ETech: Chris Anderson and the Long Tail
Here are my fleshed out notes from Chris Anderson's talk on The Long Tail.
For reference, the power law / demand curve at right shows sales on the vertical access, and products on the horizontal access. The "head" of the curve in the area in red, and the "tail" is in yellow.
Many industries are focused on the hits in the head of the demand curve. For example Hollywood. Distribution of Hollywood movies does not look like the power law distribution. After 1000 movies it drops off big time (doesn't take advantage of the long tail.)
Because there is a scarcity problem: movie theaters are scarce, they need to make moeny, and can only focus on the 1000 movies that will fill their theaters.
But, industries are now finding it profitable to focus on the tail. For example, television. Ratings have gone from an 80/20 networks / cable station split in 1985, to a 50/50 split in 2005. And advertising dollars are following the audience.
This is not a new idea. The Sears catalog in 1890 offered the long tail of retail to folks in small towns in the midwest. In 1990, the supermarket shelves exploded with variety of products due to efficiencies in supply chains, and global manufacturing and distribution. This explosion of product led to the tyranny of choice. Now, however, there has been an explosion of information. So, consumers need both choice and information to take advantage of the long tail.
This is not just about information: Google is tapping the long tail with advertising, eBay is doing it with hard goods, Capital One is tapping the long tail by fine-tuning credit card rates based on an individual's credit report.
There are three forces that must be in effect for the Long Tail to effectively come into play.
1. Democratize the Tools of Production. This provides the supply.
2. Minimize transaction costs of consumption. Bringing costs down will increase demand.
3. Connect customers to amplify word of mouth down the tail. You need to provide filters to help customer feel comfortable exploring down the long tail to find diamonds in the rough.
For example the image at right (click to expand) shows how Amazon leverages its recommendation engine to move a visitor down the curve, from Britney Spears (Amazon sales rank: 340) in the head, to The Selecter (rank: 31,195) in the long tail, in just three clicks.
Currently, Anderson is researching six topics for his book.
1. How does expansion of the tail affect the shape of the head?
His hypothesis is that as demand pours down the curve, the head will flatten out.
2. Can social networks that apply word of mouth create hits from the right side of the tail?
Turns out there are "minicurves" in the long tail. For example, in the long tail of music, there are minicurves for niche genres like rap-metal, bluegrass, and pop-rock.
3. How does price elasticity work in the tail?
Should prices go down or up in the tail? The natural inclination might be to drop the price to encourage demand. But, Anderson is exploring two different models. For entertainment products ("I want it"), lower your prices in the tail. For information products ("I need it"), raise your prices of products in the tail to take advantage of the "it's only available on Amazon so I'll pay what it takes" factor.
4. I missed this one, but I think it related to CK Prahalad's The Fortune at the Bottom of the Pyramid.
5. Secondary markets. If you know there is a market for your used book, would you pay more to buy it new?
6. Tragically neglected economics of abundance. Is infinite shelf space game changing, like Moore's law, or not, like steam power during the industrial revolution?
Good stuff. If you haven't read the original Wired article that Anderson's book and recent talks are based on, it's probably worth your while to do so. You'll almost certainly get something out of it, since it applies across so many domains.