Is the tail really this long?

July 14, 2008

“The Long Tail. Why the Future of Business is Selling Less of More” is a book by Chris Anderson, editor-in-chief of Wired Magazine. He makes an attempt to observe how Internet affects the economics. As the result, he coins “The Long Tail” term. In his book Chris Anderson focuses on the economy of abundance versus the traditional economy of scarcity, examining how the almost unlimited choice of goods creates new growing demand, which follows supply. Anderson claims that the act of vastly increasing choice unlocks demand for that choice. However, it still has to be found whether it is latent demand for niche goods that is already there or the creation of new demand. The book has no clear answer on that yet.

One of the main focuses of the book is challenging the Pareto’s principle (also known as a 80/20 rule), which seemed to be working fine for the years and years (even before Vilfredo Pareto devised the concept in 1906). The essence of the economical projection of the 80/20 rule is that 20% of goods are accountable for the 80% of sales. Historically, high business expenses and transaction costs, used to make businesses focus on the top 20% of goods in order to be profitable.

Nowadays, with the dramatically falling transaction costs that lead to the affordable prices of reaching the niche markets, businesses get an opportunity to focus on the remaining 80% of goods and make this marketplace profitable. Interviewing people like Robbie Vann-Adibé, the CEO of Ecast, a digital jukebox company that sells music tracks online, helps Anderson to spot the latest digital marketplace trends. What he finds out is the percentage of the top 10,000 titles in any online media store (Netflix, iTunes, Amazon, or any other) that will rent or sell at least once a month is 99%, not expected 20%. This fact predicts a great future for selling the “long tail” goods, due to the growing demand on niche market products. As an example Rhapsody, had been making 40% of its sales on the products not sold offline at the time the book was written. Amazon was making 25%. According to Chris, this number is growing as well as the demand is.

Anderson gives the excellent examples that make his ideas strong and compelling. However, he has a pretty narrow range of the businesses he uses as examples. They are limited to Amazon, Wal-Mart, Netflix, Rhapsody and a couple of other larger online retailers. Thus his book gives an idea of how larger businesses could make money on the Long Tail but the question of how do smaller businesses benefit of the Long Tail is pretty much left aside. One more confusion comes from the somewhat unclear definition of the “head” and “tail” in the book, which made other researches like Anita Elberse, a Harvard Business School associate professor to doubt if the Anderson’s theory is right.

Chris Anderson claims his book is an economic research project. Well, it looks like the one; especially in the chapter where he draws a theory of how does The Long Tail emerge. Chris focuses on a crucial point in this chapter: reduction of the costs of reaching the niches is an economic trigger for the Long Tail phenomenon. He explains the three main forces that make the new niche market possible and profitable: democratization of the production, cutting the costs of consumption by democratizing distribution and connecting supply and demand. These three forces enable the hyperefficient digital economics, which is leading to new markets and marketplace opportunities.

As Anderson admits, although he coined “The Long Tail” term, the real inventors of this theory were a lot of entrepreneurs starting with Richard Sears and finishing with Amazon’s Jeff Beznos. I think he makes this point not just to focus on his humble input into the synthesizing the theory into a framework, but also to underline the fact that his theory is viable and working. Nevertheless, I think this book is a great source of the basic information about relatively recent changes of the economic and business models caused mostly by the impact of an Internet. The book is a must-read to anyone who wants to utilize the Web as a business tool in the fields of e-commerce and communications.


3 Responses to “Is the tail really this long?”

  1. christyluther Says:

    Hi Ivan,

    I enjoyed reading your review. I agree with you that while Anderson has a few questionable moments, the book overall is a great introduction to the concepts that he conveys and it is very useful.

    I didn’t particularly take issue with the number of examples he provided in the book, though; I thought he gave enough business references to demonstrate his point. I was pleased to read the part that discusses the newspaper industry, because I was afraid his examples were all going to be movie/books/music related.

    You are right that he doesn’t touch too much on the smaller businesses out there. He mentions “Rice to Riches” as an example of niche companies that are able to survive in today’s world of subculture popularity – proving that there is a market for such obscure/specialty item sellers. Yet, he doesn’t talk much about what happens to these vendors in the niche market when the Long Tail race takes place. My assumption would be that small brick and mortar vendors either 1) gain more business due to larger companies that now want to tap into them in order to fulfill their own Long Tail reach, 2)they do just fine if they have a Web segment of their business, 3) the small guys get pushed out of the market if large companies tap directly to the manufacturer to meet their Long Tail needs, or 4) the overall availability of more choices due to the Internet causes competition that wasn’t previously there for small vendors since they now compete with companies far away that were not a competitive concern previously.

    You bring up some good points in your review. It would be interesting to know more about these un-touched topics.

  2. […] Christy on Ivan (review) […]

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