I find the long tail a fascinating concept - basically the idea that technology advances is moving our culture away from concentrating on a few massive hits and towards a situation where the market is spread across a much larger number of less popular items.
The classic example that gets quoted time and time again is Amazon versus bricks-and-mortar bookstores - the marginal cost for Amazon to hold a copy of a title that sells one or two a year is virtually nothing, whereas a highstreet bookstore has a finite - and expensive - supply of shelfspace, so concentrates on a much smaller number of bigger sellers.
And there are numerous other examples, from iTunes to eBay - I bought a camera a few months ago which has been out of production for well over ten years, something I would never have been able to do without an online store connecting me with the seller.
One of the examples I hadn’t considered up to now is Lego. But according to Chris Anderson’s Long Tail blog, Lego is actually a great example of how the long tail effect has not only changed the market, but also how the company has reacted to that:
It’s worth pausing here and considering the Long Tail implications of this. At least 90% of Lego’s products are not available in traditional retail. They’re only available in the catalogs and online, where the economics of inventory and distribution are far friendlier to niche products. Overall, those non-retail parts of the business represent 10-15% of Lego’s annual $1.1 billion in sales. But the margins on these products are higher than the kits sold through Toys R Us, thanks to not having to share the revenues with the retailer. And because the virtual store can carry products for all Lego fans, from kids to adult enthusiasts, and not just the sweet spot of nine-year-old boys, the range of prices can be a lot greater online, from $1 bricks to the aforementioned $300 Star Wars kit.
What’s also startling is how wide a distinction exists between industries that do get this - i.e. Lego - and those that don’t seem to, like the RIAA-affiliated music business. There are numerous highly-detailed examples of how long tail effects could affect the music business, if only the music business would sit up and take notice.
And I couldn’t help but notice how much cooler Lego has become - I sometimes get the feeling I missed out, having been brought up a generation before the online Lego store selling bespoke kits and Mindstorms…