Harvard Study Questions "Long Tail" Theory

mjasay writes "Remember 'the long tail?' That was the idea that there was gobs of money to be made in the more obscure tastes of any given market, enabled by the web. In recent research highlighted in the Harvard Business Review, however, the long tail theory comes under withering criticism. Not only is a hits-based business more profitable for vendors according to the new research, but the research suggests that consumers also derive more enjoyment from the hits, rather than the tail. In short, the researchers find that 'the tail is long and flat, and therefore that content providers will find it hard to profit much from it.'" Long Tail advocate Chris Anderson defends his theory, and it seems that most of the debate centers around how you define "head" and "tail."

Comments

Bullshit

[Gewalt]

I call bullshit on this. You mean to tell me that Amazon.com and iTunes Store would be more successful if they only carried the most popular 1% of their stock? How about *ANY* bookstore, not even just the online ones.

Re:Bullshit

[MrMarket]

I can see where low volume stuff isn't worth the hassle.

The whole premise of the Long Tail idea is that it's NOT a hassle for internet companies like Amazon and Apple to keep the low-volume stuff in inventory. That's what gives them an advantage over brick and mortar. If Amazon only sells 5 copies of the The "Long Tail: Why the Future of Business is Selling Less of More" a year, it only needs to keep 5 in inventory. If a chain store wants to sell the book it has to keep hundreds in inventory to ensure they have at least one in each store.

A lot of people mis-characterize the Long Tail as "making money by selling obscure stuff." That's only half of the definition. The other half is building a business where it does not cost you anything to keep lots and lots of obscure things in inventory, or alternatively, having access to millions and millions of customers, so if you sell to 1% of your market, it still adds up to something. Long tail does not work unless all of those 1% niches add up to 80% of the total market or unless you sell to 1% of a billion people. The internet helps businesses do both of these things.

Re:Bullshit

[p0tat03]

5 copies of a book sitting in an obscure corner of the warehouse (tracked by database so that it can be retrieved when it is needed) certainly isn't free, but it's *much* less expensive than keeping 500 copies chain-wide on prime shelf space. The latter also has an opportunity cost associated - putting this obscure book on the shelf means one less best-seller on the shelf, unless your store is of an infinite size :P When you can afford to sell something that only moves 10 copies a year, nation-wide, and guarantee speedy shipping, and still turn a profit, you're doing it right. Barnes & Noble et al cannot.

No, that's backwards.

[khasim]

They'd have fewer sales, of course. But the fewer sales would be a tiny portion of the sales of their most popular items.

But a company that ignores the most popular items will have a very difficult time making a profit. That's the "tail" portion. Which was claimed to ... eventually ... be MORE profitable than the most popular items.

I don't understand

[Anonymous Coward]

why are they concentrating on how *profitable* the long tail is?

As far as I see it, the long tail isn't about PROFIT, but about how much society wants the entertainment.

How many REALLY old songs would you like to hear again? Well, given that each year older adds another pile of songs, the profit in EACH TITLE is spread thinner and thinner. Because what I'd like to hear again from the 70's isn't what YOU'D like to hear from the 70's.

The long tail is showing that copyright lengths ARE damaging society. And it not being profitable enough to make a business on shows that there is NO BUSINESS LOSS in shortening copyright to a time where works are still wanted.

Really, copyright now is more about the accountants' abject fear that someone else is making money and not them.

Shit, if you're not SELLING a good, why not let someone else do it, or even just release it for free and forget about it? Because in that case, there's no money for you to make. That you don't want to spend the effort to MAKE the money in the first place seems irrelevant to your accounting brain.

So I don't understand the ribbing. It's arguing that it isn't profitable when that's not what the long tail is about. It's about demand continuing BEYOND the profitable age of entertainment goods.

Re:I don't understand

[davester666]

The long copyright term is not for the one-hit wonder bands, or the b-movie produced during the war to sell bonds. It's for the cream. It's for the Beatles. Cindella. The one in a thousand quality movie or band that people still think have meaning to them even now, 40, 50, 60 years later.

All those still make boatloads of cash for the IP holders.

Everyone else holding IP from way back is holding on hoping for something like the current 'rickrolling' to happen, where suddenly something obscure from wayback gets popular and makes a nice little chunk of change. It's for the one-in-a-million that gets a little bump in the flatline stage that keeps everyone holding on...

And the two major groups holding IP [the companies behind the RIAA and the MPAA (or whatever the movie acronym is)] both have accounting departments that are great at making sure the money stops with them and not with the artists that actually created the audio or video.

