The long tail model has quickly become one of the most widely used by companies around the world (even the largest ones!) in recent years.
Thanks to this particular theory formulated for the first time in 2004, journalist Chris Anderson revolutionized economic and commercial models, dismantling some beliefs that seemed by now deeply rooted and consolidated. But how did he succeed? And what are the cardinal principles of this business model?
In this guide dedicated to Chris Anderson’s long tail model, you’ll discover what the Long Tail Business Model is and how it works, what its main advantages are, in which contexts it can be applied most successfully, and how it can be useful for startups.
What is the long tail business model
The long tail business model was first formulated by journalist Chris Anderson in 2004 in an article published in Wired, of which he was editor at the time.
His theory was so successful that it was then republished in a best-selling book, published in 2006, titled “The Long Tail: Why the Future of Business Is Selling Less of More“.
Chris Anderson’s theory
The business model at the basis of Chris Anderson’s long tail theory provides that a company can obtain revenues not only from selling a few items in large quantities but also by selling small quantities of many different items. These niche products, if taken individually, sell little but, overall, generate a high sales volume that can even be higher than that of a few best-selling items.
What “long tail” means, where the name comes from, and application in the digital context
The name chosen by Chris Anderson for his business model derives from the shape of the curve that the economy he described draws within a graph.
In a graph where on the ordinate axis there is the number of sales and on the abscissa axis the products, from the most generic to the most specific, the “head” is represented by the sales of a few best-selling products, while the “long tail” by the sales of many niche products.
Generally, companies tend (or rather, tended) to focus on selling a reduced number of particularly profitable popular items. As demonstrated by Anderson, however, overall the constant sales of niche products are able to produce revenue equal to or greater than the sales of the most popular products. Nowadays, not by chance, demand for purchases increasingly goes in the direction of numerous different products.
The explosion of Internet gave a decisive impulse to this trend, offering consumers the possibility of finding online everything they need or desire, regardless of how specific their interests are. Not only that: the Web has also allowed companies to access their potential customers more easily and quickly, thanks to the possibility of targeting the audience with demographic, behavioral, or other filters. Precisely in this regard, Jeff Bezos stated:
“Success in the long tail consists in allowing demand to meet supply.”
There are two other reasons why the digital era has favored the success of Chris Anderson’s long tail business model. The first is related to the fact that consumers, today, are not only “passive” customers but also active producers, because, thanks to the Internet, they have tools available to create and manage digital products on their own (from audiovisual products to software). The consequence is that supply has increased and, likely, will continue to increase.
The second aspect concerns product storage spaces (and display), which, before the advent of the Internet, were physically limited. Now, however, it’s possible to store and put on “display” an almost infinite number of products.
The Long Tail Business Model, in the digital sphere, doesn’t only find application in the strictly commercial field. Have you ever heard of long tail keywords? SEO, that is, search engine optimization, is based (also) on Chris Anderson’s theory.
How the Long Tail Business Model works
Now that you know what the long tail business model is and what its cardinal principles are, you also need to know how it works in detail.
From mass sales to a mass of markets
To understand how the Long Tail Business Model works, it’s necessary that you have very clear the paradigm shift that lies at the basis of the theory formulated by Anderson: as the title of his volume suggests, we move from a “mass market” (characterized by the sale of a few best-selling products in large quantities) to a “mass of markets,” where a great variety of less sold products can generate significant revenue, even higher than that ensured by the most “popular” products, attracting and satisfying a broader (but also more specific) audience.
Niche products, constant demand, and infinite variety
Products that target a market niche can ensure constant demand because they’re able to satisfy a specific and recurring need of a group of consumers. This type of customer tends to be loyal over time and to return to purchase the same product.
The other aspect that makes niche products particularly interesting is their virtually infinite variety: the range of niches that can be explored is vast and this represents a great opportunity for sellers, who can find their space in the market more “easily.”
Why the long tail is sustainable over time
The sustainability over time of the long tail is linked to the reduction of marketing, storage, and distribution costs. In addition to this, it’s appropriate to consider that there exists a wide segment of consumers who, instead of seeking traditional goods, search for niche products.
The advantages of the long tail model
In the previous lines we’ve already mentioned some, but now the time has come to explore more precisely and in detail the advantages that the long tail model is able to ensure.
Reduction of storage and distribution costs
The Long Tail Business Model reduces storage and distribution costs: you must consider, in fact, that centralized warehouses have lower costs compared to local or retail stores. Not only that: if we’re talking about online products, as already mentioned, storage costs become practically zero. A similar reasoning applies to distribution and logistics.
Expansion of supply thanks to digital
The Internet has expanded the supply because it makes products accessible at any time and from anywhere. Thanks to search engines, moreover, consumers can discover and find specific products suited to their needs, even those they would never have thought existed or were available.
