The Long Tail

The way in which the Internet business Netflix has matured and is constantly developing and innovating is evident when analyzing the long-tail theory. Basically the long tail, created by Chris Anderson, an editor at Wired Magazine, is a way to describe niche marketing and distribution and the way it works on the Internet (Hazan, 2015). Stores only have the capability to afford and supply popular and mainstream goods and products, as they need enough people in the area to purchase these items to cover their business expenses. However the Internet changes this, as they are able to cater and carry less popular items that are not available in the retail market opening up these niche markets.

Furthermore, in regards to the Netflix, it includes an extensive list of titles, with a broad range of categories. Very similar to ITunes with its music, Netflix has made it so easy to access these films that may have become obsolete, rival companies such as blockbuster can not simply keep up. With Netflix, it eliminates the constraint of precious shelf-space, there is no shelf-space, the opportunity to hold DVD titles is endless, this is the infinite catalogue, the ever extending, always extending, infinitely extending Long tail in operation (Schmitz, 2012).

Traditional stores have the capacity to only carry approximately 2-3 thousand DVDs, while Netflix offers over 125 thousand DVD titles, with the number constantly rising. At these traditional video stores, they are very limited by shelf space that hinders the ability to offer to the customer’s needs and wants. They are only able to offer films that the general public and regular customer would be most possibly interested in.

Traditional stores are not only restricted by the costs of DVDs but are restricted as they are required to pay other business expenses, such as the rent, electrician and workers, etc. It is due to these expenses where they are unable to justify stocking less popular titles, due to not having enough paying customers that will cover the expenses of not only the DVD, but the additional business expenses as well. For a profitable business there should be a breakeven point arrived at by considering the number of customers that can reach a location, along with factors such as store size, store inventory, the payback from that inventory, and the cost to own and operate the store. Anyone who has visited a video store only to find a title out of stock has run up against the limits of the physical store model (Schmitz, 2012).

The difference is however that the Internet allows online businesses to escape the limits created by geography and shelf space. Online businesses that ship physical DVDs are only required to have a number of warehouses. For online businesses that supply goods digitally, are even more productive and efficient as there is no requirement for a warehouse or any physical product.

Through offering what seems to be an almost limitless selection of DVD’s titles, more money is actually made through selling the ‘low key’ titles over the ‘big hits’. The unlimited selections available online is revealing the truth about what consumers actually want.  And at Netflix, roughly 75 percent of DVD titles shipped are from back-catalog titles, not new releases (at Blockbuster outlets the equation is nearly flipped, with some 70 percent of business coming from new releases). Consider that Netflix sends out forty-five thousand different titles each day. That’s fifteen times the selection available at your average video store! Each quarter, roughly 95 percent of titles are viewed—that means that every few weeks Netflix is able to find a customer for nearly every DVD title that has ever been commercially released (Schmitz, 2012).

From looking at the below graph, it is a visual representation of the long tail. The area underneath the curve labeled ‘most popular products’ shows where most retail stores are making their money. Companies that follow the long tail theory also make money from this area, however can also sell the goods that are less popular, which is represented in the area labeled ‘the long tail.’ The items within the area of the long tail may not receive the same amount of demand as the popular titles do, however someone somewhere wants it.

The Long Tail Diagram (Schmitz, 2012).

Furthermore the long tail theory is successful as the costs required for production and distribution fall to a significant level, where it turns out to be economically feasible and practical to comprise a vast range and collection. For Netflix, the cost to stock and ship an obscure foreign film is the same as sending out the latest Will Smith blockbuster. The long tail gives the firm a selection advantage (or one based on scale) that traditional stores simply cannot match (Schmitz, 2012).

In addition, by analyzing and exploring the way in which Netflix follows the long tail theory, shows the way Netflix has matured as a company. Through continuous innovation and developing certain strategies alongside using the long tail theory, proves Netflix’s ability to continue to soar in the future. The unlimited selection allows Netflix to open up so many other opportunity and channels due to not being restricted by physical space or physical goods. Through long tail Netflix can continue to develop and continue to gain more and more titles to a point where we may live in a world with no Blockbusters and physical DVDs. It is through the groundbreaking long tail innovation that has made Netflix as successful as it is today, especially when compared to its competitors.

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