Long Tail doesn’t make money

An interesting blog posting from Chris Anderson, author of the book “The Long Tail” and editor of Wired. Quoting at some length from Eric Schmidt (CEO of Google) and others, he argues that his basic message – that businesses could make as much money from a large number of product lines each with small revenue, as from a small number of products each with large revenue – is no longer completely accurate. In particular, he notes that the distribution of companies that do well from the Long Tail is very skewed, and that only quite a small number (Google, Amazon etc) do well. He concludes that “It’s hard to make money in the Tail. As Schmidt notes, it’s also hard to make money if you don’t have a Tail (to satisfy minority taste, which improves the consumer experience), but the revenues are disproportionately in the Head.”

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1 Comment »

  1. Richard Simmonds said

    This is an interesting debate. I suspect that many large and profitable companies encourage their customers to remain with them by developing a wide variety of products around the core of products that made them successful. These products, many of which will be loss making are sold in fewer numbers and are likely to be more expensive to produce than the core products. However, unless companies have a sophisticated costing system they are unlikely to properly understand which products are profitable and which aren’t.

    I suspect that Pareto holds true here with the majority of profit being generated from 20% of the product set. I have taken part in profitability studies which produced just this pattern of results. It can only be very profitable companies who can afford a Long Tail, but I am not convinced that the tail is necessary as I suspect no company embarks on consciously trying to grow one.

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