eBay and the Long Tail

I have just read the book The Long Tail but Chris Anderson. This is one of the few truly interesting business books which I have read in the last year (see also Futureshop). The concept of the long tail is that the increased choice and access to information heralded by the Internet has enabled consumers to buy exactly what they want instead of being herded into buying the popular products stocked by traditional retailers. This has lead to the emergence of a myriad of niches catering for every possible interest.

The Long tail itself refers to fact that whilst there are a small number of items which sell in large volumes (the short head, shown in orange in the diagram below) there are a huge number of products which sell a relatively small number of items. Whilst individually insignificant, when summed these long tail sales (shown in yellow below) represent sales similar in volume to the sales of the head.

Take the example of the music industry. Due to the expense of storage space, a traditional retailer would only store a limited number of albums (say 10,000). However retailers like Amazon have a huge number of albums available (Amazon stocks 1M SKUs) and finds that between 25% and 50% of their sales come from items which are not even stocked by the traditional retailers. Extra choice is growing the market.

eBay and the Long tail

So how does eBay fit with the Long Tail? There is obviously a huge range of items available on eBay, giving buyers the ability to make purchases they would previously had great difficultly sourcing. In this book, Anderson talks about the three forces of the long tail and I would like to review how these apply to eBay.

Democratization of the tools of production

Whilst in the past producing media like music and films required expensive equipment, the advent of digital technology has allows many more people to produce quality content. The resulting increase in stuff means that there is more products available to sell, fueling the emerging niches.

Whilst eBay does not really have any influence in this area, it provides a marketplace for new content as will be mentioned below.

Democratization of the tools of distribution

eBay acts to cut the costs of consumption by democratizing distribution. The fact the anyone can make content is only meaningful if others can enjoy it. Today everyone can reach a huge market by listing on eBay. Other similar marketplaces are Amazon and itunes which offer huge, international distribution networks which allow consumers to buy just about everything and seller to list items at a very low cost.

Content supply and demand

The third force of the long tail is connecting supply and demand. Innovations such as Google’s pagerank, Amazon’s recommendations and blogs act to inform consumers about items which they would be interested in purchasing. This is an area in which eBay had limited functionality as it does not explicitly encourage consumers purchases to filter item on their preferences. This is an area that eBay is trying very hard to remedy.

In this area eBay has the follow issues:

• Item filtering. eBay searches are straight text searches and do not compensate for user preferences. There is no functionality in eBay to weight search results for popularity. eBay has many similarities to a search engines whilst search engines help their customers by ranking results (e.g. Google’s pagerank) eBay provides a undifferentiated list of results.
• Recommendations. The huge variety of items on eBay makes it very difficult to make recommendations to customers based on their previous purchases. The more commoditised nature of the items on for example Amazon, allows that platform to assist consumers and boost sales by making recommendations.
• Blogs etc. To try and solve these issues and also to make their platform more sticky, eBay has started adding web 2.0 features such as blogs, reviews and Myworld pages. The idea with these features is three fold
  • Drive demand by making recommendations to consumers
  • Build consumer confidence by giving more information on sellers

More content will also be picked up by search engines and help eBay search engine optimisation.