The potential for online retailers to make more money than their bricks and mortar counterparts because there is virtually unlimited "shelf space" to offer products. Another key factor is that merchandise is offered via recommendations with links from one product to another so that people who purchase one item are encouraged to look at several others. Most notably, book, video and music sales, where there is a vast supply of product, have benefited significantly from this approach, exemplified by Amazon.com, Netflix and Rhapsody.
Less of More
Theorized by Wired Magazine editor Chris Anderson, who turned the notion into a book in 2006 titled "The Long Tail: Why the Future of Business is Selling Less of More," the title refers to a graph showing fewer products selling in large quantities versus many more products that sell in low quantities. The low-quantity items stretch out on the x-axis of the graph, creating a very long tail that generates more revenue overall. Even though a smaller quantity of each item is sold, there is a much greater variety of these items to sell.
Anderson asserts that the Long Tail manifests in Google and eBay, which derive significant revenue because they deal with a huge number of customers. He also mentions blogs and wikis as benefactors of the Long Tail as more people contribute editorial material than ever before. For a most interesting exploration of this online phenomenon, read "The Long Tail" by Chris Anderson (Hyperion, 2006).
The Long Tail
When companies sell a large variety of products online, a graph of all products sold generates the long tail.