The total volume of low popularity items exceeds the volume of high popularity items.
For the past century, business owners have followed a simple rule of thumb: Focus all resources on the best customers, the best workers, and the best-selling products because the top 20 percent in each category will be responsible for 80 percent of revenue. But the so-called 80/20 rule is going the way of wooden shoes and rotary telephones, says Wired magazine editor Chris Anderson.
In a Barnes & Noble or a Wal-Mart CD section, high volume is still king. But online peddlers like Amazon and iTunes are proving that there’s almost endless money to be made on products that move slowly and customers who show up once a year, if that. Maybe the crumb-gatherers will never out-purchase the herd-followers, Anderson concedes. He’s convinced, however, that niche markets are growing at the expense of mass markets, and that many businesses will never be the same.
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Lee Gomes of the WSJ disagrees
By Mr. Anderson’s calculation, 25% of Amazon’s sales are from its tail, as they involve books you can’t find at a traditional retailer. But using another analysis of those numbers — an analysis that Mr. Anderson argues isn’t meaningful — you can show that 2.7% of Amazon’s titles produce a whopping 75% of its revenues. Not quite as impressive.
Another theme of the book is that “hits are starting to rule less.” But when I looked online, I was surprised to see what seemed like the opposite. Ecast says 10% of its songs account for roughly 90% of its streams; monthly data from Rhapsody showed the top 10% songs getting 86% of streams.
So maybe Mr. Anderson really has unlocked the sort of new business rules the cover promises. I say we wait before ripping up any business plans. Let’s see how the tail shakes out.