Long Tail Dynamics vs. the 80-20 Rule

online shoppingIn a June 16 article Online Sales Lose Steam, the New York Times cited a Forrester Research report which projected that online book sales will rise 11 percent this year, compared with nearly 40 percent last year.  This mirrored the trend in online sales for other categories – Forrester indicated that 18 of the 24 online retail categories it tracked would experience a slowdown.  Of course, an 11 percent rate of sales growth is still well above that for the book publishing industry in general, whose sales grew at just 3.2 percent in 2006

The reasons given for the declines in online sales growth rates were grouped under the heading “online shopping fatigure.”  Retail stores were doing more to make the shopping experience more engaging, while online shopping was still something of a technical chore that felt like work to many shoppers.  

Online booksellers aren’t standing still, however.  Borders, for example, has announced plans to revamp its Web site to allow users to reserve books online and pick them up in the store.  Barnes & Noble has upgraded its website to include online book clubs, reader forums and interviews with authors.  The company hopes the changes will make the online world feel more like the offline one, said Marie J. Toulantis, the chief executive of BarnesandNoble.com. “We emulate the in-store experience by having a book club online,” she said.

But there are some experiences that brick and mortar retail can’t emulate.  For example, greater choice of products.  In its September issue, Inc. magazine reported the findings of a study conducted at MIT that confirms the dynamics of the long tail charted by Chris Anderson in his bestselling book The Long Tail

80-20 ruleThe study focused on a comparison between sales in the brick and mortar environment and sales online.  In the traditional retail setting, the Pareto rule was in full force.  That rule states that 80 percent of revenue comes from 20 percent of the products in the store.  The implications of the 80-20 rule are that retailers must fight a constant battle to identify and eliminate the 80 percent of products that don’t pull their weight.  The rule is perhaps inevitable because of the physical limitatino of shelf space. 

Online, however, the picture is quite different.  The distributino of product sales is much flatter.  All sorts of niche products tend to sell and there are fewer dominant bestsellers.  Chris Anderson talked about the reasons for this in his book:

  • Improved production tools lengthens the long tail.  In the case of books, this is technology such as print on demand which makes it easier to produce books in low quantities at reasonable cost.
  • Search fattens the long tail.  Consumers can more easily find those slow selling niche books.
  • Recommendation software and the ability to see what peers think and are buying flattens the long tail. 

Lower transaction costs associated with finding, evaluating and purchasing products online is creating an environment where niche products rule the day and the distribution of revenue associated with products tends to be flatter rather skewed toward a few products.  This is true across a wide range of products sold online. 

Howevver, print at the point of purchase, ala technology like the Espresso Book Machine (see Ending the Tyranny of Inventory and An Interview with Dane Neller of On Demand Books), may provide an interesting way for traditional booksellers to bring the long tail into the store.  They can offer a pleasing shopping experience with restricted shelf space devoted to the more popular books, and still offer unlimited selection to customers interested in less popular titles.  This may put more pressure on the Amazons of the world to differentiate themselves and maintain their sales growth.

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