Friday, July 21, 2006

The Long Tail

Hyperion published a book by Chris Anderson, the Editor-In-Chief of Wired Magazine, entitled The Long Tail. This book discusses a new theory that could replace the steadfast 80/20 Rule in business.

Simply stated, the 80/20 Rule dictates that 80% of the benefit one receives in life comes from 20% of the effort they put forth.

This rule is applied to business by explaining that 80% of your revenue will come from 20% of the products or services you sell. Real estate agents have also observed that 80% of the return on marketing efforts comes from 20% of the marketing we do. The goal of any motivated entrepreneur is to determine which 20% of the marketing or products or services bring 80% of the benefits, then spend 100% of your effort on what was once only 20% of your activities. Capisce?

Chris Anderson’s theory, The Long Tail, explains that 80% of a businesses revenue no longer comes from 20% of the products or services sold. If the 80/20 rule is described by a bell curve of the products a particular company sells, where the highest point of the curve represents the sales volume of the most popular product and the lowest point of the curve represents the sales volume of the least popular product, The Long Tail theory concerns the long tail on the end of the bell curve.

That long tail is new to business; it wasn’t there before. Or more accurately, it wasn't nearly as long before. The Long Tail is so long that there is more revenue generated by selling the products that appeal to more unique tastes, even if the quantity sold of each product is far less than the quantity sold of the most popular product.

The Long Tail supports niche marketing. In fact, it promotes the idea of marketing to a number of niches simultaneously. As Chris Anderson points out, Netflix and iTunes are two perfect models of The Long Tail. They both earn far more revenue from the relatively obscure titles in their inventories than they earn from Hollywood releases or songs from the Top 40.

A vast inventory is easy to maintain if it can be stored digitally, but can The Long Tail apply to service providers like real estate agents? If you’re RE/Max, Coldwell Banker, Windermere or John L. Scott, perhaps you could have a stable of agents who specialize in various niche markets. But what about individual agents? Should we aim our marketing activities at the greatest common denominator, or should we target a niche?

I believe that the best way we can serve our clients is to specialize in a geographic area and only a few types of properties. For me, it’s the residential houses and condos in Seattle’s urban neighborhoods. I’m a specialist here, and that means I can provide far better service for my clients in Seattle than an agent from Tacoma who is trying to cover the tri-county area.

The 80/20 Rule applies at every level. Does The Long Tail apply to small businesses and individual entrepreneurs, or does it only apply to larger companies?


At Wed Aug 02, 10:59:00 AM PDT , Anonymous ck said...

So isn't this just a by-product of buyers being able to find sellers quicker, easier, and in greater numbers?


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