Long Tail Criticism Might Affect E-Business Strategies

The Long Tail theory, which describes the strategy in which online businesses sell a large number of unique, niche items in relatively small quantities, is established and has its own blog. The theory suggests that the Internet’s infinite menu of offerings drives consumers past mass market hits to more obscure, specialized offerings.

But the concept has taken some criticism from researchers at Wharton School of Business and Harvard Business Review. For example, the Wharton research, which looked at data from movie rental provider Netflix, found that the Long Tail effect holds true in some cases. But when factoring in expanding product variety and consumer demand, the researchers say, mass appeal products retain their importance.

Online retailers are built on the premise of the Long Tail. Will questions or doubts about the theory have any implications for e-businesses and e-business models? Perhaps, experts say, although to what extent is hard to say.

"I believe they will have a light impact," but will not lead online businesses to abandon Long Tail selling strategies, says Gene Alvarez, a vice president in the customer relationship management research organization at Gartner Inc., Stamford, CT.

Alvarez doesn’t feel that the Long Tail is an all or nothing proposition, and says there’s room for more than one online selling strategy. "To say the Long Tail applies to every product is incorrect," he says. "When you look at music and CDs and books, often there are marketing plans that contribute to making the hit a hit. A proper marketing strategy will contribute to driving big sales."

Serguei Netessine, professor of operations and information management at Wharton, who worked on the critical research report, says online companies such as Amazon.com, Netflix and others "are beginning to realize that Long Tail products do not necessarily sell themselves. And when we are talking about physical products that require supply chain management, this means that Long Tail items become very expensive to carry because demand for them is low and highly uncertain."

In the case of Amazon, Netessine says, "most Long Tail items would be carried by other companies, but someone somewhere has to worry about supply chain costs. Thus, Amazon, Netflix and others are beginning to work on recommender systems and other tools to drive consumers to Long Tail products." Netessine is unsure if academic research is motivating this work, "but I do think that understanding of the limitations of the Long Tail effect is emerging," he says.

Many online merchandisers will continue to focus on pricing, placement and promotion of hot new items, Alvarez says. "They’re still operating under the old mass merchandising approach," he says.

Nevertheless, the Long Tail’s "infinite aisle" is being adopted by many online providers, he says. For example, Amazon.com continues to be successful at drawing repeat business because many people assume they can find books, no matter how obscure or specialized, on the company’s Web site.

"Long Tail can be complementary to mass marketing efforts," Alvarez says. "The successful organizations are the ones that will balance the best of both worlds."