Chasing The Long Tail

e-commerce

Last year, it was reported in a study by UPS and comScore that for the first time in history, shoppers buying more things online than in stores. Shoppers now indicate that approximately 51% of their purchases are made online, compared to 48% in 2015 and 47% in 2014.

While there are likely many factors that have contributed to this change in consumer behavior, after reading “The Long Tail” by Wired writer Chris Anderson, as well as The Economist’s “Hidden in the Long Tail,” it seems to me that the most powerful force behind this shift is the titular, long tail.

The Long Tail is simply a vast collection of products, outside the popular items one could find easily in stores, that create a significant source of revenue for an e-commerce retailer, despite their lack of major individual demand. Anderson explained it well by relating it to the music website Rhapsody:

“But a really interesting thing happens once you dig below the top 40,000 tracks, which is about the amount of the fluid inventory (the albums carried that will eventually be sold) of the average real-world record store. …

‘The Rhapsody demand, however, keeps going. Not only is every one of Rhapsody’s top 100,000 tracks streamed at least once each month, the same is true for its top 200,000, top 300,000, and top 400,000. As fast as Rhapsody adds tracks to its library, those songs find an audience, even if it’s just a few people a month, somewhere in the country.”

Thinking on the idea of the long tail more, it made sense to me that you could find loads of more products on a site like Amazon than you could on the shelves at Target. You have limited shelf space at Target and Amazon can always add more pages to their site. What surprised me, however, was the profitability of the items that make up the long tail.

Anderson mentions in his article that some e-commerce retailers make a significant portion of their profits from the sale of these “niche” items. Even if they only sell a few of each item during a year, the sheer number of niche items results in higher profits. Add to this the assertion provided by The Economist article that these niche items are often priced higher online than they would be in stores (due to the basic principles of supply and demand), and you have an even higher consolidated profit.

The long tail is a genuinely interesting topic, but it must be acknowledged that without the Internet, it likely wouldn’t. The Internet is almost limitless in size, making it easier for retailers to offer more products on their sites. The Internet know no bounds, anyone anywhere can get any product they want, regardless of location, which often affects supply levels at brick and mortar stores. The Internet is a place where purchasing habits and other information can be easily linked, making the discovery of other products a certain consumer may enjoy an effortless process. The Internet has provided a lot more for the e-commerce industry than actually making it possible, but either we don’t realize it, or we take it for granted.