tail concept can be applied to other contexts as well. eBay, for example, has a large number of sellers, each offering a few off-the-shelf products that can be difficult to find elsewhere.
The digital age has played a key role in the spread of innovative business models. Prior to digitisation, sales and communication strategies focused on identifying a circumscribed number of products that met the needs of a mass, broad and heterogeneous audience. Today, on the other hand, marketing strategies focus on diversified and customised products that meet the needs of multiple market niches, seeking infinite choice. As a result, the Inbound Marketing approach prevails over the Outbound Marketing approach!
The Long Tail Business Model and the Digital Age
With the arrival of the Internet, “passive” consumers have increasingly become active producers. This is because the tools for making and managing digital products (such as music, movies, software, etc.) are now within everyone’s reach. As a result, the variety of offerings has increased and can potentially increase indefinitely, meeting the needs of ever-changing niche audiences.
But not only that, even the space to display and store products, which used to be limited, has become almost infinite. If we take the shelves of bookstores, the only solution is to select the best seller titles because not everyone will fit! In online shops, on the other hand, we can also display lesser-known volumes (which we keep in warehouses or print on demand), or eBooks, which do not even have the problem of storage or shipping costs. Another example is that of cinemas, where the number of films shown is clearly limited. Netflix, on the other hand, can accommodate an infinite variety of content on the platform for any taste and preference.
The real challenge in being able to sell niche products consistently is to be able to reach target customers. Thanks to social media, blogs and online communities, companies today can listen to consumers and simultaneously take part in their discussions. This increases the data available to determine user interests and define an even more consistent offering. In addition, content and/or product aggregator platforms (such as Netflix, Youtube, ecommerce and others) use the cross-sell strategy: if you buy or are interested in a particular product, they recommend similar or related ones. With this technique, the user discovers other interesting products and the company collects new useful data.
Long tail: the example of publishing
How does the world of publishing work? This industry, too, has changed with the advent of digital and introduced innovative business models.
Traditional book publishing models involves the author sending their manuscript to publishing houses, hoping to be selected. The risk of rejection is high, because the publisher has to choose only titles and authors that they consider to be outstanding and that will guarantee enough sales to be profitable. The selected books are then printed in large quantities to be sold to a wide and diverse audience. Over time, because of limited in-store space, a good portion of the titles are forgotten in favour of more publicised and recent releases.
With the Internet, however, something has changed. As we said, Anderson showed that revenues from the steady sale of niche content can exceed best-seller revenues. And indeed, over the years there have been a proliferation of online self-publishing platforms that rely precisely on the Long Tail business model. How? These sites (such as Lulu, Kobo Writing Life, Ilmiolibro, and so on) allow all aspiring authors to create their own manuscripts, publish them, distribute them, and even print them on demand (i.e., only after receiving the order), regardless of how many copies they will sell. The costs to the company are mainly limited to those of developing and managing the platform.
The self-publishing site becomes a meeting point between authors and readers, who find a wide variety of niche products, thus overcoming the best-seller-based system. And here, too, social media, blogs, and communities come back to help. Authors can make themselves known and readers help to publicise them through reviews and word of mouth.
As the audience changes, companies’ business models must evolve accordingly. The Long Tail model fits perfectly in industries such as publishing, with self-publishing platforms hosting so many niche books.
When does the Long Tail business model become sustainable? When selling small, consistent quantities of a wide variety of products generates revenues equal to or greater than the sales of a few best-selling items. Digital products lend themselves better to the Long Tail than others simply because their variety of offerings can increase indefinitely and with limited costs!