I’ve always been a little skeptical of the Long Tail theory because any way you slice the analytics, hit products still account for the bulk of most companies’ sales.
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| Obscure Products Need Homes Too |
What makes the Long Tail notion work for an online service like Rhapsody (often cited as a Long Tail model) is the fact that data storage costs are so exceptionally low that maintaining a huge inventory of obscure, seldom-purchased titles is still profitable. That doesn’t work for Wal-Mart and other companies that need physical warehouses.
New research by MIT Sloan Professor Erik Brynjolfsson suggests that the other key factor in making the Long Tail theory work is search engines which not only make it easier to find that partridge in a pear tree but also for companies to make partridges and pear trees in the first placeas long as they sell them online.
“More and more people are shopping online, and as search costs also keep getting lower, relatively obscure types of products are becoming a bigger share of overall sales,” said Brynjolfsson, who is also director of the MIT Center for Digital Business. “And as technology further lowers search costs to find obscure items, it creates even more incentives to create such niche products in the first place.”
While the web is typically cited for helping consumers find products at lower costs, Brynjolfsson found that consumers actually benefit far more - by up to ten times as much - from increased product variety than from lower prices. Sellers gain as well. By using increasingly sophisticated search technology (such as recommended products, which are based on a particular shopper’s product search history), on-line merchants are able to help consumers find, evaluate, and buy a far wider variety of products than can be found either in actual stores or traditional catalogs.
Brynjolfsson and two co-authors analyzed consumer purchase data from a retailer that offers an identical selection products at identical prices via both the Internet and a mail-order catalog. He found that while the top 20 percent of products accounted for more than 80 percent of all catalog-driven sales, the same top products represented barely 70 percent of internet sales.
According to ComScore Networks, which measures internet activity, Americans made 6.6 billion on-line searches in just one month (April 2006), and Page Zero Media estimates that paid search advertising will total $15 billion in 2006.
That’s a heck of a tail to grab onto.
Tag: search engines, long tail
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