For the general population, it might be beneficial for there to be some nominal yearly 'copyright fee', that has to be paid on-time, every year otherwise the copyright for a work reverts to the public domain, that say, kicks in after a relatively short period of time, such as 5 or 10 years [or right away]. But of course this hurts the little guy, who perhaps could use those residual cheques from that 'long tail' if he hadn't sold 99.9% of the money from the sales to the label back in the day.

Re:Already knew this.

[timeOday]

So, for instance, you don't think people would mind if iTunes only carried the Top 40? Or netflix could flourish carrying offering only hit films? I don't think so.

I call BS as well

[jollyreaper]

For a brick and mortar store, concentrating on the sure hits makes a lot of sense. Funny story, my dad had to pick up a new alternator for a 30-year old truck. The local parts store had one in stock. The parts man looks the box over and says "Yep, had this one on the shelf for about 18 years." That's a bit longer on turnover than most businesses would shoot for. But when you're talking about cheap warehouses in the bad part of town doing all of their selling and shipping online... this whole argument could probably be solved with access to Netflix's database and a few queries. My hypothesis:

1. A huge percentage (35%?) of their business will be new releases.
2. The next biggest percentage would fall into the "perennial classics" category, i.e. the kind of movies that aren't new releases that a Blockbuster would have, movies that do a steady, dependable business.
3. Everything else would fall into the "obscure shit" category, the stuff that Blockbuster does not carry because it's too infrequently rented.

I will wager that the revenue from #3 more than pays for itself AND serves as a draw for customers who rent across all three categories. Joe Customer chose Netflix because they carry obscure Asian chop-chop flicks but will also rent Cloverfield from them since hey, he has an account.

As another example, say I want to pick up some obscure, out of print book. I hit Amazon first out of force of habit. Good news, they have it. That makes it all the more likely for me to type in Amazon when I want to buy the next top-seller I saw on the Daily Show. If Amazon didn't have the obscure books I want, I might go to some other site by default, and then they'll be getting all of my New York Times Bestseller business.

If we're talking about a brick and mortar store, the carrying cost of the truly obscure could well be too high to justify itself. With online stores, there's no excuse not to carry the obscure.

Is "the long tail" just the "anti-blockbusters"

[argent]

In the "blockbuster" model you don't concentrate on "the top 10000" or even "the top 1000", you push very very few products... a dozen at most (the example they use of book publishing... they only pushed *two* blockbuster titles at a time).

The article is turning that over, and interpreting "the long tail" as being only the "anti blockbusters", the products selling a few copies a year. But once you have the product in your digital inventory you're paying virtually nothing to keep it alive, so instead of trying to figure out what the top forty next month is going to be so you can stock your stores with it, and shoveling albums out into the cold after six months on the shelves, you *can* keep it all available.

It's not a matter of "this end vs that end", it's "you don't need to worry about the ends".

Re:OK, no protection for the tail then...

[Anonymous Coward]

Where the definition of head and tail is questioned, it does not mean that it's opposite day. If anything, the tail should have copyright protection, because it lacks the direct incentive for its creation. To abstract for you? Britney Spears songs copyrighted, struggling artist's songs can be had for free. Does that sound right to you?

Success of the tail is dependent on the product

[davejenkins]

The success of the long tail theory completely depends on the transient nature or durability of the product mix.

Amazon makes the long tail work because Amazon is still a big fat book store (and sells other things): books have a shelf life measured in years. Books do not decay, they do not fall out of fashion, they do not get replaced by next year's model (mostly). As such, Amazon can build up a long tail of obscure books and build a brand of a bookstore where you can find anything.

Zappos is trying this with shoes. The problem here is that Shoes fall out of fashion, so I am not sure that works. I used to work for a company that sold outdoor gear-- it kinda worked as some things were durable, but even then most equipment (and especially apparel) have a shelf-life of one season (one year).

Music may work-- someone's always searching for some Captain Beefheart or TSOL-- but certainly the biggest profit (because production costs are so low for massed produced copies) are in the big-hit ranges.

It all depends on the seasonal and long-term durability of the product.

Re:Success of the tail is dependent on the product

[whydna]

I think that you're partly right about the durability of goods, but there's so much more to Amazon's ability to extend the long-tail.

For one, there's the issue of quantity. If Amazon wants to guarantee stock on a really obscure book, it needs to have 1 or two copies of that book in one warehouse. If a brick-and-mortar wants to guarantee stock of the same book, then need 1-2 copies in every/most stores. For large brick-and-mortar stores, that could be thousands or even 10s-of-thousands of copies of that book. Of course... then you can add print-on-demand to the mix and that changes the picture quite a bit as well; then Amazon can stock 0 inventory of that book. But print-on-demand is another story, and applicable only to some categories (books, cds, dvds, etc).

