The Long tail effect is a phenomenon that is attained when a company sells a small number of popular items in large quantities and a large number of a few unpopular items in small quantities (Anderson, 2004). The internet (search) makes this possible by providing a platform through which a company such as Google can make related goods, albeit unpopular, available by providing ads based on users’ purchases or search history. Google is indeed, renowned to have embraced the core competencies of Web 2. 0 (O’ Reilly, 2005).
One of the most significant is how it has leveraged the long tail by using context-sensitive ads on its search pages. Through the use of Google Adsense, Google offers advertising services to companies which allow them to reach a large proportion of internet users across the globe as opposed to only a small group of larger companies and high net-worth individuals. Also, through Google’s pagerank algorithms, it can determine which websites are relevant on the web based on the number of inlinks and outlinks present in the webpages.
Through its blogging service – www. blogger. com, Google has become the prime owner of one of the largest blogging sites and this allows the company to harness collective intelligence from large masses of people across the world. Google also provides services which allow it to control its data sources, for example, it provides access to a large pool of data that gets better as more people use it – Google maps. Controlling an expansive data source which is difficult to recreate is one of the core competencies of Web 2. 0 companies (O’ Reilly, 2005).
Google also has applications which generate rich user experiences, for example, it provides a platform for accessing services online such as YouTube, Google News, Google Documents, Google Scholar, Google Reader, Google Mail and so on. Another main example of how Google demonstrates the core competencies of Web 2. 0 is its release of applications which are in perpetual beta (O’ Reilly, 2005). Google’s applications are constantly being modified and updated to deliver new features which can be used on multiple devices including smart phones and other mobile devices to keep users constantly stimulated.
The Long Tail Effect on Companies Two other well-known companies that have take advantage of the long tail effect are Amazon and Netflix (Anderson, 2004). The long tail effect results in the increased sales of items which are not popular. Netflix and Amazon, through the use of web 2. 0 ideas have been able to leverage this by using search history information, filters and recommendations from other users in the community to drive the demand for a product (Anderson, 2004). Netflix applies this to its sale of DVDs while Amazon applies it to different products ranging from electronics to books.
The long tail effects experienced by these two companies imply that they can sell more of old classics than new products which are yet to be recommended by other people or haven’t yet passed the test of time. On the long term, the long tail effect leads to increased sales and a widespread exposure of customers to previously unnoticed products. Business Model Analysis According to (Osterwalder & Peigner, 2010), a business model determines how an organization is able to create, deliver and continually extend the value provided to customers.
The aforementioned companies have been able to incorporate these nine pillars of any successful business model into their operations. The pillars are explained as follows: Customer Segments: These companies through the use on the internet and the long tail can reach customers from different segments of the web. They can attract a diverse category of people from individuals to large companies. Value Propositions: Through the internet, they strive to understand customers’ needs and problems and ensure that their offerings satisfy customers’ needs
Channels: These propositions are delivered to customers through the use of communication, fulfilment and sales channels which are flexible, accessible and affordable Customer Relationships: Customer relationships are at the heart of any successful business and are constantly managed to ensure that customers are satisfied which in turn enforces loyalty Revenue Streams: This is the profit engine of the business and can only be realised if the value propositions are fulfilled and possibly, exceeded. Key Resources: A company can only operate optimally through the use of its resources.
Resources are key inputs to business process activities and are necessary for ensuring that companies can deliver value to customers. Key Activities: These are the activities that are central to an organizations’ core competencies. Through these activities, the value proposition is sprung into action for the customers’ benefits. Key Partnerships: Partnership contributes to a flexible business model that ensures that operations which can be performed cheaper and better by external companies are outsourced so that client companies can focus on their core competences.
