Copyright: 2006
Publisher: Hyperion Books, NY
ISBN: 1-4013-0237-8
Chris Anderson is currently editor-in-chief of Wired Magazine and in "The Long Tail" he delivers a great deal of insight into the transformation of markets as a result of technology. The internet is the primary driver of these market shifts and Anderson actually started this book out as a blog on the internet about the topic. The term "long tail" is a statistical term that describes the type of distribution that is seen in product sales. Previously the tail was "cut off" as a result of limits that are now being reduced by technology resulting in "The Long Tail".
The 98% Rule
The CEO of ECast, a digital jukebox company, asked Anderson once what percentage of the 10,000 albums they had available were "sold" each quarter? Anderson, thinking outside the box discarded the usualy 80/20 rule of thumb, went out on a limb and said "50%". He was off by quite a bit! According to the CEO, 98% of the albums sold each quarter.
We know from conventional wisdom that the music industry is ruled by the "hits" meaning that the record labels and industry executives get most of their revenue and profits from the ubiquitous "Top 40". With such a large percentage of their revenue coming from these hit albums, how could there be so much demand for such a wide range of music from ECast? Wal-Mart, one of the top sellers of CD albums, only carries the top 4,500 albums in its stores because they can't sell enough of them to make money.
In a nutshell, this anecdote explains the concept of this book. Because ECast's carrying costs are so low on the extra 5,500 albums, they can afford to provide them to its customers where Wal-Mart can't. When you go down the long tail of demand for music, you will find some level of demand for even the unpopular music somewhere down the curve. The key to monetizing this demand is lower the carrying and distribution costs to sustainable levels.
Some other examples of long tails are Google with its reaching out to small advertisers and EBay with the used goods that would normally be sold locally at a garage sale but now can reach an international audience in the click of a button.
Culture Spread
Back in the good old days, culture spread when people spread. Local accents, tastes in music and food and other culture all were spread around the country as people moved from one region to another. Culture and tastes were largely geographically based.
Rather than grouping people by geography now, it is better to group people by interests. Interests vary widely amond individuals, but somewhere there is someone who shares your interest in home made fried chicken recipes... all you have to do is get connected with them. That is where the internet shines.
What's Wrong with the Music Industry?
When I was in school (2001-2005) there was quite a controversy surrounding P2P file sharing platforms such as Napster and Kazaa. Many school projects were done either defending the music industry or (more often!) defending the downloaders. In one presentation, I argued that if the music industry were creating what people wanted (single tracks for sale instead of entire albums) the whole problem would go away.
I was mostly wrong of course. iTunes offers single tracks for download and an incredible number of people have taken advantage of it, but these sales don't even come close to filling all the gigabytes of iPod space available out there. Obviously people are still ripping CD's and sharing files.
Anderson explores this from a slightly different perspective though. He points out that from 2001-2005, music sales in total fell by 1/4. The real killer though was that sales of the hits fell by 1/2. What this meant was that people were buying less music overall... but they were buying even less of the hugely profitable hits. The music industry was built to create hits and make money off of them and now that money-maker was going away.
What was happening was the consumer was expressing his / her interests in a way that the music industry wasn't ready for. They wanted more of the non-hit music! iTunes, Rhapsody and other music services were making it possible for people to experiment and discover music that they liked that wasn't classified as a hit. The musical tastes of the masses turns out to be so diverse though that no one artist of the newly found music became a hit. Instead there were a lot of little hits.
Turns out the music industry can't solve it's problems just by selling single tracks... they need to sell the music of the artists who, up until now, they have largely ignored.
Six Themes
- There are far more niche goods than hits
- Costs of reaching these niches has fallen dramatically
- Filters help to drive demand down the tail
- The demand curve tends to flatten
- Collectively, niche markets rival the hit markets
- The natural shape of demand is being revealed, uninhibited by the "hit machines"
Three Forces
- Democratization of Production
- Democratization of Distribution
- Connection of Supply and Demand
Scarcity and the Long Tail
Economics is a study predicated on scarcity. Without scarcity there is no need to be economical or optimize choices. So in this new world where distribution is free (or nearly) and the choices are seemingly limitless and the filters are getting better and better... is economics no longer a valid field?
Anderson turns to George Gilder's philosophy in dealing with abundance. "Embrace Waste" In his work, Gilder pointed out that every new phase of an industrial revolution brings the cost of some component of the economy down to the point where it's OK to waste that particular component.
This is similar to some of the concepts that Galbraith explores in his "The Affluent Society". Anderson points out some very interesting things though. While the cost of storing and distributing a product might have gone to near zero, the cost of consuming it hasn't. People still have a finite amount of time and money to spend on products. Thus there is still scarcity, just in a different place. This to me was the most thought provoking few paragraphs in a very thought provoking book!
Random Thoughts
The coin of this new realm is not money, it is reputation.
Rob Reid of listen.com puts it this way, "In a world of infinite choice, context not content is king."
The filters in the market have traditionally be "pre" filters. We filter what makes it to the market. The new market demands "post" filters... filter what's in the market so it gets to the right place.
The long tail doesn't eliminate the "winner takes all" concept. Instead it pushes it into the niche. Niches all have their own hits and "Top 10" lists that are self similar (fractal) in nature with the larger distribution.
"Wal-Mart's shelves are a mile wide and 24 inches deep... but in a world that is a mile wide and a mile deep, a veneer of variety just isn't enough."
Too many choices is not a problem, making the choice is the problem! I need help choosing from the many products in the long tail.
The 60's told us to question authority.. but didn't give us the tools to do it. Now we have those tools!
Two Imperatives for the Long Tail
- Make everything available
- Help me find it!
Six Rules for the Long Tail
- Move inventory way in... or way out
- Let the customers do the work
- One distribution method doesn't fit all
- One product doesn't fit all
- One price doesn't fit all
- Share information with the consumer
- Think "AND" not "OR"
- Trust the market to do your job... don't predict, measure and respond
- Understand the power of "free"
Conclusion
This book is very well researched and incredibly well written. You never feel like Anderson skimmed over anything but you also never get the feeling of "OK... get on with it already!" Well balanced, well researched, interesting content and interesting writing. If you keep up with technology you won't be surprised by anything in this book but you will probably walk away with a slightly different view of how the world really works. I definitely would recommend this book!