The Long Tail

Paul FoxOctober, 2006

Index

Introduction The Long Tail and the Internet The Three Forces of the Long Tail How to Get Found The Paradox of Choice

The Long Tail: Index

Long Tail Video

Long Tail Video Promo

The Long Tail: Introduction

What is the Long Tail? The long tail is the colloquial name for a long-known feature

of statistical distributions (Zipf, Power laws, Pareto distributions and/or general Lévy distributions ). The feature is also known as "heavy tails," "power-law tails," or "Pareto tails."

A high-frequency population is followed by a low-frequency population which gradually "tails off." In many cases the infrequent events—the long tail, can cumulatively outnumber the initial portion of the graph, such that in aggregate they comprise the majority.

--Wikipedia, “The Long Tail”

The Long Tail: Introduction

The Long Tail applied to business

In MathematicsThe name for a statistical distribution curve based on a high amplitude population followed by a low frequency population which gradually tails off. - Wikipedia

In BusinessProducts that are in low demand that can collectively make up a market share that rivals the relatively few current bestsellers when distributed over such a big channel as the Internet. - Chris Anderson

The Long Tail: Introduction

Origin of the Long Tail concept Coined by Chris Anderson, Editor-in-Chief of Wired

magazine The concept drew in part from an influential February

2003 essay by Clay Shirky, "Power Laws, Weblogs and Inequality”.

In a Wired magazine article in October 2004, Anderson described the effects of the long tail on current and future business models.

Anderson later extended it into the book The Long Tail: Why the Future of Business is Selling Less of More (2006).

--Wikipedia, “The Long Tail”

The Long Tail: Introduction

A brief history of the hit New Technologies in the mid- to late 19th century laid the

ground work for pop culture Commercial printing technology “Wet plate” technique for photography 1877 – Edison invents the phonograph

Result: the first wave of pop culture Newspapers and magazines Novels Printed sheet music Records Children’s books

Newspapers bring the latest fashions from New York, London and Paris

At the end of the 19th century, the moving picture gave the stars of stage a way to play many towns simultaneously and reach a much wider audience.

The Long Tail: Introduction

Source: Anderson, C. (2006) “The Rise and Fall of the Hit”, Wired Magazine

A brief history of the hit (continued) The arrival of broadcast media homogenized society

even more - they were essentially free! From 1935 through the 1950s, the Golden Age of

Radio led to the rise of national broadcast celebrities like Edward R. Murrow.

Then television took over. By 1953, an astounding 72 percent of TV households watched I Love Lucy on Monday night!

Throughout the ’60s, ’70s, ’80s, and ’90s, even as more channels arrived, television continued to be the great American unifier.

Nearly every year, TV advertising set a new record as companies paid more and more for prime time.

The Long Tail: Introduction

A brief history of the hit (continued)

Such potent carriers of culture had the effect of linking people across time and space, effectively synchronizing society.

Not only did your neighbors read the same news you read in the morning and know the same music and movies, people across the country did too.

In other words, while culture was synchronized, it was also homogenized.

The Long Tail: Introduction

Source: Anderson, C. (2006) “The Rise and Fall of the Hit”, Wired Magazine

Measuring the hit

Blockbuster movies Billboard magazine Hot 100 songs New York Times bestsellers in books Forbes lists

The Long Tail: Introduction

Driver of the hit culture: the economics of scarcity

An average movie theater needs at least 1,500 people over a 2-week run; that's the rent for a screen.

An average record store needs to sell at least 2 copies of a CD per year; that's the rent for a half inch of shelf space.

The same applies to DVD rental shops, videogame stores, booksellers, and newsstands.

The Long Tail: Introduction

Source: Anderson, C. (2004) “The Long Tail”, Wired Magazine

The economics of scarcity (continued)

Retailers will carry only content with sufficient demand to earn its keep.

But each can pull only from a limited local population - a 10-mile radius for a movie theater, less for music and bookstores, and even less (just a mile or two) for video rental shops.

It's not enough for a great documentary to have a potential national audience of half a million; it needs to attract a local audience.

The Long Tail: Introduction

Source: Anderson, C. (2004) “The Long Tail”, Wired Magazine

Physical distribution constraints

The other constraint of the physical world is physics itself.

