Is it Time to Chuck the Long Tail Theory?

In his ground-breaking work, The Long Tail, Chris Anderson says that there’s money to be made in the long tail of niche offerings. It’s called the “long tail” because if you look at demand on a chart, there is high demand for a small number of hits or blockbusters, but the demand for niche offerings tails off in a long flat curve — hence the term “long tail.”

the long tail of niche markets

Recently, Anita Elberse, Harvard Business School professor, published a critique of Chris Anderson’s long tail theory in the Harvard Business Review. Based on her research of two markets, she says Anderson is wrong and there is more money to be made in a few blockbusters or hits, than in niche offerings.

So, is it time to chuck Anderson’s long tail theory?

Speaking from the perspective of small businesses, the answer is an emphatic “NO.”

Elberse may have a point when it comes to large corporations. But when you view it from the perspective of small businesses, the answer is: Anderson’s long tail still makes perfect sense as a product and market strategy for many small businesses.

You have to remember that Elberse views the issue through the prism of large corporations. She gives the example of Grand Central Publishing (formerly Warner Books), and how they publish 300 titles a year. They may only heavily market two of them in a calculated gamble on them becoming blockbuster hits. Many of the other titles they publish are money losers. The book company has to invest millions in marketing the two chosen blockbuster candidates. If their gamble pays off they earn several million in profit from the two blockbusters. Although risky, in the end it may be worth it to focus on a few blockbusters.

But here’s my point: Small businesses do not have millions to invest. Small businesses have an infinitesimally small chance of ever creating a blockbuster. So the blockbuster option really isn’t an option for 99.9999% of small businesses anyway.

No, many of us small business owners are forced to live in the niches if we want to build a business.

Often the big markets are saturated by well-funded players and if we want to compete we have to find an underserved niche. We can keep our costs low, so we have the advantage of being able to deal in niche offerings more profitably than large corporations. Besides, we don’t have the marketing funds needed to create blockbusters, so we may not have any choice, anyway, but to live in the long tail — anything else is a pipe dream.

Steve King of Small Biz Labs emphasizes the economic realities of long tail niches to small businesses:

Our research shows that the long tail is happening and the number of niches able to support small businesses … is rapidly increasing. The two main drivers of this are:

1. Reductions in the cost of doing business in many niche markets. Technology, outsourcing and access to third-party services are making it easier and cheaper to create niche or highly customized products and services.

2. The Internet has made it cheaper and easier for buyers and sellers of niche products and services to find one another. This means the producers of niche products can cost effectively attract enough customers to create viable niche businesses.

These two drivers are combining to shift demand curves and create many new niche opportunities – for both digital and physical goods ….

Here’s the bottom line: niche offerings — long tail offerings — continue to make financial and strategic sense for small businesses. For large corporations, maybe not so much.

Just understand the difference depending on the size of your company — don’t let articles like Elberse’s confuse your strategy and get you off track. Elberse’s conclusion suggests the long tail may not make sense — for large companies. But for your small business, the long tail and niches may be just where you need to be. In fact, they may be the only place you can afford to be.

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.