What is a long-tail business model
A long-tail business model consists in selling less number of more products. What we try to get in this kind of business is to have a wide variety of products from which you sell a little number. The income generate by few sales of lots of products may exceed the incomes a few products (or references) sold in higher numbers.
This can be clearly seen in the graphic below, where the red area represents the sales or incomes from a traditional bookstore’s book catalogue may have in stock, while the orange area represents the sales or incomes from Amazon’s sales (for example).
The proportion 80/20 (with the 20% of your products you get the 80% of your sales and the 100% of your profits), can`t be achieved in long-tail business models. This rule can only be accomplished in traditional businesses that take place in the red zone of the graphic.
Below we’ll see 5 examples of online long-tail stores. Not all of them are successful cases:
Every year, hundreds of thousands of books (or maybe more) are published in the world. The biggest bookstore we can imagine may have around 200.000 books on its shelves. It’s understandable then that managers of these businesses choose among all the books the ones that can generate more sales for them. It would make no sense to have books that only sell one unit a year taking up their shelves.
With Amazon‘s arrival all this changed. Amazon has a 4 million books catalogue, and they all sell.
As Amazon turned the book selling business from a business based in the sale of the most popular products of the moment into the sale of any book ever published, Lulu turned the traditional publisher model focused on best-sellers into a business model that allows everybody to publish their books.
Some time ago, for writers, getting a publisher to publish his book was an odyssey, only a few could make it and besides, the publisher kept most of the cake. Lulu changed all this. If you are a writer with a book to publish, you can put it for sale on Lulu.com with no cost. If somebody buys it, Lulu will print it and ship it to the buyer (careful, it’s only printed if it’s sold). From that sale, the writer keeps the 80% and Lulu the 20%. They explain really well how they work in their video “How to pubish a book the modern way”.
Lulu’s business model, apart from being “long-tail”, is a multilateral platform as it contacts authors (who wish to publish and sell their books) with readers interested in reading other books than best-sellers.
eBay is that place on the internet where users can buy and sell a vast number of different products of many different categories (from an “ivory color rosary made of bone” for 14,50€ to a rustic property for 450.000€). Since the users are the ones who put the products for sale, it’s obvious that the number of sold units of each “reference” is low, characteristic that defines a long-tail model. In eBay’s case, you can put for sale products in 3 different modes: auction, buy it now! or classified ads.
4. LEGO Factory
LEGO began making their colored blocks in 1949 and since then it launched thousands of kits about very different themes (who hasn’t played with the farm or LEGO’s space stations?). Growing competitions made this enterprise innovate by buying permits to launch kits about famous movies (Star Wars, Batman, Indiana Jones… I even saw in their web Sponge Bob’s LEGO version).
In 2005 it started experimenting with contents generated by users. They introduced LEGO Factory, that allows users to design their own kit (using a software called “LEGO Digital Designer”) and buy their personalized kit online. Apart from being the user who buys the kit he designed, anyone can get it. The sales of each of these kits in units are low but they attracted millions of people to design their own kits.
That’s how LEGO entered in the long-tail territory. However, this is NOT a successful case. I have recently visited the LEGO Factory’s web where they inform that on January 16th 2012 they have stopped the making of these kinds of products (although users can keep designing their kits without being produced). A while ago I read that for this new business model inside LEGO, the enterprise needed to adapt all their supply chain, something they should have done before because of the low volume of orders. This business line represented a low percentage of the whole company income.
Maybe (and this is just an assumption), the low number of orders added to high production costs (because the supply chain was designed for a great mass production) meant the end of this business model for LEGO.
Aprendeo is one of the projects we have in iZenius. Although it is not a “textbook example”, it is a close example I wanted to include in the list, because not only “the big ones” can build these kinds of business models.
Aprendeo is an online education store where you can find and hire a great variety of courses with many different themes. You can find from a “Renewable Energy Master” to a “course about cetacean and other sea mammals” or from a 16 hour “coaching techniques course” to a “public examination for penitentiary institution assistant”.
For a few of the courses in Aprendeo’s catalogue, there is a great demand and they are in the graphic’s red zone. This occurs, for example, with the Android programming course, one of the most sold courses. However, there is a long list of other courses in their portfolio they sell, but in small amounts…
And as building a long-tail e-commerce can’t be done overnight, as a message pronounces in the home site, Aprendeo keeps searching suppliers who want to put their courses for sale in this education marketplace. Characteristic that also makes Aprendeo a multilateral platform, a business model you can read about (if you wish;)) with more detail in a future post…
UPDATE 2021: Aprendeo was finally canceled, and to compensate, I add a new long-tail online business related to training:
Training platform with more than 150,000 courses and specializations. Aprendemas has a business model based on the sale of leads to training companies that promote their courses through this platform.