The Long Tail

Title : The Long Tail
Author : Chris Anderson
Publisher : Hyperion Books, 2006
ISBN : 1-4013-0237-8
Pages : 226

The Big Idea

It has been an accepted fact for decades now that 'hits rule'. Popular culture today is consumed by hits-- people can't help but talk about them, select them, and in general try to understand them. Executives from many different industries constantly rack their brains trying to come up with the next big seller.

Yet at the rate things are going, hits are beginning to rule less. Number one may still be number one, but the number ones don't sell as much as they used to. Hits are not the economic force they used to be; markets have fragmented into millions of niches.

The main difference between then and now is that consumers of today have far more choices than ever before. This incredible amount of choice is resonating in a very big way with modern-day consumers; they increasingly favor markets that provide the most choice. A new market is coming to fruition-- a market of multitudes and niche products that, thanks to the Internet and other such sources, is easier and cheaper to reach than ever before.

This book is about that market. It takes a look at niches, which are emerging as the new big market alongside the hits. The massed group of niches has always existed, but thanks to modern-day conditions the cost of reaching this group has fallen dramatically, and as a result it has become a force to be reckoned with.

Why You Need This Book

As the preceding section has shown, the era of 'one-size-fits-all' is over. The expertise gained from decades of experience in creating, picking and promoting hits no longer exists. A new set of resources, one that explains not only how to deal with this situation but to prosper, is vital.

This book is one such resource. In a nutshell, it provides readers with a history of the hit, a definition and short history of the so-called 'Long Tail', a look at the new units of today-- the new market, producers, tastemakers-- as well as a prediction of how tomorrow's Tail might look like.

What’s a 'Long Tail'?

In the course of his research on modern technology trends, author Chris Anderson made an astounding discovery. He was interviewing Robbie Vann-Adibe, the CEO of 'digital jukebox' company Ecast, and he was asked to guess what percentage of the 10,000 albums the company had sold at least one track per quarter. Even his wildest guesses were way off-- the actual figure was an incredible 98 percent. As the company’s executives continued to add albums to its archives-- some hit albums, but more and more of them obscure albums that were far from being popular – it was realizing that despite the fact that less and less of what was being added were hit albums, they sold more and more music the more they added.

Anderson realized that this statistic contained a truth about the economics of entertainment these days. Thanks to the Internet, the concept of limited supply has begun to become obsolete. Just about every product sold on the Internet has almost zero packaging cost and consumers have nearly instant access to them; this runs counter to the old model in which a limited amount of storage or shelf space, airtime or other such factors makes it sensible for retailers to fill them with the titles that might just sell best. This is the era of “unlimited selection.”

When the hard data was graphed, it started out resembling any other demand curve, with a few hits being downloaded a relatively huge number of times at the head of the curve, and with the curve falling off steeply with less popular tracks. But the fascinating thing was that the curve itself never fell to zero. It might approach it near the end of the graph itself, but it would never be exactly zero. Such a curve has a 'tail' section that is very long relative to the head, and is called, as a consequence, a 'long-tailed distribution'. Thus the title of an article based on these findings-- which was later used as a basis for this book.

Scarcity vs. abundance
Unlimited selection is beginning to reveal truths about what consumers want and how they want to get it. Plus, the more they find, the more they like – many of them discover that their taste is not as mainstream as they thought (or were lead to believe) by a hit-obsessed culture, by hit-centric marketing, and/or a plain lack of alternatives.

The problem of traditional retail is what is termed as the “tyranny of locality.” We live in the physical world, and until recently most of our entertainment media was located in it as well-- and was thus saddled with the need to find local audiences. For instance an average record store needs to sell at least four copies of a CD a year to make it worth carrying, as that is approximately the rent for the half-inch of shelf space the disc needs to be displayed. But distance of course plays a factor - it's unrealistic to expect buyers from a hundred miles away to make their way to one's store to buy a CD. So traditional retailers are forced to play to a local audience and make the decision based on what they think those people might like.

