May 15, 2013
Table of contents:
For the last 100 hundred years, our culture has been obsessed with the big hits, the top selling songs and the highest grossing films. But in the last 15 years, despite the world’s population growing, these hits aren’t increasing in numbers.
The Internet has now opened the door to a proliferation of on demand content. It is now relatively easy to get access to media from any number of content niches. Unlimited distribution has completely revolutionised the economics of “the hit business” as the long tail of consumption has grown.
The Long Tail is a book of research on how the Internet has augmented the fragmentation of the media we consume. Where the economies of distribution are close to zero, there is no reason not to offer every possible piece of content. The Internet has also enabled amateur work and professional work to sit side by side and compete for the same audience. Consumers don’t choose something based on if it’s a hit, they now choose based on their unique tastes and interests.
The Long Tail is written by former Wired Editor-In-Chief Chris Anderson. Chris gathered research from some of the largest online companies who have taken advantage of this opportunity such as Amazon, eBay and Apple’s iTunes. Chris first discovered the economies of the long tail when he found that 98 percent of all online products will be requested within a given period of time. This rule relates to books on Amazon, products on eBay and songs on iTunes. Pareto’s 80/20 principal declares that 80 percent of the revenue will come from 20 percent of the products and so Chris realised that this was a huge shift in the economies of modern business.
The death of the hit based business can be seen in continually failing of the high street. A music store like HMV can only supply the top selling products in a physical location because each item takes up shelf space. HMV relies on being able to turn over inventory and so only the top sellers can be included because a top seller and a item that sells only once both take up the same amount of space. But now that the Internet has broadened our taste, consumers want a much greater depth of choice. iTunes and Amazon have unlimited shelf space and the economies of scale and online distribution mean that delivering that item to the consumer is an order of magnitude cheaper.
Now that access to content is not controlled by gatekeepers, and supply and demand can follow a new curve of adoption, consumers are discovering that their taste is not so mainstream after all. The Internet has destroyed the old distribution paradigm and democratised content consumption. It is now possible to find all types of content on the Internet that appeal to a very fragmented set of interests.
The Internet has also created the opportunity for anyone to create and produce high quality content and deliver it to an audience. The rise of the YouTube star has in many ways replaced the old television star and many new mainstream personalities first grow their audience online.
The Long Tail has only recently become possible over the last 15 years because of three evolutions in technology. These three evolutions form the three forces of the Long Tail.
The widespread adoption of PCs over the last couple of decades has put the power of production into the consumer’s hand. At one time, only professionals could produce video, music or publish to the Internet because it was beyond the average consumer. Now many PCs come preinstalled with everything you need to get going producing your own content.
Secondly, the widespread adoption of smartphones has spread this democratisation even further. Smartphones need to be much simpler to use than PCs but they are increasingly catching up in power. Smartphones also come with all the necessary components to become a content producer. When all you need is a camera, simple editing software and a connection to the Internet, the smartphone revolution has made us all into content producers.
Distribution is critical to becoming a successful content producer. At one time, distribution was tightly controlled by music producers, television networks and physical publishers. However, the Internet has completely changed how we consume content.
When distribution was tightly controlled, the gatekeepers told us what we should like through the hit machine. With the Internet, you can explore your own path of interests, taking a deep dive in areas that were previously totally inaccessible.
Now that it’s possible to explore the long tail, the head is increasingly becoming less relevant as more and more consumers move down the tail.
The companies that have been early to recognise and adopt the long tail have been instrumental in enabling the third force. With so much content, and so many possible niches to explore, consumers need some way of organising the mass.
Google indexes and ranks the billions of websites across the Internet based on the signals that it picks up from the website and from it’s users. Netflix orders it’s films based upon how previously users have enjoyed the content. Amazon is able to make recommendations to users based on millions of transactions on a daily basis.
Now that we aren’t being told what to like, there is a huge opportunity to become a curator and to help consumers find where their true passions lie.
One of the definitions of economics is “The social science of choice under scarcity” and another is “The allocation of scarce resources to satisfy unlimited wants”. In the age of the long tail, scarcity has been turned on it’s head.
Box office sales in the film industry are the leading indicator of a “successful” film. The first couple of films in this chart will have returned the majority of the revenues for the industry. As you go down the chart, there is a sharp drop off at around the 500th film. This is not because there are only 500 films being created in any given year, but it is because the distribution of feature films only allow 500 films to be seen at physical locations. In reality, there are tens of thousand of feature films being created each year, but due to them not being able to get mainstream distribution, it’s as if they didn’t exist at all.
