Big Head vs Long Tail
Speaking of how businesses make money, people usually think of the way how traditional retail works – make the products as popular as possible. The amount of profits made by the company is measured by the amount of a number of specific products sold. For example, the record label company behind Lady Gaga is maximizing its profits by selling as many Gaga’s CDs and other merchandise as possible. However, this kind of big head strategy is not the only way to maximize profits for a company.
For some companies, for example, Amazon, doing the opposite is how they make money. As an Amazon employee once stated, “We sold more books today that didn’t sell at all yesterday than we sold today of all the books that did sell yesterday,” which marks the business strategy of Amazon – the long tail strategy. Amazon does not focus on making each piece of goods they have popular, instead, they sell a small quantity of millions of “not that popular” goods.
And the long tail strategy does work for some types of businesses. Considering the graph shown below: Amazon is making profits at the yellow part of the graph with a large number of low popularity products, while big head companies are making money at the red part of the graph with a small amount of very popular products. The revenue of companies can be measured by the area under the curve. In our graph, the revenue of big head companies is the red part, and the revenue of long tail companies is the yellow part. As we can see, the area of two parts are roughly the same, which indicates the long tail strategy can be just as effective as the big head strategy, or even more effective.
source:
http://www.newmarketsadvisors.com/blog/bid/36296/Long-tail-business-models-Amazon-on-offense-and-defense
http://longtail.sitesell.com