Mechanics of

This week’s Digital Trends explores the phenomenon known as the Long Tail, a phrase and now book by Wired editor-in-chief Chris Anderson, first published as an article for the magazine he heads in October 2004. Part 1 of Digital Trends explores the origins of the term and its mathematical origins in what the numbers guys’ call power law functions. It also mentions one of the more common rules of thumb, the 80/20 rule, which also behaves according to a power law function. Part 1 finishes by highlighting the main idea of the Long Tail, that it represents a new way of thinking about a number of markets, one rooted in opportunity by servicing the full range of options not just the few. Here in Part 2 we dig further into the mechanics of the Long Tail by elaborating on its components and trying to explain when tail opportunities exist.

Fig 1.1 – Graphical representation of the long tail, a power law function. Chart courtesy of Bazaar Advertising, experts in the Long Tail of search. Words by author.

The Head: The items in this region constitute a) at worst, what Mr. Anderson describes as the lowest common denominator that we have had to accept (often due to real world constraints such as proximity and/or shelf space), and b) less unflatteringly, which is what we see in the search world, the limitation of our mind; it’s the keywords that we can think of given time constraints and a lack of tools. In closed systems such as a set advertiser base, the head would constitute 80% if not more of the volume, but if more open, liquid systems (stocks, keywords, etc.) the head constitutes often less than half.

The Tail: this section contains the full representation of supply; it would be all the movie titles made throughout the world, all the books, all the music, and with respect to paid search, all active keywords. As Mr. Anderson explains, these contain the non-hits that stores couldn’t carry but that given access, users prove they still desire. In some cases the tail can follow the Pareto principle making up a fifth, but in many cases it exceeds the sum of those items in the head.

Wired’s Chris Anderson provides three rules in his seminal Wired Magazine article extrapolated from the success of tail companies. Below is our more Internet advertising centric checklist for helping to identify the key components of a Tail economy.

• Large audience – while the tail speaks to the viability of niches, you still need volume. Without a large cumulative audience, the type of activity in the tail will not exist. DVD rental, music downloads, all qualify; whereas a niche like knitting would make up a group within a larger segment; it is not large enough to have its own Tail economics, at least not in scale. Netflix can leverage the tail because it can aggregate demand more efficiently than a retail location can. Its “stores” are its warehouses which no human sees, and instead of needing five, ten, twenty stores for a given region, it’s direct to consumer approach means it needs just one store for a major city, which means that it can fulfill component two, more choices.
• Lots of choices – the tail notion works because an actual tail exists. In an environment of only 100 choices, there is no tail. The more that number grows, the more likely the tail becomes. There isn’t a magic number, i.e. 1,000 or even 100,000. In the case of paid search, the inventory is words in any given language. This means, and it is the case, that search engines like Google actually stock millions of choices; it’s why search makes for such a promising tail economy. It has a natural tail, an incredibly long list of choices, many of which receive little activity in a month. The more naturally occurring choices, the longer the tail, and the greater the opportunity, which means that breaking the 80/20 rule might be harder but more rewarding when it comes to search.
• Search driven – requiring that user action be search driven suggests a slight departure from most discussions on the tail, and it could be argued that being search driven is optional, in describing a market/system/opportunity more examples than not seem to fit this. Search driven is the reason that Netflix can monetize the tail but broadcast television cannot. One matches user intent to the universe of options whereas the other tries to map a narrow band of options to user intent. Being search driven means allowing user intent to provide the starting point and a company trying to meet it rather than actively get customers for its selection. Companies can still do well with a narrow approach, but they won’t mine the tail, and their business could always come under pressure if it looks more like a tail economy, i.e. lots of buyers, lots of choices, and the next point, room for aggregation.
• Aggregation (Information asymmetry and facilitation) – one thing that makes tail economics, i.e. making more off the non-hits than the sum of the hits is a general lack of consumer awareness. In his article on the Long Tail, Mr. Anderson describes the case with Amazon and two books, one mainstream the other not. Its recommendation engine picked up that the more obscure book overlapped with the more popular one; users agreed and almost overnight, a non-seller became a source of revenue. The key takeaway is the existence of related intent, that items in the tail (in the exhaustive list of non-sellers / non-hits) map to those in the head group, in the big sellers. Amazon could make money without helping facilitate the mapping, but it makes much more because it does help map demand with supply. Doing that requires the final item, technology.
• Role of technology as facilitator – technology plays a crucial role in making Long Tail Economics possible. This takes place on two levels – the virtual store and the matching engine. Virtual stores can house more options than their physical “big box” counterparts. For example, Netflix can carry more titles than a local Blockbuster, and this is because a Netflix store has more customers than a local store; by having a virtual store, their coverage can be whole cities, and because their one to two business day approach means they need only a handful of “stores” to cover the whole US. Follow that logic and we see how each store can house thousands more titles. Secondly, companies that can service their customers without maintaining a retail store can start to play an active role in matching available supply with the demand. Amazon and Apple do this with their recommendation. Google, who has millions of titles, doesn’t have such an engine, which opens the door to specialists to figure out the relations, i.e. “mine the tail.” None of that would be possible, though, without technology.

In the end, talk of the long tail is about being able to make money from a wider range of products than was the case prior to doing business online. Long Tail Economics means leveraging technology to turn the classic 80/20 model on its head, about viewing opportunity as an iceberg. Embracing The Long Tail involves challenging us to rethink our notion of the fringe. The power is now in the 20 not the 80. With The Long Tail, 20 really equals 40, 50, or even 60. Long Tail Economics applies for many things, but it is not the magical solution to every business, only a way to view the world as having more choices and that having more choices can mean more money not less.