Trend: Virtual companies can stimulate and leverage Long Tail demand for a competitive advantage over brick-and-mortar stores.
Below is a description of The Long Tail from Wikipedia. Then we include an example from The Internet Stock Blog of a virtual company (Neflix) out-competing a well-known rival (BlockBuster Video) by leveraging the Long Tail.
The phrase The Long Tail, as a proper noun, was first coined1 by Chris Anderson, drawing on an influential essay by Clay Shirky, "Power Laws, Weblogs and Inequality" that noted that a relative handful of weblogs have many links going into them but "the long tail" of millions of weblogs have only a handful of links going into them. Beginning in a series of speeches in early 2004 and culminating with the publication of a Wired magazine article in October 2004, Anderson described the effects of the long tail on current and future business models. Anderson argued that products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, if the store or distribution channel is large enough. Examples of such mega-stores include Amazon.com, Netflix, and even Wikipedia. The Long Tail is a potential market and, as the examples illustrate, successfully tapping in to that long tail market is often enabled by the distribution and sales channel opportunities the Internet creates.
A former Amazon employee described the Long Tail as follows: "We sold more books today that didn't sell at all yesterday than we sold today of all the books that did sell yesterday." In the same sense, Wikipedia has many low popularity articles that, collectively, create a higher quantity of demand than a limited number of mainstream articles found on a professional site such as Britannica.
The Long Tail refers to the end of a one-sided bell curve that measures title depth on one axis and title demand on another axis. The “hill” represents the few number of blockbuster titles that are in high demand while the long tail represent the large number of “catalog” titles that are abundant but have limited demand. Typically, most entertainment providers have focused on the “Large Hill” given this is where the bulk of demand is located. However, the power of the internet, the minimal costs of storing titles, improving distribution capabilities, lower acquisition costs, and analytical software allows for the depth of catalog content to compensate for the lack of demand. Furthermore, these improvements have also allowed the bell curve to flatten out (i.e., more title can not be cost effectively sold). We see NFLX as utilizing the long tail as a competitive advantage that should help generate additional operating leverage.