The "Long Tail" theory subverts the "28 rule"

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America's largest bookstore Barnes and Nobel (Barnes & Noble) have 130000 kinds of books and products that basically cover all major book categories. However, more than half of the books sold by Amazon, the world's largest online bookstore, are from these 130000 kinds of books.

According to statistics, in 2004 Amazon sales of Books, 57% of the varieties are Barnes and Nobel bookstore in these stores do not have books. The market for books that are not sold in everyday bookstores is bigger than the ones sold in everyday bookstores. Based on these findings, Anderson, editor of Wired magazine, presented the "Long Tail" theory of Internet business models in 2004.

The "Long tail" model of internet companies

Anderson defines the "long tail" market in "the Long Tail" in Wired magazine's 10th cover article, 2004, "Tail"-as long as storage and circulation channels are large enough, demand is low, or products with poor sales share the market, It can match the market share of a few hot sellers and may create more profits.

We all know that in the traditional business model there is a classic "28 rule", that 20% of the product can bring 80% of sales, while the other 80% of the product can only bring 20% sales, and this part of the product is almost no profit for the enterprise. Anderson studied sales figures for internet retailers such as Amazon, Rhapsody, and Netflix, and compared them to sales figures from traditional retailers such as Wal-Mart. He found that in the "long tail" market of the Internet, 90% of the products are not available in the traditional market, they can contribute 25% of the company's sales and 25% of the profit. In other words, in the traditional market can not make money products, in the "Long tail" market has brought 50% of profits.

Many new internet companies have shifted their attention from the "head" of the consumer demand curve to the "tail". In the demand curve of the "head", some of the market generally welcomed the main products in the mass market with a high number of sales are sought after; in the "tail" of the demand curve, millions of different kinds of goods are sold in millions of market segments, each serving only a small number of consumers. In addition to the proliferation of commodity types, information about the products has exploded (Chart 1).

In the long tail market, consumers use personal devices such as computers and PDAs to access the network, browse and search for product information, purchase suggestions, and place orders. Sellers use the Internet to minimize transaction costs and to recommend products that consumers may prefer, based on the consumer's own procurement model with similar consumer groups, through sophisticated software applications.

"Our education allows us to take 20-80 of this generic empirical thinking model," Anderson analyses, "which gives us a hot drive to think that if something isn't hot, it doesn't make money." But the ' long tail ' phenomenon reveals that these hotspots also make money. Both hot and non-hot spots enjoy the same economic status. ”

Market opportunities for the "long tail" phenomenon

The most likely scenario in the "long tail" market is an overdose of information that consumers are overwhelmed by their huge information and don't know how to make a choice.

As the end of the consumer demand curve gathers more and more goods, Anderson warns, more powerful information filters are needed to personalize the products that are ready for sale to individuals. Excellent long tail business through "chasing the tastes of customers, to facilitate the customer's exploration of the unknown world", so that the mass market to guide the market to subdivide. For example, Amazon uses collaborative information filtering, that is, through the user's browsing mode and procurement model to guide other followers. This, Anderson says, is "the difference between push and pull (pull), popular communication and personalized taste." The long tail market treats consumers as individuals, and takes mass customization as a substitute for the public market.

With the growth of the long tail part of the demand curve, enterprises can find three market opportunities.

The first is the opportunity to act as an aggregator, for example, Google's revenue comes mostly from small, market-oriented advertisers, and ebay sells niche products. The second is to be aggregated by other companies of market-oriented suppliers, this is the majority of SMEs can strive to break the direction. Third, companies that provide market information filters help consumers find out what they need and boost demand to the long tail.

Anderson also predicts that the "head" of the consumer demand curve will remain the dominant market share, and that the mainstream channel will not disappear, but its influence will weaken. In the middle of the demand curve of existing goods, due to the lack of distribution channels in the past did not play a full market potential, the future contribution to corporate earnings will be very large.

(This article source, Lu Xiao's personal blog, Welcome to Exchange)