Pattern description

Instead of concentrating on blockbusters, the main bulk of revenues is generated through a 'long tail' of niche products. Individually, these neither demand high volumes, nor allow for a high margin. If a vast variety of these products are offered in sufficient amounts, the profits from resultant small sales can add up to a significant amount.

Inventive problems

Application examples

Online retailer Amazon, founded in 1994, and auction site eBay, founded a year later, were two of the Long Tail pioneers. According to some estimates, Amazon generates 40 per cent of its revenue by way of books that are not available from traditional booksellers. For Amazon this Long Tail of niche products is not just a valuable revenue stream, it is also an important way for it to differentiate itself from the conventional book trade. On eBay, private individuals create a Long Tail by putting items up for auction. A total of several million auctions take place on eBay every day. Some of the more eccentric niche products available for auction there include Pope Benedict XVI’s Volkswagen Golf and a lunch date with Warren Buffett.

The rapid expansion of the streaming service Netflix brought the Long Tail concept to video rentals. Netflix customers have access to over 100,000 films, television series and shows, about a hundred times the number of titles available from a traditional video rental store. By virtue of its uniquely wide offer, Netflix has largely effaced conventional video rental shops. With over 26 million users, Netflix is an over-achiever in its industry by any standards.

Apple is another company that successfully applies the Long Tail pattern. Its iTunes and App Store are the world’s largest online music and application stores. The huge selections available through Apple’s stores have helped the company to generate enormous revenues as well as successfully gain its customers’ loyalty. While more than 25 billion songs have been sold on iTunes, the numbers displayed by the App Store are even more impressive. Over 50 billion applications have been sold until May 2013.

References

The Business Model Navigator: 55 Models That Will Revolutionise Your Business