Web 2.0 and Enterprise 2.0

Posts tagged ‘The Long Tail’

Leveraging the Long Tail

The Long Tail is one of the most important business economic models of the 21st century, especially for online retail business. It first appeared in Wired’s article “The Long Tail”  in October 2004 and expanded into The New York Times bestseller book in July 2009 on the subject entitled, The Long Tail: Why the Future of Business Is Selling Less of More. The phrase “The Long Tail” was coined by Chris Anderson who is the editor-in-chief of Wired Magazine and a former jounalist for The Economist. In his book, “The Long Tail” (2006), he defined “The Long Tail” (see Figure 1.0) as a statistical curve showing the edge that digital sellers with infinite goods for niche markets have over retailers with limited goods for mass markets and he also used this term to describe the potential opportunity missed in traditional product development.

This video clip shows how Chris Anderson identifies the business model of “The Long Tail”

There are some characteristics of the Long Tail business model

  • More (unlimited) selection – provides a wide range of items/products from “niche markets” as well as “on-demand markets”
  • Lower price – more profitable due to the lower cost for digitial automated delivery and on-demand creation
  • Hits matter – items/products can be easier found by search engine and even online social community (Facebook, Twitter). In other words, more product promotion
  • Scale – more feasible compared to traditional retail stores. It can sell more items and provide online delivery
  • Low fulfillment costs – using digital storage to store data; storage itself is getting cheaper and online devlivery totally automated

The Long Tail Curve

Graph for The Long TailFigure 1.0 : Graph for The Long Tail Curve

In the graph – The Long Tail Curve (see Figure 1.0), the vertical axis (Y) represents the popularity or mass market appeal for an item and the horizontal axis (X) represents a particular product. The red area of the graph represents the traditional markets – the Head. The orange area of the graph represents the Long Tail.

In 2005, Tim O’Reilly in his essay What is Web 2.0, coined the popular term for new Internet services (next generation of Web) – “Web 2.0” and also defined “The Long Tail” as one of the core design patterns of these Web 2.0 Internet business models. O’Reilly describes it as, “the collective power of the small sites that make up the bulk of the web’s content.” AuctionInsights (2008) states that eBay was one of the world’s first “Long Tail” markets. Therefore, eBay is a good example of an organisation “Leveraging the Long Tail” through customer self-service.

eBay LogoFigure 2.0 : eBay Logo

eBay (see Figure 2.0) is owned by eBay Inc. which is an American company and was founded as AuctionWeb in September 1995 by Pierre Omidya. With more than 90 million active users globally, eBay is the world’s largest online marketplace, where practically anyone can buy and sell practically anything (eBay, 2010). In other words, eBay is the world’s leading Internet online auction and shopping website. It brings together millions of people worldwide every day and creates an online sales platform/marketplace for the sale of goods through the Internet and provides services for and by a dedicated community of individuals and small business owners. Since 1995, eBay has grown to have a presence in 39 markets (including partnerships and investments) with more than 90 million eBay.com users worldwide. The total worth of goods sold on eBay was $ 60 million, trading more than $2,000 worth of goods each second (eBay, 2010).

In Web 2.0 era, eBay has stayed successful by continued leveraging of The Long Tail through servicing numerous micromarkets and data management to reach out the entire websites, to the long tail and not just the head. The following items demonstrate how eBay does that :

  • enabling transactions of only a few dollars between single individuals; acting as an automated intermediary (Jim Petrassi, 2008)
  • millions of products not just from “on-demand market”, but also “niche market”
  • providing its services as a sales platform with traffic for other small business retailers to build their own e-businesses
  • compelling participation mechanisms like Feedback, Reviews & Guides and Rating system
  • extending functionality such as combining with traffic from search ads of Google and Yahoo to increase hits
  • acquired Skype to leverage its services to advertise eBay product listings
  • a search mechanism (search function) for consumers to purchase their interested Long Tail products
  • a venue for Long Tail sellers to sell their products to this marketplace

In conclusion, technology and the Internet are making the world a smaller and more connected place (Terry Semel, 2009). The Long Tail theory is changing the e-commerce economics model with shifting from the Mass-Market to Niche Economics.

References:

O’Reilly, T. 2005. What is Web 2.0.

The Long Tail. New York Times Ad. 2009.

eBay: Long Tail Marketplace or Commodity Exchange? Part 1. 2008. AuctionInsights.

eBay. 2010. eBay.com

The Long Tail. 2010. Wikipedia.

eBay. 2010. Wikipedia.

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