The Long Tail

Chris Anderson’s theory of The Long Tail first appeared at Wired (of which he is Editor-in-Chief) in 2004. Subsequently expanded and published as a book in 2006, the theory’s fundamental premise is that online markets have allowed for greater diversity and inclusion of niches in the distribution of products such as music, movies and books.

Anderson says online distribution and retail reflects today’s ‘world of abundance’ and that it has profoundly increased our exposure to lesser-mainstream goods.

Physical retail outlets such as DVD (or video) rental stores, record/CD/DVD shops, and bookstores have to work on the economic premise of their products’ likelihood of return on investment (ROI). Simply, this means the physical space their products take up on their shelves is restricted and dependent upon their chance of selling, thus ensuring they were worthy of stocking and space. If an item sits on a shelf and isn’t sold, it is wasting space that could be used to temporarily house another item more likely to sell and earn a profit for the store. It is principally predicting the economic viability of each product, based on its likelihood to sell or regularly turn in a profit (in the case of rental stores).

Entertainment in a physical world, such as described above, also has implications for movie theatres. The relatively frequent high number of cinemas in reasonably-sized metropolitan areas is evident, and each cinema needs to find local audiences in order to make their screenings economically worthwhile. Managers must also take into account the limited number of hours a day they are likely to attract customers, and schedule their screenings and staffing requirements accordingly. All this results in an entertainment economy revolving highly around mainstream hits, as they are the most likely to produce a more impressive ROI.

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Anderson explains the primary difference between physical retail outlets and those that are purely digital services is that for the latter, both ‘hits and misses’ are equally viable financially. This stems from the fact that neither take up any physical space, meaning they are on equal economic footing and misses are ‘just another sale, with the same margin as a hit’.

What Anderson’s research has shown is when the demand for niche products is served, there is actually less interest in the hits. However, whichever online platform is selling or leasing the products – Amazon, iTunes, Netflix – they still receive an equal profit regardless of what the customer purchases. The only difference is the customer is more likely to be satisfied with their product, and I would extrapolate on this to say that subsequently, they are more likely to return for additional goods in the future.

Ultimately, Anderson calls this the ‘infinite shelf-space effect’ where subscription services (Netflix, Spotify) and digital downloading services (iTunes, Amazon) are able to offer more personalised products to customers through ‘stocking’ an unlimited number of choices.

The other important aspect of the digital entertainment industry is that through tracking patterns of user’s purchases, clicks (viewings) and interests in/of products, the service is able to ‘recommend’ additional products the user may also enjoy. I personally find it both helpful and overwhelming when viewing a book on Amazon to note just below ‘my’ book (the one which I have searched for/am interested in), a whole range of other books I might be interested in, thanks to what other customers interested in ‘my’ book also purchased.

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Similarly, to purchase products one creates an account which tracks your data and keeps a history of your views and purchases.

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Obviously this is commonplace in any online marketplace, and each operates through establishing a network of user preferences, similarities between customers, and analytical software and systems.

A key point Anderson makes however, is that digital stores are still highly dependent on the ‘hits’ or mainstream products to attract consumers in the first place. He writes:

Great Long Tail businesses can… guide consumers further afield by following the contours of their likes and dislikes, easing their exploration of the unknown.

The benefits of Long Tail businesses, as Anderson asserts, are numerous for both the entertainment industry and individuals. Customers are able to access (or are involuntarily offered) customised recommendations based on their browsing patterns through what Anderson calls an ‘increased signal-to-noise ratio’ – based on good recommendations – with the potential for introducing customers to alternate products and encouraging exploration into new fields connected through their customised network.

Businesses utilise recommendations as an efficient and effective form of marketing that also drives users towards lesser-known products which, in turn, are able to find an audience.

Anderson says the benefits for the entertainment industry are immense, with customisation leading potential to create a far larger market overall. Recommendations can ‘drive demand down the Long Tail’;

And the cultural benefit of all of this is much more diversity, reversing the blanding effects of a century of distribution scarcity and ending the tyranny of the hit.

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