Ability to scale without increasing costs
The long tail strategy allows scaling without increasing costs significantly, since to offer niche products, in general, fewer resources are needed compared to how many are needed for mass production of very popular items.
Targeted marketing thanks to data intelligence
Another advantage of digital, in relation to the Long Tail Business Model, derives from the fact that companies can use data intelligence tools to access a large amount of data and information about their customers. Consequently, they’re able to offer tailored content based on targeted preferences and needs.
Loyalty building through personalized recommendations
The possibility of analyzing searches made by customers and, therefore, their preferences also allows to recommend specific products or services that might be of their interest. The recommendation principle is at the basis of specific sales strategies, such as cross-selling and up-selling.
Where the long tail model applies
The long tail model theorized by Chris Anderson has found application over the years in different fields, from e-commerce to digital startups. In the next lines you’ll discover how it managed to do so.
E-commerce and marketplaces, example: Amazon, eBay
The advent of digital has revolutionized commerce, largely shifting it online, where e-commerce sites and marketplaces can offer virtually infinite product catalogs and get in touch more quickly and easily with their potential customers. Platforms of this kind make extensive use of the theoretical principles of the Long Tail Business Model and eBay and Amazon, in this context, represent the most famous examples.
eBay’s business model, in fact, provides that sellers commercialize small quantities of very specific items to buyers who are looking for niche products.
On Amazon, the recommendation tool plays a fundamental role: through it, in fact, the platform suggests to consumers other products they might like, based on their preferences and searches. What are suggested, in general, are not the best-selling products already known to them, but niche products yet to be discovered.
The goal is not to sell an enormous number of a single niche product, but to create many, in different niches, so that the sum of their sales can create a market comparable or superior to that of the most successful products.
Publishing sector and self-publishing
The world of publishing has also experienced radical changes thanks to the advent of digital. In the traditional model of book publication and sale, before the web revolution, the author would send their text to publishing houses hoping to be selected. Publishers, however, tended to select only titles and authors considered “prominent” and capable of guaranteeing a high number of sales.
Anderson, however, demonstrated that revenues related to the constant sale of niche products or contents can reach or even exceed the revenues of the most popular products.
Based on this theory, with the complicity of the Internet explosion, online self-publishing platforms have increasingly spread, allowing anyone who wants to become an author to write texts, publish them, distribute them, and print them on demand (that is, only after the order has been received), regardless of the number of copies they’ll then be able to sell. In doing so, these platforms have become an alternative and privileged meeting point between new authors and readers.
Streaming and digital content, example: Netflix, YouTube
Netflix and Youtube, as well as many other online audio and video streaming platforms, are further examples of practical application of the long tail model. Both use a large amount of customer data to devise and suggest to them a series of contents designed ad hoc based on what they prefer and search for.
There’s a further aspect to consider: on the creator side, YouTubers, if taken individually, are not comparable in popularity and visibility to generalist TV but, overall, they manage to have a relevant impact in comparison with the so-called classic television sector.
Digital startups and vertical services
Focusing on selling a wide variety of niche products, the Long Tail Business Model finds great application among vertical services, that is, those specific services for certain sectors or needs.
The acquisition of popularity of the long tail business model, as already emphasized several times, has proceeded “hand in hand” with the digital revolution. It’s no coincidence, therefore, that digital startups make extensive use of the principles theorized by Chris Anderson.
The relationship between the Long Tail Business Model and startups, however, deserves to be explored in detail.
Long Tail and startups: a high-potential model
The long tail model has a very high success potential in the startup sphere. And the reasons are various.
Why startups should start from niches
Startups should initially target specific market niches because first of all, this way, it’s easier to challenge and overcome competition, creating a recognized brand and building a customer base that remains loyal over time.
A niche market allows testing the product or service within a less competitive environment and optimizing resources, before taking the big step and expanding to broader markets, with all the risks that this may entail.
How to validate niche products with minimal costs
Validating niche products with minimal costs is possible, if the audience is sufficiently narrow and advertising campaigns are optimized. Large investments are not necessary at the beginning: small quantities are enough to test the market response and adjust the strategy based on the feedback received.
The MVP strategy and the potential of the long tail
MVP stands for Minimum Viable Product and indicates the first version of a product or service developed by a startup for the purpose of validating its business idea. Within the long tail model, an MVP can help quickly test interest and demand for niche products, finding a specific audience and reducing the risks associated with large-scale production.
Focus on listening and personalizing the offering
As we’ve already highlighted multiple times, a startup’s ability to listen to and analyze consumer feedback takes on a decisive role in the delicate game between failure and success. This takes on even more value for those who decide to adopt a Long Tail Business Model. The indications must necessarily be used to improve the product or service, which must be personalized so as to be able to respond also to the most specific needs and desires.
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