Another big win is prediction. Amazon does a fairly good job of predicting demand and ordering accordingly. Additionally, in cases where demand exceeds local inventory supply, Amazon can generally request a drop-shipment from the supplier. While there's nothing stopping your local brick-and-mortar from doing the same thing, it's generally much more transparent to the consumer when a random brown box shows up on their door.

An interesting metric in the retail space is the number of "inventory turns" per year, which roughly translates to "how often do we completely empty and re-fill the items on our shelves". Amazon does it more than once a month (see http://blogs.zdnet.com/BTL/?p=8591); K-mart does it about 4 times a year. Walmart's closer to 7 times per year. Interesting, eh?

-A

Re:I don't know about this.

[alexhmit01]

It's not the shape, the shape is fixed...

It's a standard power curve... it agrees that the hits make up lots of the sales, the thing is how many.

Integrate from 1 - 10 off the curve, you see the sales of the Top 10 sellers... they sell a lot, they sit in the front of book stores. Go to 1-100, and you have probably only doubled sales.

Long tail observes that theoretically, the curve goes out to infinity and never hits zero, which is what the Internet makes interesting.

A mall book store can stock 5000 books, a big box book store 20000, and Wal-mart's book section, 1000. Wal-mart moves a lot of books because they stock the 1000 most popular books and move them readily. The mall book store have 5x the inventory and probably about the same in sales, because they aren't moving as many of the top 1000 because of Wal-mart. The Big box store, with 15000 moves more... maybe double the mall bookstore with 4x the inventory?

You see diminishing returns... so sales people observe the 80/20 rule, 80% of your sales come from 20% of your customers/products, etc., it's the power curve... But long tail observes that if you can only carry 100 products, 80% will come from your top 20%, but if you carried infinite inventory, the long tail exceeds the bulbous head because it's infinite.

The average bookstore apparently stocks around 15k books (when I first read the long tail argument), the most profitable books. If you looked at Amazon's sales, their "big sellers" were the sale 15k books as everyone else, so you would think 80/20 rule, that's 80% of revenue, the other 1M+ books were just there because they were slightly profitable, brought customers in, etc. Turns out, the majority of the sales were from the books AFTER rank 15K, the books that booksellers don't carry.

This brings one to two conclusions:
1. 80/20 rule is a function of limited inventory, if you take the tail to its conclusion, the tipping point is around where others drop off, with half before and half after, so the bulbous head is 80% of 50% of sales, or 40%... still important, but not the final say in revenue... Long tail means Internet changes the economics of inventory... I go to a Wal-mart OR Website for my "common" stuff, Internet for everything else.
2. Amazon.com does well on the long tail because the others can't play there. The normal shops compete for the first 15k, Amazon has a competitive advantage for the rest of the inventory, and therefore makes profits. -- This leads to the natural conclusion that the long tong tail is a natural monopoly, only one player can make money stocking it. Wal-mart owns the common 20% of items, Amazon sells the rest, and we all get out of retail because Retail = Wal-mart + Amazon.com.

Alex

Re:I don't know about this.

[alexhmit01]

Networks are the Head, the second tier networks are the normal tail that we look at... Youtube is the long tail.

The networks have steadily slid from 80% - 40% of television viewing AS the number of cable channels expanded, so the tail got longer.

Youtube introduced a long tail to television.

The question will be, who gets more viewers (total person-minutes watched)
1. The Networks (Head)
2. Second Tier Cable (Tail)
3. Cable in General (Head + Tail)
4. Youtube + Other Web Video

Long Tail theory indicates that 3 + 4 should be roughly the same... and 1 should consistently hold 80% of 3, while 2 holds 20%... This requires redefining the Head from just the big 3/4 networks to include some other major channels.

Now the REAL interesting question is does #4 become dominated by Youtube (80%+, natural monopoly), or spread across all web video with you tube only because the locally head of a long tail from there.

Re:Range

[TaoPhoenix]

Definitely count me in this category.

Serious subjective feelings get involved if you know they carry the large range, and that it's not just This Month's Selections.

I decided to spend a couple thousand on books I know I'll *eventually* want to read, but can't stand the Out Of Print process kicking in because they're headed right for the Long Tail.

Stocking Laterally is a huge part of this. If I go on a rampage, I'll tend to buy multiple titles from an author's spread right then, and no other time. Next Month is too late.

If a store carries all 16 titles of a saga, that's way better for sales than if they randomly found #'s 3,7,12 in their warehouse and stuck them out.