What the heck is a Long Tail?

We work with a lot of startups and often part of our role is helping founders and managers pitch their ideas to investors and banks. When I did this for tech and dot com companies in the late 90's there were several buzzwords woven into every powerpoint presentation. If an executive or pitch man didn't talk about "viral marketing" or "click-through rates" he was dismissed as out of touch.

In 2006 "Long Tail" may very well be the new venture capital buzz word. But there is an interesting concept behind this wierd phrase. It turns out a regular demand curve can be split into two segments. A mainstream segment (highlighted in red) and a niche segment (in yellow). Traditionally retailers and marketers have focused on selling products in the red segment. This makes sense when you have limited shelf space and you need to choose those few products with the greatest sales potential (the red area). But the internet has allowed purveyors of niche content to access a ready market for their goods and services (the yellow area). 

The interesting thing about the niche market is that it has many, many more product possibilities than the mass market, hence the yellow area takes up more of the x-axis than the red area. This is what has become so attractive to the VC market, and that is why this mundane little demand curve that's been around since Adam Smith now finds itself bisected into a "short head" and a "long tail."

The problem with "Long Tail" salesmen is that few of them understand how the concept makes their proposed business any money. As an accountant I tend to see things in terms of "cash in" and "cash out." If not enough cash comes in the business doesn't last very long, no matter how good the sales pitch. Now the contributers at Venture Blog have laid out a compelling case for finding money in the Long Tail.

If you want a more detailed discussion of the Long Tail concept check out Chris Anderson's Long Tail FAQ. Chris is editor of Wired Magazine and is writing a book on the Long Tail.

View the Axiom Professional Group, P.A. web site  or return to the Axiom web site articles page (both links will exit the blog site).