Partnerships can on the long run, improve the reach of most companies to a global scale Cost Structure: the business model elements and the cost structure are strongly linked. Amazon, Netflix and Google have revolutionalised the use of the internet in creating value and altering traditional business models through the use of technology and continuous innovation in a bid to stay ahead of competition and enter untapped markets. Open Innovation Open innovation can be applied by harnessing collective intelligence through the creation of an online platform where users can collaborate, share recommendations and ideas with the host company.
In a situation where a company such as Amazon opens its doors to the public in order to receive comments and reviews from the public, such a company has the opportunity to create a sense of community and “stickiness” amongst its community members. This increases the level of accountability, transparency and familiarity associated with such companies. Netflix also encourages user reviews and recommendations from users of its website. Openness is always good for companies because it provides a way for them to receive ideas from the public, reflecting the Delphi Effect.
Companies such as LEGO, Peugeot, IBM, Threadless have also taken the lead in illustrating the many benefits that can be derived from open innovation. It can lead to an increase in the level of participatory and viral marketing stemming from the use of blogs, tagging, user reviews and discussion forums. If companies can alter their business models to incorporate these tools, then the potentials of open innovation may be fully realized. Disruptive innovation
Disruptive innovation, can be described as a process in which a product/ service starts off simply and then opens up the market in a way that displaces or unsettles traditional competitors. It allows an entirely new population of customers to develop. Through this, customers can have access to a set of products that were originally only accessible to people with a lot of money or skills. It can be described as an innovation that improves a product or service in surprising ways that people could not have anticipated (Christensen et al, 2008).
Companies achieve this either by lowering prices or reaching out to different sets of customers across all locations. They achieve disruptive innovation by doing things cheaper, reaching a new set of customers by offering products which are simpler, more affordable, and more accessible. For example, what Google has done in the advertising world. Google makes advertising simple, affordable and different. Google has changed the name of the game by transforming existing markets and playing the game in a very different way from traditional means.
The business model itself is at the heart of the disruption (Christensen et al, 2008). Amazon’s business model also has elements of disruptive innovation due to the long tail effect made possible by its extensive use of its website to aggregate customers’ purchase history and provide recommendations which are highly personalized. Such a business model has posed a serious competitive threat to traditional bookstores such as Barnes & Noble. The same situation exists between Netflix and traditional DVD rental shops which either do not have an online presence or a strong community reinforced through the use of reviews.
Google in addition, is also giving large advertising houses such as Radio stations, television stations, newspapers and magazines a run for their money. In order for these companies to maintain their position in the market, they must continue to create simple, affordable and effective services to their customers by remaining responsive to their needs and market demands. Social Media Communities Amazon has a wide community of users who provide reviews on the products they have bought. Netflix also has a wide community of users who provide reviews on the DVDs they have watched.
The higher the review a product has from previous customers, the more inclined a prospective buyer would be to go down the same route. Social media is one of the most cost effective means of achieving viral marketing. Through Social networking sites, blogs and discussion forums, companies can leverage the access to large masses of people who may help to market products sometimes, unintentionally. This is one of the positive network externalities that can be gained from the use of social media communities. For example, Google through its Adsense program, pays commission to website owners who place adverts on their webpages.
This program reinforces Google’s’ advertising capabilities and ensures that it sustains a widespread reach across the web. Companies can continually use social media to improve their business by gathering information on consumers’ preferences, implementing ideas from community members, and using the online platform as a way of providing top notch customer service while at the same time instilling a sense of loyalty in consumers. References Anderson, C. (2004). The Long Tail. Retrieved May 27, 2010, from WIRED: http://www. wired. com/wired/archive/12.
10/tail. html Christensen, C. M. , Horn, M. B. , & Johnson, C. W. (2008). Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns (1 ed. ). New York: McGraw-Hill. O’Reilly, T. (2005). “What Is Web 2. 0: Design Patterns and Business Models for the Next Generation of Software. ” Retrieved 26 May, 2010, from http://oreilly. com/web2/archive/what-is-web-20. html. Osterwalder, A. , ; Peigner, I. (2010). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. New York, NY: Wiley.
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