Physics is another physical constraint. Radio frequencies can carry only so many radio stations, and TV frequencies only so many TV channels. Plus TV and radio stations can only show a limited number of shows a day (and that does not even take prime time into consideration). So a focus on hits-- what is popular, what might sell-- is understandable in a world of scarcity.

However, most of us want more than just what is popular; everyone's taste is non-mainstream at some point. The problem is-- or used to be --finding the products to satisfy one's non-mainstream demands.

Enter, then, the new world of abundance. New technologies have made it ever more possible for retailers on the net to stock a variety of goods that is far, far wider than the amount any traditional retailer could ever hope to stock (and remain competitive in terms of pricing).

A Brief History of the Long Tail: Expansions in Variety

Given the earlier discussion it might be very easy to assume that the Long Tail is an Internet phenomenon. Actually, it is the culmination of a series of business innovations that date back more than a hundred years.

The true roots of the Tail are in the giant centralized warehouses in the American Midwest of the late 19th century – and with two entrepreneurs named Richard Sears and Alvah Roebuck. These two men came up with many innovations that are noteworthy even today.

  • They took advantage of the enormous capacity of these warehouses by coming up with a revolutionary system of catalog distribution, which they distributed to customers from all over.
  • The catalog itself, or ‘Wish Book’, in company parlance, astonishes even now, both in terms of the variety of goods available (mind-blowing for the rural families Sears and Roebuck targeted) and the price savings (often 50 percent or more compared to the stores of the time, even after shipping).
  • Another innovation was viral marketing. In 1905 the company asked its best customers in Iowa to distribute twenty-four catalogs among friends and neighbors, and offered incentives to the original customers if their friends would also become customers.
  • They also had a group of suppliers ship goods straight from their factories.
  • Sears managers set up a system in which each order was allotted a specific time to be shipped, and which made use of a series of pulleys and levers to make sure the orders were moved precisely.
  • With the advent of affordable cars and better roads, Sears was forced to invent the superstore, which offered huge selection and low prices – far lower than those of traditional merchants.

The next big step was in the food market – the supermarket. The very first one was called King Kullen and it opened in Queens, New York, on August 4, 1930. It offered a staggering variety of products – over one thousand, and this in the depths of the Great Depression. But the supermarket could not have made it big without some other innovations, shopping carts, the automobile, refrigerators and free parking lots among them.

In 1967, toll-free 800 numberswere introduced to help combat an anticipated shortage of telephone company operators. This, though, had an unexpected fringe benefit – it brought about the return of catalog shopping. And the time was ripe – a newly materialistic and affluent suburban generation was ready to spend again, and they were armed with credit cards to boot. This time, though, it was more about targeted niches instead of centralized warehouses carrying massive amounts of just about everything.

As impressive as these new series of catalogs was, what the personal computer could offer would soon put it in the shade. In the early 1990s, e-commerce built on the catalog model and improved on it immensely. It offered an even wider range of selections at a lower cost (no printing and mailing required), had a broader reach, and was far more convenient to order as well. Today, online shopping now accounts for about 5 percent of American retail spending and is growing at an incredible 25 percent a year.

Six Themes of the Long Tail Age

Six themes of the Long Tail age can now be determined:

  1. In just about all markets, there are far more niche goods than hits.
  2. The cost of reaching these niches is falling dramatically, such that it’s possible to offer a massively expanded variety of products.
  3. Potential customers, however, have to be helped to find these niches; a range of tools and techniques – ‘filters’ – can help.
  4. When the variety has been expanded and the filters are in place, the demand curve flattens – the hits are less popular and the niches more so.
  5. All the niches add up; there are so many niche products that as a group they can rival the hits.
  6. As a result, the natural shape of demand is revealed, without the scarcity of information and shelf space and the distribution bottlenecks of the past.

The bottom line is that the Long Tail is culture unfilteredby economic scarcity.

