The Long Tail theory proposes that niche products collectively can build up a market that rivals the relatively few current bestsellers. But according to the Pareto Principle, only 20% of the products should account for 80% of the sales.
On the surface, those two well-known theories contradict each other. But are they really opposed? Can’t we find a 20% in the long tail?
The Pareto Principle
The Pareto Principle states that roughly 80% of the effects come from 20% of the causes. This theory was named after Italian economist Vilfredo Pareto. He published a study in 1896 to prove that 80% of the land in Italy was owned by 20% of the population.
Since then, his principle has been used as a rule of thumb in many fields besides agriculture.
For example, Microsoft discovered that by correcting 20% of the most reported bugs, it could eliminate 80% of the related crashes. This principle also helped business owners to realize that, in most cases, 80% of the sales comes from 20% of the shoppers. Moreover, by concentrating on their most loyal customers, businesses could increase their income significantly.
Though it would seem a logical conclusion that a small percent of the products account for the majority of the sales in e-commerce sites, this is questionable, at least.
The Long Tail
Chris Anderson, former editor-in-chief of the Wired magazine, argued that products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters.
“In virtually all markets, there are far more niche goods than hits,” he writes in his book The Long Tail: Why the Future of Business Is Selling Less of More. “That ratio is growing exponentially larger as the tools of production become cheaper and more ubiquitous. The costs of reaching those niches are now falling dramatically.”
Though Anderson examines this phenomenon mainly in connection with e-commerce and popular culture, the Long Tail theory has been used to explain other processes as well.
His book has become highly popular among online marketers and SEO experts. The term “long tail keywords” now refer to longer phrases that consumers use when they look for specific pieces of information.
Most experts believe that targeting them in a highly competitive environment is more beneficial for website owners since it is easier to attract the same number of potential clients this way.
So, it’s not surprising that the most popular, shorter terms account for roughly 20% of all US searches.
I’ve read about both The Long Tail theory and the Pareto Principle, and felt that (on the surface) they contradict each other. If I follow the 80/20 rule, I should aim for popular terms, instead of the more specific searches, and advertise only the most important products in an online shop. That, of course, doesn’t feel right.
I started to wonder how two theories that are well-known and popular among marketers could suggest doing exactly the opposite.
Though I still don’t I have a perfect answer for this question, this is what I concluded: Theories are not meant to describe every specific use case you can connect them with.
Neither the Long Tail theory nor the 80/20 rule is able to predict the effects of online shopping precisely.
Douglas Rushkoff, a media theorist and contributor to The Guardian and The New York Times, examines how digital distribution changed the creative industry in his book Throwing Rocks at the Google Bus.
He noticed that a few blockbuster hits make up a greater percentage of all the music sold than ever before. In the days of physical albums and CDs, the industry rule was that about 80% of sales came from the top 20% on offer at the moment.
Today, on iTunes, the bottom 94% sell fewer than one hundred copies each. And it is very likely that you could find other industries where the numbers won’t support the theories. But it doesn’t matter.
These theories are not important because they are universally applicable to anything you can come up with. They aren’t. But they are powerful because their underlying ideas helped a lot of people from different professions to come up with new ideas and look at things from a different perspective.
And maybe they don’t contradict each other at all.
The 20% of the 80%
Perry Marshall, online marketing strategist and the author of 80/20 Sales and Marketing, believes that the Pareto Principle is exponential. Among the best customers, there is another 20%, and that very small number of clients can represent 64% of your overall sales.
That got me thinking… If the 20% could have an inner 20%, why can’t the same be said about the 80%? In other words, are there hits within the long tail?
I’m pretty sure that they exist. I’m thinking about products in e-commerce site that bring a much higher revenue than what was expected of them. The ones you didn’t advertise or spend too much time in introducing but did extremely well, considering the amount of work you put into their success. Or blog posts that you wrote without paying attention to SEO or researching the topic but, in the end, became your most popular articles.
Now, I’m certain many of you had similar experiences, especially if you work for large e-commerce sites, but I can’t decide whether it’s possible to identify these opportunities. There are several methods to discover promising long tail keywords, but finding ones that will really live up to their potential is not simple.
However, experimenting and changing the ways we look at things might help us to stumble upon something really valuable.