The radio spectrum can carry only so many stations, and a coaxial cable so many TV channels.

There are only 24 hours a day of programming.

The curse of broadcast technologies is that they are profligate users of limited resources.

The result is another high bar, above which only a fraction of potential content rises.

Source: Anderson, C. (2004) “The Long Tail”, Wired Magazine

The Long Tail: Introduction

Example: Cinema

In 2004, nearly 6,000 movies were submitted to the Sundance Film Festival.

255 were accepted. 24 were picked up for distribution. The other 231 may never be seen.

Source: Anderson, C. (2004) “The Long Tail”, Wired Magazine

The Long Tail: Introduction

The peak of the hit culture

Between 1990 and 2000, album sales had doubled, the fastest growth rate in the history of the industry.

Half of the top-grossing 100 albums ever were sold during that decade.

Source: Anderson, C. (2006) “The Rise and Fall of the Hit”, Wired Magazine

The Long Tail: Introduction

Decline of the hit

Total music sales fell during 2000, for only the second time in a decade.

Sales fell 2.5 percent in 2001, 6.8 percent in 2002, and just kept dropping.

By the end of 2005 (down another 8.3 percent), album sales in the US had declined 20 percent from their 1999 peak.

Source: Anderson, C. (2006) “The Rise and Fall of the Hit”, Wired Magazine

The Long Tail: Introduction

Not enough blockbusters

Source: BoxOfficeMojo.com as posted 17/09/2006 on the Long Tail blog

The Long Tail: Introduction

What happened? The Internet

Record labels blame it on Napster and piracy, but it’s not that simple.

The Internet’s peer-to-peer architecture is optimized for a symmetrical traffic load, with as many senders as receivers and data transmissions spread out over geography and time.

In other words, it’s the opposite of broadcast.

Source: Anderson, C. (2006) “The Rise and Fall of the Hit”, Wired Magazine

The Long Tail: The Long Tail and the Internet

From scarcity to abundance

The Internet has altered industry economics from an economics of scarcity to an economics of abundance.

The future is increasingly heterogeneous, not homogeneous.

One size doesn't fit all. We have gone from a culture of hits to

a culture of niches.

Source: Anderson, C. (2006) “The Rise and Fall of the Hit”, Wired Magazine

The Long Tail: The Long Tail and the Internet

Any Industry where there is demand / availability for specialized products can and will be influenced by the long tail as accessible selection increases and transaction friction decreases

Books

British Library

Abebooks

Amazon

Borders

Independent Seller

Books

British Library

Abebooks

Amazon

Borders

Independent Seller

Source: Abe Books

The Long Tail: The Long Tail and the Internet

The question

"What percentage of the top 10,000 titles in any online media store (Netflix, iTunes, Amazon, or any other) will rent or sell at least once a month?"

The Long Tail: The Long Tail and the Internet

The 80/20 rule

The 80-20 rule, also known as Pareto's principle (after Vilfredo Pareto, an Italian economist who devised the concept in 1906), is all around us.

Only 20 percent of major studio films will be hits.

Same for TV shows, games, and mass-market books.

For major-label CDs, fewer than 10 percent are profitable (Recording Industry Association of America).

Source: Anderson, C. (2004) “The Long Tail”, Wired Magazine

The Long Tail: The Long Tail and the Internet

“Popularity no longer has a monopoly on profitability”

The real answer: 99 percent! (Robbie Vann-Adib, CEO of Ecast)

The 80/20 rule applies only to hits But “misses” make money too Why? Digital products have:

No physical shelf space Minimal distribution costs No manufacturing costs

Source: Anderson, C. (2004) “The Long Tail”, Wired Magazine

The Long Tail: The Long Tail and the Internet

Total Inventory (books)

2,300,000

130,000

Amazon Barnes & Noble

Total Inventory (books)

2,300,000

130,000

Amazon Barnes & Noble

Total Inventory (songs)

39,000

735,000

Rhapsody Walmart

Total Inventory (songs)

39,000

735,000

Rhapsody Walmart

Total Inventory (movies)

