The Long Tail Tale
Many online merchants have looked for profits in the "long tail"—the niche markets—but an economist questions whether the numbers add up.
THE SOURCE: Should You Invest in the Long Tail?” by Anita Elberse, in Harvard Business Review, July–Aug. 2008.
Wired editor Chris Anderson made a big splash in 2004 with his article (later a book) touting the revolutionary coming of the “long tail.” His thesis: that online companies such as Amazon and Rhapsody could cheaply market hard-to-find products such as offbeat song tracks or books, and the individual sales from such niche products would stretch out in a “long tail” on a sales chart, eventually overtaking the high-volume sales of the bestsellers.
Anita Elberse, a professor at Harvard Business School, recently tested Anderson’s idea. Looking at Rhapsody music “plays” over a three-month span (more than 32 million transactions), she found that “the top 10 percent of titles accounted for 78 percent of all plays, and the top one percent of titles for 32 percent of all plays.” Although the numbers represent a much greater diversity of songs (since even one percent of a million is still 10,000) than might be available at, say, a typical Wal-Mart store, Elberse found that overall Rhapsody sales were still more densely clustered around the “head”—the more popular offerings—than the “tail.” The same pattern held when she looked at Quickflix, an Australian service that rents DVDs by mail: “Some 150 titles (roughly the number of movies released annually to theaters by major Hollywood studios) accounted for nearly a fifth of all rentals.”
Elberse and a colleague also looked at Nielsen reports about online music and video sales. They showed that “sales did shift measurably into the tail.” Sales of obscure DVDs increased, for example. But the overall revenue from such sales still showed that “an ever smaller set of top titles continues to account for a large chunk of the overall demand for music.”
Elberse also uncovered some familiar patterns, matching those described by William McPhee in the early 1960s in his book Formal Theories of Mass Behavior. McPhee had suggested that people who shop sparingly tend to gravitate toward popular products—no big surprise—but also that high-volume consumers were much more willing to explore obscure items. When Elberse looked at video rentals, for instance, she found that volume renters (those averaging at least 50 rentals over six months) did dare to “venture into the tail” to select rarely rented titles. Tellingly, though, all the consumers rated the popular movies as more enjoyable than the obscure ones. “It is a myth,” Elberse says, “that obscure books, films, and songs are treasured.”
Even though the online world offers consumers astounding diversity, Elberse writes, it also opens “a flood of products all competing for consumers’ attention.” In such a volatile marketplace, it’s always going to be easier for better-known products to rise to the top, a truism illustrated by a decision Hyperion Books made in 2006 to back a new title trumpeting a red-hot Internet phenomenon: Chris Anderson’s The Long Tail.