As expressed by Vilfredo Pareto, 80 percent of wealth is owned by 20 percent of the population. The Pareto Rule, or the 80-20 Rule had been applied in different areas. It could mean that roughly 20% of what we do produces 80% of our wealth. It could also mean that roughly 20% of the products account for 80% of the sales. There are, of course, variations and deviations to the rule, but that’s not our concern here.
If you visualize that ratio, it looks pretty much like a comet, with the 80% sales (from 20% of the products) comprising the huge head, and the remaining 20% of the sales (80% of the products) comprising the long tail that slowly tapers off. Physical stores, like a record store for instance, carry records comprising the head, primarily because of space constraints and the unreasonable costs of carrying the rest of the products (80%) that requires more space and generates merely 20% of sales.
I know there’s a better way of presenting those figures and that’s precisely what you’ll see in the book The Long Tail: Why the Future of Business Is Selling Less of More (Chris Anderson [2006], Hyperion, 238 pages). Chris Anderson is also the editor-in-chief of Wired magazine, where The Long Tail started as an article:
“To get a sense of our true taste, unfiltered by the economics of scarcity, look at Rhapsody, a subscription-based streaming music service (owned by RealNetworks) that currently offers more than 735,000 tracks.
Chart Rhapsody’s monthly statistics and you get a “power law” demand curve that looks much like any record store’s, with huge appeal for the top tracks, tailing off quickly for less popular ones. But a really interesting thing happens once you dig below the top 40,000 tracks, which is about the amount of the fluid inventory (the albums carried that will eventually be sold) of the average real-world record store. Here, the Wal-Marts of the world go to zero – either they don’t carry any more CDs, or the few potential local takers for such fringy fare never find it or never even enter the store.
The Rhapsody demand, however, keeps going. Not only is every one of Rhapsody’s top 100,000 tracks streamed at least once each month, the same is true for its top 200,000, top 300,000, and top 400,000. As fast as Rhapsody adds tracks to its library, those songs find an audience, even if it’s just a few people a month, somewhere in the country.
This is the Long Tail.”
Going back to the figures, and by way of illustration, Chris Anderson cited that “each year, nearly 200,000 books are published in English. Fewer than 20,000 will make it into the average book superstore.” The books that are carried by stores comprise the head. Imagine being able to carry all those 200,000 books – on top of all the existing books – with negligible additional costs. That is being done by Amazon, among other internet business models. You could think of eBay for other goods or Google for advertising. Even if the 80% merely generates 20%, that would still amount to millions (in the case of Google, billions) if we are dealing with economies of scale. It’s selling less of more in the Long Tail. The secret, according to Mr. Anderson, is to make everything available and helping people find it.
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