Video streaming services like Netflix completely change this distribution problem. Netflix can hold and distribute an unlimited amount of content to it’s audience. It’s now possible to consume any of the thousands of feature films that are produced each year if they are available on the internet.
It is this effect, and the similar effects in adjacent industries like music and publishing that are turning scarcity on it’s head.
Of course we still have the scarcity of time and attention. Just because we now have access to more content and more niche interests, does not necessarily mean we will invest more time or money consuming that content. Having the choice of 10 channels or 1000 channels won’t guarantee more consumption, rather the consumption will just be more suited to the individual.
The long tail does have a dramatic effect on potential revenues. Brick and mortar retailers face the cut throat world of the hit machine, managing inventory and supplying demand. In online retailing, where the cost of holding inventory and distribution is constantly falling towards zero, the opportunity for greater margins can often be found in the niche products that did not even exist to the traditional retailers.
In a study that was conducted to measure how we as consumers value choice, it was found that the more choice someone has, the less likely they were to make a purchase. The study measured the number of available jams, and the likelihood that a purchase would be made. When there were 6 jams, 30% of consumers made a purchase. When there were 24 jams, just 3% of consumers made a purchase. The study suggests that choice becomes a deliberating factor when humans become overwhelmed with variety.
However, this is clearly not the case when you walk down any supermarket aisle. Over the last 50 years, the number of products in any given category has exploded. It’s now possible to purchase a wide range of spaghetti sauces, breakfast cereals or type of biscuit. This would seem to fly in the face of that original study.
This kind of fragmentation is not limited to just physical products or types of food. Just about everything in our lives has become increasingly fragmented over the last couple of decades. At one time, everyone read the same newspapers, watched the same television shows and bought the same products. However, as manufacturing, production and distribution costs have dramatically fallen, the amount of choice through fragmentation has exploded.
It turns out that consumers actually value choice extremely highly. When there is an abundance of choice, the consumer feels more satisfied that they made the right choice for their specific tastes. In order to help the consumer sort through the choice to find exactly what they want, the producer needs to sort and organise their products in to a logical taxonomy so that the consumer can construct a method of selection.
The authors of the original study later released a follow up that showed that consumers feel overwhelmed by the abundance of choice when the choices are not ordered logically.
An area of media consumption that has been dramatically effected by the long tail is television, video and film. Mass media television has grown substantially over the last 50 years as there are now more available channels to the average consumer than there has ever been. However that availability is just a small slice of what is available on the Internet every single day.
YouTube has been a great enabler of this shift. When you look at any individual video on YouTube, it is far more likely to be of much lower quality than anything that has made it on to TV. But the mass of content also produces highly targeted and relevant content for the new age of consumers.
Traditional television has channels dedicated to History, Golf or Home improvement. However, consumer’s interests are much more fragmented than these options. Once you start walking down the path of a niche, you will find that it just doesn’t stop. On YouTube, a producer can create video content on any particular micro niche and publish it to the Internet fairly easily.
As more people transition their viewing from the mass of scheduled programming, and start exploring their individual interests online, those of us who become producers will have a greater opportunity to find a niche, an audience and a tribe who share our interests.
The Long Tail charts the dramatic shift from a hit mainstream economy to a fragmented niche economy. The Internet has powered much of this shift, but it can also be seen in just about any other industry that benefits from the falling costs of distribution and the wide array of new choice.
The shift from mainstream to fragmented niches is extremely important. Incumbent industries like television, Hollywood and publishing are struggling to understand this shift and how it effects their business. Consumers aren’t willing to be told what to like anymore and no amount of marketing can save a poor product.
Physical retailers are also suffering from the effects of the Long Tail. When Amazon can offer any product at a lower price, physical retailers need to stop fighting on price and instead move towards the opportunity that physical retailing affords.
One of the biggest effects of the Long Tail is the opportunity it has created for producers. It’s now very cheap to become a producer online. Without the traditional gatekeepers of just a few years ago, many people are finding an audience through YouTube, their blogs or through social media. As more and more consumers start exploring their niche interests online, this opportunity is only going to get bigger.
Buy The Long Tail on Amazon (Affiliate link)