Almost 5 years ago, Chris Anderson wrote an article in Wired magazine describing the niche strategy of digital businesses that sell a large number of unique items, each in relatively small quantities and elaborated the Long Tail concept in his book The Long Tail: Why the Future of Business Is Selling Less of More (ISBN 1-4013-0237-8).
Many markets have historically been dominated by a small number of best-selling products. The Pareto Principle, also known as the 80/20 rule, describes this common pattern of sales concentration. However, by greatly lowering search costs, information technology in general and Internet markets in particular have the potential to substantially increase the collective share of niche products, thereby creating a longer tail in the distribution of sale (MIT working paper titled “Goodbye Pareto Principle, Hello Long Tail” by Erik Brynjolfsson, Yu Hu, and Duncan Simester).
After 5 years not much has changed of course and when designing a successful digital business strategy, the following forces should be taken into account:
- The democratization of the tools of production: the universe of available content is growing faster than ever. Almost everybody can become a producer of content with the available tools. Talent is not universal but is widely spread– give enough people the capacity to create and gems may emerge.
- The democratization of distribution: the Internet makes it cheaper to reach more people increasing the supply at the tail. That in turn translates in more consumption and sales, though prices tend to zero (free).
- The connection between supply and demand: the technologies that connect consumers (like search, blogs, twitter, etc) is what drives demand from the head (popular products) to the tail.
To harness the power of these forces consider to:
- Make everything available: Use mass/popular products (head) to attract mainstream consumers, but almost anything is worth offering on the off chance it will find a buyer (tail).
- Lower your price at the head (mass market) and charge at the tail (niche).
- Help consumers find the tail: Provide the tools such as recommendations etc. to give tail products visibility to consumers.
Against common knowledge, one of the most common ways people use Twitter is as a social information filter and link distributor. In many cases, Twitter is also replacing people’s RSS readers (which is also my experience).