LongTail Theory

When consumers are offered infinite choice, the true shape of demand is revealed. And it turns out to be less hit-centric than we thought. People gravitate towards niches because they satisfy narrow interests better, and in one aspect of our life or another we all have some narrow interest (whether we think of it that way or not).
The Long Tail book is about the big-picture consequence of this: how our economy and culture is shifting from mass markets to million of niches. It chronicles the effect of the technologies that have made it easier for consumers to find and buy niche products, thanks to the "infinite shelf-space effect"--the new distribution mechanisms, from digital downloading to peer-to-peer markets, that break through the bottlenecks of broadcast and traditional bricks and mortar retail.
The Long Tail was popularized by Chris Anderson in an October 2004 Wired magazine article, in which he mentioned Amazon.com and Netflix as examples of businesses applying this strategy.

The distribution and inventory costs of businesses successfully applying this strategy allow them to realize significant profit out of selling small volumes of hard-to-find items to many customers instead of only selling large volumes of a reduced number of popular items. The total sales of this large number of "non-hit items" is called the Long Tail.

Given enough choice, a large population of customers, and negligible stocking and distribution costs, the selection and buying pattern of the population results in a power law distribution curve, or Pareto distribution. This suggests that a market with a high freedom of choice will create a certain degree of inequality by favoring the upper 20% of the items ("hits" or "head") against the other 80% ("non-hits" or "long tail").

A frequency distribution with a long tail has been studied by statisticians since at least 1946. The term has also been used in the insurance business for many years.

Anderson argues that products in low demand or that have a low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, if the store or distribution channel is large enough. The Long Tail is a potential market and, as the examples illustrate, the distribution and sales channel opportunities created by the Internet often enable businesses to tap that market successfully.

An Amazon employee described the Long Tail as follows: "We sold more books today that didn't sell at all yesterday than we sold today of all the books that did sell yesterday." Anderson has explained the term as a reference to the tail of a demand curve. The term has since been rederived from an XY graph that is created when charting popularity to inventory. In the graph shown above, Amazon's book sales or Netflix's movie rentals would be represented along the vertical axis, while the book or movie ranks are along the horizontal axis. The total volume of low popularity items exceeds the volume of high popularity items.