Three Forces of the Long Tail

None of the developments discussed in the six themes can take place without a reduction in the cost of reaching a niche. For this to happen, one or more of the following forces have to come into play:

  1. The tools of production have to become democratized. The personal computer is of course the best possible example. Millions of people can now do what only professional filmmakers or writers, for example, could do just a few years ago. The result is that the available variety of content is growing faster than ever before.
  1. The costs of consumption have to be cut by democratizing distribution. The first force is only really meaningful if others can enjoy it – if they can reach it or find it. The Internet, for instance, makes it easy to reach more people – democratized distribution par excellance.
  1. Supply and demand have to be connected. Consumers must find out about these newly available goods in order for the whole system to work. Demand must be driven down the tail.

All this will be explained in depth in succeeding chapters.

The New Producers

The arrival of simple, cheap technology and services has revolutionized many an industry, from publishing to pop music and beyond.

The result, therefore, is that we are shifting from becoming passive consumers to active producers. The means of production have spread so widely and to so many people that, taken as a group, they are a force to be reckoned with.

As an example, Wikipedia, which makes use of an open collective model, draws on the insights of thousands of people to correct one of the greatest flaws of compiled references– the fact that they begin to age from the moment they are printed. And it does so in an organic, almost self-healing manner, almost as if it were alive. It is maintained not by a small group of experts, but by just about everyone who can add the most comprehensive system of its sort. Plus, in stark contrast to its printed competition, it can be almost infinite in length. In short, in Long Tail terms, it has all the hits and an enormous number of niches.

It’s also important to consider this: up at the head of the curve, business considerations hold more weight, but near its tail, such considerations are secondary. People create for other reasons than to make money – expression, fun, experimentation and so on – and reputation matters as well. So it can be said that one single economic model cannot be used to describe the Tail.

The New Markets

Long Tail “aggregators” are companies or services that collect enormous varieties of goods and make them easy to find. Going by the explanation a couple of chapters ago, they are a manifestation of the second force– they democratize distribution. They act to lower the barriers to market entry; they allow more and more things to find their proper audience. Good examples are Google, which aggregates the Long Tail of advertising, iTunes, which does the same for music, and EBay, which puts together a Long Tail of physical goods and the people who sell them.

Aggregators are not even limited to just selling, though. Even software such as Bloglines that collect RSS feeds are also aggregators, since they coherently order the Long Tail of online content.

For the most part, business aggregators fall into five categories:

  1. Physical goods (Amazon, EBay)
  2. Digital goods (iTunes, iFilm)
  3. Advertising/services (Google, Craigslist)
  4. Information (Wikipedia, Google)
  5. Communities/user-created content (MySpace, Bloglines)

Many aggregators, though, occupy more than just one category, like Amazon and Google.

A distinction must be made between companies that sell physical goods online (so-called ‘hybrid’ retailers that combine the physical and digital dimensions) and those that sell digital goods online– they are both Long Tail operations, but the second one can extend further down the Tail than the first, because of the inherent limitations of physical goods. They have to be stored somewhere, for instance, and storage space always has its limits– not a problem for purely digital wares.

The New Tastemakers

Radio and MTV used to be the only successful ways hit albums could be made. Nowadays, though, music moguls are realizing that the key to making hit albums lies online – and, moreover, in our own hands. Faith in traditional institutions has been waning for quite a while now, and peers are trusting peers more and more. Some people act as individuals, others are parts of groups organized around shared interests, and yet others are simply herds of consumers.

Amplified word of mouth, as was explained a few chapters back, is the manifestation of the third force of the Long Tail – tapping consumer sentiment to link supply and demand. It is those people with good reputations and whose opinions are respected that are the new tastemakers. When this force kicks in, the power of the Long Tail is unleashed.

Given the vast amount of information that is out there, even in Long Tails themselves – not all of which might be valuable to one, or even truthful to begin with, for that matter – most people turn to filters to help screen out what is not needed or wanted. They help people move from the world they know (the ‘hits’) to the world they don’t (the ‘niches’) via a route that they themselves can determine and adjust.