25,000

3,000

Netflix Blockbuster

Total Inventory (movies)

25,000

3,000

Netflix Blockbuster

The Long Tail: The Long Tail and the Internet

Inventories: physical retail vs. Internet retail

Source: Anderson, C. (2006) “The Long Tail: Why the Future of Business is Selling Less of More”

Rhapsody% Sales from Long Tail

22%

78%

Rhapsody% Sales from Long Tail

22%

78%

Amazon % Sales from Long Tail

57%43%

Amazon % Sales from Long Tail

57%43%

Netflix % Sales from Long Tail

20%

80%

Netflix % Sales from Long Tail

20%

80%

The Long Tail: The Long Tail and the Internet

Sales distribution: Head vs. Tail

Source: Anderson, C. (2006) “The Long Tail: Why the Future of Business is Selling Less of More”

Range of Quality/Satisfaction

Search quality

High

Low

The Long Tail: The Long Tail and the Internet

Source: Anderson, C. (2006) “The Long Tail: Why the Future of Business is Selling Less of More”

The Three Forces of the Long Tail

The Three Forces of the Long Tail Six Themes Force 1: Democratize the tools of

production Force 2: Democratize the tools of

distribution Force 3: Connect supply and demand

The Long Tail: Three Forces

The Six Themes

1. In virtually all markets, there are far more niche goods than hits.

2. The cost of reaching those niches is now falling dramatically

3. Simply offering more variety, however, does not shift demand by itself. Consumers must be given ways to find niches that suit their particular needs and interests. A range of tools and techniques – from recommendations to rankings – are effective at doing this.

The Long Tail: Three Forces: The Six Themes

Source: Anderson, C. (2006) “The Long Tail: Why the Future of Business is Selling Less of More”

The Six Themes (continued)

4. Once there’s massively expanded variety and the filters to sort through it, the demand curve flattens. There are still hits and niches, but the hits are relatively less popular and the niches relatively more so.

The Long Tail: Three Forces: The Six Themes

Source: Post from 02/08/2006 on the Long Tail blog

The Six Themes (continued)

4. All the niches add up. Although none sell in huge numbers, there are so many niche products that collectively they can comprise a market rivaling the hits.

5. Once all of this is in place, the natural shape of demand is revealed…that shape is far less hit-driven than we have been led to believe.

The Long Tail: Three Forces: The Six Themes

Source: Anderson, C. (2006) “The Long Tail: Why the Future of Business is Selling Less of More”

Force 1: Democratize the tools of production

Especially using affordable digital technology that makes it economically feasible to make products, even in small quantities. 

This results in “more stuff, which lengthens the Tail”.

The Long Tail: Three Forces: Tools of Production

Source: Anderson, C. (2006) “The Long Tail: Why the Future of Business is Selling Less of More”

Examples of tools of production

Blogs – short for Weblog - free technology for creating an online journal to comment on topics like food, politics, technology or any other topic you can think of. Photoblog – driven by cheap digital photography Vlog – driven by cheap video recording

technology Podcast – driven by cheap audio and video

recording technology Example: Affiliate Blog by Shawn Collins Open Source software.

e.g. Linux, Joomla, Simple Machines Forum

The Long Tail: Three Forces: Tools of Production

Force 2: Democratize the tools of distribution

Internet aggregators create “infinite shelf space” businesses where virtually every product in a category can be economically accessed. 

This creates “more access to niches, which fattens the Tail”.

The Long Tail: Three Forces: Tools of Distribution

Source: Anderson, C. (2006) “The Long Tail: Why the Future of Business is Selling Less of More”

Examples of tools of distribution Amazon NetFlix Rhapsody iTunes

But also: If you build it, they will come Froogle MySpace YouTube Flickr

The Long Tail: Three Forces: Tools of Distribution

Examples of tools of distribution

Youtube – upload amateur videos. Driver: cheap video recording technology

MySpace – social networking site focused on entertainment. Driver: cheap audio and video recording

technology, dynamic user interfaces Wikipedia – Internet encyclopedia that

allows users to freely edit its content.

