The Long Tail Strategy :

How digital transformation is fragmenting mass markets into countless niches ?

In the traditional marketplace, for a long time, companies were focusing on products that attribute to the maximum sales. Then came the era of digital transformation, which allowed companies to realize significant profits by selling low volumes of niche products. This is known as the long tail business strategy, the term coined by Christopher Anderson in 2004. Math is simple. If we multiply a very big number of niche products available (our long tail) by a relatively small number (the sales of each product), it is still equal to a very very big number indeed. Hence product s with a low sales volume can collectively make up the market share equal or greater than the current best-sellers, as long as the distribution channel is large enough.

The digital economy is witnessing a shift from a few mass markets to countless niche markets.

Firstly, in this digital age, we are witnessing the shift from being passive consumers to active producers. The dramatically falling technology costs give amateurs access to production tools that were formerly the delicacy reserved for only professionals. For instance, Apple’s GarageBand free with every Mac, desktop editing suites and digital video cameras are bringing tools into the hands of the average moviemaker. The same is true for digital photo printing, video games, mobile apps, or book publishing. The result of cheap and ubiquitous technology is that the content is growing faster than ever. This is what lengthens the tail, increasing the number of available goods manifolds.

Secondly, the fact that anyone can be a producer is only meaningful if others can consume it. The Internet has made it cheaper to reach people at a surprisingly low cost. Aggregators like Amazon, iTunes, Netflix have connected content creators to the consumers. Theoretically speaking, digital aggregators provide almost unlimited access to niche goods because they have no economic limitations i.e. it does not cost them extra to offer more. Moreover, online retailers are no longer restricted to deliver only physical goods. Digital downloads of eBooks, music, online courses, video games, mobile applications, SaaS products, and software has virtually eliminated the bottleneck of distribution.

Lastly, the internet is connecting supply and demand. A marketplace filled with a superabundance of niche products may baffle the consumer with endless choices. That is where long-tail filters come to the rescue. Netflix, Amazon, and Google capture consumer behaviour and translate it to relevant recommendations. Similarly, customer recommendations, ratings, reviews, blogs, vlogs help consumers and companies in microtargeting.

“For too long we’ve been suffering the tyranny of lowest-common-denominator fare, subjected to brain-dead summer blockbusters and manufactured pop. Why? Economics. Many of our assumptions about popular taste are actually artifacts of poor supply-and-demand matching — a market response to inefficient distribution.” — Chris Anderson

To conclude, the economic culture is drifting away from monogamous purchases to tailor-made products and services. One size may not fit all and hence the market is getting fragmented into various niche interests. Digital transformation is enabling us with a powerful new force where technology has made it possible to create almost countless choices and provided means to generate unlimited demand.