Well, I pretty much finished up school last Wednesday. I have one final on Thursday but it feels nice to be mostly done. I've had to neglect a lot of reading and blogging lately, but I was fortunate to finish up "The Long Tail: Why the Future of Business Is Selling Less of More" the other night. The book was written by Chris Anderson, editor in chief of Wired Magazine. It's easy to tell that Anderson used to work for The Economist, a great magazine by the way. In fact, if I were stuck on a desert island, and I could only take two magazines, I would chose Wired and The Economist. But back to the book, this read was thought provoking and full of economic models/concepts aiding in the explanation of how the internet is changing our world. What is a Long Tail? Statistics was never my favorite subject, but "The Long Tail" is simply a Pareto Distribution aka "Long Tail" distribution. It might sound complicated, but I can't think of a better way to metaphorically explain how the internet has completely changed culture and commerce as we know it. This translates into the book's main theme's: 1. with the long tail, there are far more niche goods than hits, 2. the costs of reaching these niches has fallen dramatically (i.e. internet), 3. the range of tools (i.e. search/recommendations/rankings) have helped shift demand down the long tail as people can more easily find useful/relevant niches, 4. demand curves will eventually flatten as the hits become relatively less popular and the niches continue to grow in popularity, 5. collectively the niches add up to comprise a market that rivals and sometimes outweighs the hits, 6. the internet helps reveal the natural shape of the demand curve, a curve that is undistorted by information scarcity, brick and mortar shelf space, and limited choice.
The Long Tail discusses many concepts, here are a few of my favorites:
"Economics of Abundance", this is the idea of being able to have nearly unlimited choice. In this day and age, companies don't need to hold inventory in store fronts because they can instead sell online, Anderson references data and insights from companies like Amazon, eBay, iTunes, Google, Craigslist, Wikipedia, MySpace, and Rhapsody to support his argument. Furthermore, Anderson makes the point that The Long Tail is contributing to the slow demise of mass/pop culture and giving birth to niche culture and the idea of "less is more".
"98 Rule", Anderson explains that Netflix says 95 percent of its 25,000 DVD's rent at least once a quarter. Furthermore, after looking at it's book sales, Amazon suggests that 98 percent of its top 100,000 books sell at least once a quarter. Because the cost of digital space per book or DVD is very cheap, Netflix's, Amazon, and other internet retailers can afford to keep in stock items that only sell once or twice in a given year. This is a huge advantage over traditional brick and mortar retail which fails to offer choice because of the inability to turn over inventory fast enough to pay for physical space. Anderson states that eventually, Amazon will localize the printing of digital media and produce books in seconds from never ending electronic catalogs. Also, DVD's will be replaced by wireless movie streams, this will increase the speed of distribution and the volume of sales of the media an individual prefers. The 80/20 rules are without question changing.
"Hit to Niche", Rhapsody offers more than 1.5 million tracks. The top 4,500 albums account for the top 25,000 tracks. This totals to 22 million downloads a month, which is nearly a quarter of Rhapsody's total business. What's so amazing about Rhapsody and iTunes for that matter, is that demand exists for almost every track in their infinite digitally-shelfed inventories. With 75% of sales coming from products that arn't available in traditional physical retail stores, these niche markets are for ever changing retail. This is further exemplified by the popularity of myspace, purevolume, last.fm etc. WalMart is still the largest music retailer on the planet, but WalMart doesn't carry over 99 percent of music that is on the market. Again, the same thing goes for Blockbuster, out of the more than 200,000 commercially released films, TV shows, documentaries etc. Blockbuster's brick and mortar stores carry only 3,000 titles. However, since The Long Tail was written, Blockbuster has taken note of this and has transformed its business to compete with Netflix's and take advantage of these never ending markets.
Below is a graphical representation of "The Long Tail" in the marketplace:
This book was a great read, but at about 226 pages long, it could have been much shorter as many of the theme's became redundant about half way through. However, I would recommend this book to anyone who's looking for a formalized premise on how the internet has radically changed business models. Also, check out Chris Anderson's blog: The Long Tail if your interested in some more of the theme's surrounding this book.