The Long Tail: Three Forces: Tools of Distribution

Force 3: Connect supply and demand

Emergence of businesses and taste makers  that act as filters, helping to cost-effectively and flexibly connect people with available goods, no matter how narrow the interest or specialized the product.

This “drives business from hits to niches”.

The Long Tail: Three Forces: Connect Supply and Demand

Source: Anderson, C. (2006) “The Long Tail: Why the Future of Business is Selling Less of More”

Examples of filters Search engines (Google, Yahoo!, etc.) Sorting (e.g. Froogle) Ratings (e.g. Ciao) Reviews/Editor Recommendations (e.g.

Zdnet) Peer recommendations (e.g. digg) Customer Reviews (TripAdvisor.com) Community (e.g. The Lonely Planet Forum) RSS content syndication (e.g. NetVibes) Tagging

The Long Tail: Three Forces: Connect Supply and Demand

Tagging

Attach one-word descriptors to web sites or other items“tags”.

Locate these sites or items through a search or browse of the tags.

Key innovation: tags are created by users, not by intermediaries – users decide what’s relevant.

e.g. Flickr e.g. del.icio.us

The Long Tail: Three Forces: Connect Supply and Demand

Source: Leigh Dodds, Engineering Manager, IngentaConnect

How do you get found?

The focus of filters is about how users find the content they’re looking for.

But, creators of content also need to be found.

Many of the filters can help, but the process of finding is often easier than being found.

The Long Tail: How to Get Found

Early Internet advertising: banner ads

In the early days of the Internet, banner ads placed on popular Web portals ruled.

Pricing was designed to mirror advertising in the offline world:pay-per impression (also called pay-per-view or pay-per-mil)

Problem: advertisers were charged for the amount of advertising delivered, but how much was being consumed?

The Long Tail: How to Get Found

Solution: Pay per Performance

One solution to this issue is pay per performance pricing

Advertisers only pay when the user performs an action Clicks on a link Registers Makes a purchase

The Long Tail: How to Get Found

Search Engine Optimization A set of methods aimed at improving the ranking

of a Web site in organic search engine listings for specific keywords

Primarily based on content quality and the number and quality of links to your site

Keyword Marketing Auction-based system where advertisers bid on

certain keywords in order to place advertisements

Pricing is pay-per-click - advertisers only pay if the user clicks on their link

The Long Tail: How to Get Found

The Long Tail: How to Get Found

Paid search

Organicsearch

Organic SEO vs. Pay-per-click Consumers tend to trust organic results

more than paid results, and many see them as more relevant.

Plus, many users simply ignore paid results. However, SEO takes longer (up to six

months or longer) and usually requires hiring expensive outside help.

Paid search is practically instantaneous, and Google and Yahoo! provide user-friendly interfaces, tools and tutorials.

The Long Tail: How to Get Found

Affiliate Marketing Another way for advertisers to drive visitors

to their sites is affiliate marketing. Advertisers pay affiliate sites for sending

them customers. Pricing is pay per performance: affiliates

only get paid when the customer performs a specific action (click on a link, register, make a purchase).

Result is increased reach for the advertiser while passing some or all of advertising costs to the affiliates

The Long Tail: How to Get Found

The Long Tail: How to Get Found

Affiliates use various business models…

Niche/content sites (44.5%) Coupon/discount shopping sites (26.9%) PPC advertisers (17.5%) Miscellaneous (11.1%)

Sweepstakes/contest sites Shopping malls Incentive/loyalty sites Personal websites Blog/ezine

Source: Partnercentric (2006) survey of 1,041 affiliates

The Long Tail: How to Get Found

…and various promotion tools

Text links (19.88%) Banners (18.8%) Content (18.4%) Search engine optimization (11.51%) Email (9.42%) PPC (7.51%) Coupons (6.83%) Datafeeds (4.09%)

Source: Partnercentric (2006) survey of 1,041 affiliates

The Long Tail: How to Get Found

The Paradox of Choice

The Paradox of Choice Video

The Long Tail: The Paradox of Choice

Questions

Are you a maximizer or a satisficer Which vision do you agree with – the

long tail or the paradox of choice? Are the filters enough to deal with the

increasing number of choices available?

The Long Tail: The Paradox of Choice

END