Long Tail Economics

Now let’s take a look at the economics that underpins Long Tails. Long Tails are members of a special sort of curve known as a powerlaw -- a curve whose amplitude, as has already been discussed, approaches (but never equals) zero as the curve stretches out to infinity. In sales terms, then, Long Tails are powerlaws that aren’t cut off by distribution bottlenecks like availability of channels or shelf space.

Powerlaws need variety, inequality(some products have some more of some quality than others) and network effects that amplify quality differences (e.g. word of mouth) to come into existence.

A long-established rule known as the 80/20 Rule is often used to explain how a minority can have disproportionate impact on a whole. For instance, this rule is often cited when 20 percent of products account for 80 percent of revenues. The 80/20 Rule is often misinterpreted as an invitation to carry only the 20 percent of goods that could amount for the most sales. However, the real Rule simply acknowledges that some things will always sell better than others – Long Tails definitely do not contradict this.

The 80/20 Rule changes in three ways in Long Tail markets:

  1. Many more products can be offered compared to traditional markets.
  2. Because it is so much easier to find goods, sales are more evenly distributed between hits and niches.
  3. Because of this, profits are to be found at all levels, not just at the hit level.

Some more points:

  • The primary effect of Long Tails is to shift consumers’ taste towards niches, but since they are more satisfied by what they find (thanks to filters) they end up consuming more of it than they would in a non-Long Tail sector.
  • As you travel down the Tail, prices may or may not change; in ‘need’ markets, whose customers know what they are looking for and cannot find it anywhere but online, prices are bound to be relatively inflexible. Prices would be much more dynamic in ‘want markets’ where people can be encouraged to try something new for the right price.
  • Long Tails are made of many mini-Tails. The big powerlaw curve of, for instance, music is really just the superposition of all the little powerlaw curves formed by each genre.

The Short Head

Whether we like it or not, hits and retail stores are here to stay. The instant-gratification convenience aside, we are a gregarious species and for most of us there is safety in numbers. This means that in Long Tail markets, although the niches still are very much more popular than in regular markets, there still are hits.

The way a modern-day store is structured today caters very much to the hits and to those seeking them out. One need not look further than the shelf in a supermarket to be able to understand the advantages and disadvantages of this sort of system. Supermarket shelves of today are enormous and, thanks to decades of research, arranged precisely so that the eye-level areas are pricier areas for goods than the other ones.

However, as previous sections have shown, such a system has distinct disadvantages vis-à-vis online stores:

  1. They are quite costly for retailers to sell in.
  2. Physical space is severely limited.
  3. It would be quite impossible to try to cater to each customer based on his or her preferences – quite unlike the better websites, for instance, which are easily customizable according to what the customer wants.
  4. Physical stores are crippled by geography – they have to try to sell to local buyers and not to those far away.
  5. Lastly, the limitations of such a system force retailers into categorizing their goods crudely, as an examination of any large department store will show.

The Paradise of Choice

Consumers of today are in the midst of the biggest explosion of variety in history. The overwhelming reality of this age is that literally everything is available to anyone, on a scale unimaginable just a decade or so ago. The question is – does anyone need this much choice? Can we handle it?

Some have said that too much choice is not only bad, it is downright oppressive, and the findings of some appear to bear this out. In one test, customers who were asked to choose from two selections (one with a much wider variety than the other) of jam, tended to buy from the smaller selection instead of the larger one.

As it happens, though, an even newer study determined that people do want choice, and a lot of it. The solution to the problem outlined above is not to limit choice, but order it so it does not become oppressive. In other words, customers like having variety and they want to be helped to choose – but they do not want to feel that the decision is being forced on them.

As compared to brick and mortar stores where the goods just sit there and where, barring the help of store personnel (who may not know any better), the consumer is on his or her own, online shops give their consumers far more tools with which to make more informed decisions. It is not that the supermarkets don’t have the information; it is simply that there is no effective way to get it out to the consumers.

