In many industries, ranging from
pharmaceuticals to publishing, companies earn most of their profits from a few
prominent best-selling products. This is known as the “blockbuster” strategy.
It has proven its effectiveness over many decades because of a basic fact in
the retail business: There is only so much space on store shelves, so it makes
sense to stock the most popular products that generate the most sales.
But a radical new approach, known as the
“long tail” strategy, has attracted a lot of attention in the past few years.
It is based on the idea that the basic fact of limited shelf space no longer
applies in an online world. Instead of selling just a few hundred of the most
popular books or CDs, for example, a retailer like Amazon can offer millions of
titles. According to this theory, profits can be made at the long tail of the
distribution curve, where the least popular products can be found.
For example, in the physical world of
retailing, it is more profitable to sell 1 million copies of one best-selling
book than 50 copies each of 100,000 obscure books. Due to the economies of
scale and limits on inventory in a physical store like Barnes & Noble, the
blockbuster model is a clear winner.
However, on the Internet, where virtual
shelf space is both free and infinite, a company like Amazon can make more
money on those 50 copies of 100,000 books, for 5 million units, than it can on
the 1 million copies of the best-seller. Of course, Amazon can also sell the
best-seller.
A long tail strategy requires a
sophisticated back-end order fulfillment process, because it would be expensive
and potentially wasteful to stock inventory that is rarely, if ever, sold. But
information products like books, music, and movies are rapidly becoming
digitized, meaning that they can easily and cheaply be duplicated, whether they
sell 1,000 copies per minute or 1 copy per month.
Most executives first learned of the long
tail strategy in 2006, when Chris Anderson, the editor of Wired magazine, published his book called The Long Tail: Why the Future of
Business Is Selling Less of More.1 It
caused an immediate sensation, with BusinessWeek2 declaring the long tail theory the most
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