Long Tail Theory
Long Tail Theory. Secrets to Long Tail Business Success. How do you apply the long tail strategy to your business?
What is the Long Tail
Here is a summary of Chris Anderson’s nine rules of successful Long Tail aggregators, summarized with editorial comments.
Long Tail Theory: Move inventory way in… or way out
Sears made significant headway by combining the mail-order business with a large, centralized warehouse, while many other retailers are using existing warehouse networks to offer significant variety online. Centralized inventory is much more efficient than putting products on shelves. Amazon took one step further by offering ‘virtual inventory’. That is, Amazon markets products physically located in a partner’s warehouse on its site.
Recognize that digital inventory is the most inexpensive of all. iTunes revolutionized the music industry by spearheading the switch from shipping plastic discs to streaming megabits.
Let customers do the work
Make use of the power of user participation. Research Web 2.0, and notice how user participation created successful businesses including eBay, Craigslist, MySpace, Netflix.
Crowdsource instead of Outsource
Instead of outsourcing, companies now make use of crowdsourcing. Google successfully identified the needs of advertisers and publishers and profited by offering a platform to connect the two. Crowdsourcing is the new strategy: user-submitted reviews that are well-informed are highly credible and well-trusted by other users.
This is the power of the infinite long tail: collectively, customers have virtually unlimited time and energy. Users will happily do for free what companies would otherwise have to pay employees to do. The trick? Identify the needs of the customers carefully.
One distribution method does not fit all
In order to take full advantage of the Long Tail, you should give customers as much variety as possible. Only then would you be able to reach out to a broad base of customers.
iTunes’ success derives largely from its enormous variety, convenient searches and convenient downloads – and the fact that it is open 24/7.
Multiple distribution channels will allow you to reach out to the biggest potential market. Nonetheless, a caveat for new businesses: use the 80/20 principle to identify the 20 percent of your development time and monetary investment that would allow you to reach out to 80 percent of the market. Ignore the distribution channels that require too much time and monetary investment at first.
One product doesn’t fit all
This relates closely to the previous rule. The idea is that you should give as much variety of the same product as possible to tap into even more markets: album, individual track, ringtone, free one-minute sample, music video, remix, sample of someone else’s remix, streamed or downloaded, different formats, different sampling rates.
Thus, the new winning strategy is to separate content into its component parts so that people can consume it any way they want, and even combine them in different ways to create something new.
One price doesn’t fit all
Again, this involves catering to different needs and reaching out to the largest potential market within your niche as far as possible. Different people are willing to pay different prices for the same product that has been micro-chunked or presented in different ways.
Good examples would be the auction or ‘Buy It Now’ options available on eBay, or the option to buy tracks individually or as an album on iTunes.
Think ‘and’, not ‘or’
Similarly, adopt the abundant approach to thinking. Think about how you can somehow offer it all. Having to choose requires time, resources and guesswork – you’ll never know what your consumer really wants. Instead, offer it all so you can reach out to as many consumers as possible.
‘And’ is thus a much easier business decision to make than ‘or’.
Trust the market to do your job
That simply means to throw everything out there and see what happens; let the market sort out what it likes and doesn’t like.
Measure, do not predict
Instead of pre-filtering, try post-filtering; measure instead of predict, for measuring will inevitably be a much more effective way to gauge demand than predicting.
Collaborative filters, popularity rankings and ratings are all examples of excellent ways to get the market to do your job of deciding what works best. As Chris Anderson says, Don’t predict, measure and respond.
Long Tail Theory: Understand the power of free
This is the most important rule that business owners need to understand. Digital markets are tremendously powerful because costs are near zero; prices can therefore be near zero too. The business model used by Skype and Yahoo Mail uses the same principle: offer a free service, but also convince some of the users to upgrade to a subscription-based ‘premium’ that adds higher quality or better features.
Post samples, post thirty-second segments, distribute demos – titillate the consumer with the tip of the chocolate and convince them that they will want the whole chunk.
As costs get lower on the digital market, you can profit from these previously almost outrageous business strategies.
The Long Tail Theory
Chris Anderson’s Long Tail Theory is a brilliant explication of the latest trend in web business. Those of you trying to make money online to financial freedom: incorporate the long tail theory in your business model!