There is a general presumption that more variety leads to more sales. However, the numbers do not show that this is the case; for instance, music sales have dropped since Apple’s iconic iPod was released thanks to the ability of consumers to rip friends’ CDs and download and share tracks using peer-to-peer services. Digital distribution, however, has both widened the field of possible consumers and shortened search time – both undoubted benefits.

Niche Culture

As the Long Tail is about infinite choice thanks to abundant, cheap distribution, the audience tends to distribute as widely as the choice. Once people shift their attention online, they scatter– infinite choice leads to fragmentation. When mass culture breaks apart, it turns into millions of micro-cultures that interact in many baffling and strange ways.

In short, this marks a pivotal shift from mass culture to massively parallel culture. Each of us belongs now to many different groups simultaneously, sometimes overlapping, sometimes not.

This does not mean, of course, that there will be a wholesale shift to an all-amateur culture; it simply means that, as was mentioned before, the hits become less popular and the niches become less obscure. The news industry probably is the one that is showing how things are going to be in the future. Blogs are competing cheek by jowl with established news companies’ websites – and in some cases are out-competing them in terms of incoming links coming from other sites.

The vast range of all that is available to us nowadays can and should be used to make sure that our cultural perspectives are widened. Nothing on the net is authoritative, so it is up to us consumers to consult enough sources to enable us to make up our own minds. Plus this has implications for those we choose to associate with and how. Rather than being loosely connected with people thanks to superficial mass-culture overlaps, we can now be more strongly tied to people with whom we share much more in common. We will still share our culture with others – but not with everyone.

Long Tail Rules

So what’s the secret to creating a successful Long Tail business? It can be summarized in two steps:

  1. Make everything available.
  2. Help me find it.

The first is far easier said than done, especially when it comes to music and film. Rights management and issues make it very tough for music and film to be made available very easily (although advances have been and doubtlessly will continue to be made in this arena).

Developments regarding the second step are proceeding far more rapidly, what with all the developments online.

Here are nine rules of successful Long Tail aggregators:

  1. Move inventory way in… Or way out. Either use digital inventory, or store your goods in partners’ warehouses – this will lower costs and simplify operations immensely.
  1. Let customers do the work. Let them take care of coming up with reviews for your goods (this is termed as ‘crowdsourcing’). Customers can usually do a better job; reviews submitted by users are often well-informed, articulate and, very importantly, trusted by other users.
  1. One distribution method doesn’t fit all. Some people prefer to shop online, others from the privacy and comfort of their own homes. Some want their goods immediately, others prefer to wait. If retailers focus on just one group they risk losing the others. Multiple distribution channels are the only way to reach the biggest potential markets.
  1. One product doesn’t fit all, either. The winning strategy now is to separate content into its separate parts – to ‘microchunk’ it – so that people can consume it however they want to, as well as remix it to create something new. Newspapers, for instance, are microchunked into individual articles, which are used by other sites to concoct more focused product out of this content.
  1. One price doesn’t fit all. In markets with room for abundant variety, variable pricing can be a powerful technique to maximize a product’s value and the market’s size. iTunes, for instance, which sells songs for $0.99, will sell music at a lower price if an entire album is purchased.
  1. Share information. The availability of information is what can make or break an entire operation. Of course it needs to be presented in a way that helps order choice, not confuse customers.
  1. Think ‘and,’ not ‘or.’ One of the symptoms of scarcity thinking is assuming that markets are zero-sum – that everything is an either/or choice. In markets with infinite capacity, however, the strategy is to offer it all.
  1. Trust the market to do your job. In abundant markets you can simply throw everything out there and let the market sort it all out. Measure and respond – don’t predict.
  1. Understand the power of free. One of the most powerful features of digital markets is that they put ‘free’ within reach – their costs are near zero, and their prices can be this way too.