Pattern seven: Leveraging the long tail

Web 2.0 in this pattern

“The term Long Tail has gained popularity in recent times as describing the retailing strategy of selling a large number of unique items with relatively small quantities sold of each – usually in addition to selling fewer popular items in large quantities. The Long Tail was popularized by Chris Anderson in an October 2004 Wired magazine article, in which he mentioned Amazon.com,  Apple and  Netflix as examples of businesses applying this strategy.” Mentioned by Quinion(2005) and Anderson(2004). Traditional business focuses just on big and popular domain, big client and highest revenue area. In today’s Web 2.0 application, this situation is totally changed. Because low cost and fast speed business model could be done by this platform, accumulation of small client and narrow niches could make huge profile and income to our company. This is called long tail phenomena. The main reason that could support long tail is the infinite shelf on Web 2.0, focusing on small market and low cost for goods distribution and advertisement. Benefits of this point would be seizing new small market, more browser and more choices for customer. To do this:

  • Forces of the long tail

Web 2.0 firm needs to make a strong long tail though production, distribution and demand.

  • Data management

Data management is an important part of long tail, because focusing on small customer and unique requirement, data would be larger and more complex than some big customers. Meanwhile a great amount of demand from small customers or suppliers needs to be researched on data domain.

  • Customer management

Because long tail includes a large number of customers that have different background and demand, so an effective architecture to manage customer and filter illegal and inappropriate contents is necessary. Firms could check content, customer classification to detect risks.

  • Leverage on-line product and inventory cost

Long tail web 2.0 application need to pay more attention to do aggregation and integration of online product and keep the lowest inventory cost. (Inventory cost refers to sleeping product in this net)

 Some cons of the pattern

  • Wrong long tail: long tail need low cost of production and distribution, otherwise it is hard to succeed.
  • Smaller tail: Do not ignore smaller tail, it could reinforce the value in the right way.

 Evaluating Web 2.0 application

Taobao(www.taobao.com) is the largest B2C web 2.0 website in china. This website is totally a long tail product. Alibaba is a world largest B2B company, which has realized that  the small market of long tail could give them great amount of revenue. So they built Taobao , which includes thousands of Chinese even world small suppliers or trade firms to post their product and to do negotiation. Taobao has strong data management system and customer management system. Meanwhile product is managed by many shops. Sellers could gain reputation through good service and product feedback. Illegal and pretended information will be deleted before or after customer complaint. Comparing with other B2C website, Taobao focus more on location customers’ service and smaller sellers, that is the reason why it could defeated Ebay in China, as Alibaba’s CEO Jack Ma memorably said: “eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose—but if we fight in the river, we win.”.(How Taobao beats eBay in China. 2010)  In the future, Taobao should extend their traditional B2C model to a more flexible model, for example group shopping or government procurement.

Quinion, M. 2005. “Turns of Phrase: Long Tail”. World Wide Words.

Anderson, C. 2004. “The Long Tail” Wired.

How Taobao beats eBay in China. 2010

http://www.thomascrampton.com/china/taobao-china-ecommerce/

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3 Comments (+add yours?)

  1. Amanda Belton
    May 06, 2012 @ 03:49:48

    This is a good explanation of the economic shift from traditional patterns of demand and profitability to the long-tail model that Chris Anderson talked about. I think Alibaba has really excelled at the customer management part, they’ve been so successful in connecting the manufacturers to a market the scale of which they cold never have reached without this architecture. Great post!

    Reply

  2. ericccl21
    May 13, 2012 @ 05:23:54

    Good take on Taobao and neat description of the principle itself. Business can now focus more on a small but diverse client market with the help of advanced Internet application and eventually profit off from them and expanding their business.

    Reply

  3. Bo Peng
    May 17, 2012 @ 08:35:13

    Thanks all, i think Taobao or Alibaba,would be the best example to explain long tail. Because it successes in China, which as Ma said, no many conditions to do e-commerce. But it defeat eBay, so we could learn the different long tail implementation method, rather than just talk niche market and infinite shelf online.

    Reply

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