Tuesday, August 08, 2006

Long Live the Long Tail

Serving the small guy has become big business

Until not so long ago, the words "long tail" only conjured up images of the Long-tailed Langur, a rather loose-limbed, lanky monkey found on the Indian subcontinent. Or if you were mathematically inclined, it probably made you think of Power Law distributions.

Well, those words may just be the hottest two words in business right now. Since the 2004 article of the same name by Chris Anderson, a former writer for The Economist, and now the chief editor of Wired magazine, and more recently, his book, The Long Tail: Why the Future of Business is Selling Less of More.

Sure enough, the concept is based on the same principle as power law distributions, which govern how sales of most products are distributed. For example, most publishing house revenues are represented by a few best-seller books, while a large number of smaller-selling books contribute just a tiny fraction of revenues. At its heart, the long tail concept holds that the conventional focus that businesses have placed on selling big hits, or selling to big customers, is essentially an artifact of constraints on storage space, information and distribution. With the web and attendant technologies breaking down those constraints, not-so-big hits and smaller customers get to be in the limelight too. Businesses can thus focus down the long tail of the power law distribution.

And it's getting lots of attention. No less a person than Eric Schmidt, CEO of Google, has said that the long tail concept has "influence(d) Google’s strategic thinking in a profound way", and refers to Google's mission as "serving the long tail".

Anderson even furnishes credible arguments to show that the celebrated 80/20 rule, or the Pareto Principle, that states that "80% of the revenues come from 20% of the products" is really a consequence of similar constraints, and will in time give way to something that is more like a 50/50 rule.

There is a long tail for software as well: the variety of software needed to automate a large number of highly customised processes within businesses.

Big business has traditionally scoffed at small customers. Now with the arrival of the long tail phenomenon, perhaps the meek shall indeed inherit the earth - or at least get to preen in the attentions of lots of marketers .