Selling To The Long Tail Doesn't Mean You Ignore The Hits

from the understanding-business-models dept

There's an interesting new article in the Harvard Business Review that looks to challenge Chris Anderson's well-known theory of "the long tail." In it, a Harvard professor, Anita Elberse, talks about how hits still make a lot of money, and the idea that all the money is now over in the long tail doesn't seem supported by reality. Chris himself makes some very good points in response, noting that some of this depends very much on where you "draw the line" between the hits and the tail. Since there's a sort of "fat middle," small changes in where you draw the line of what counts in which category can have a big impact. Chris makes a compelling argument that Elberse chose to draw the line in the wrong spot. He uses the inventory of various brick-and-mortar stores to determine where the line should be drawn, rather than at the somewhat arbitrary 10% and 1% lines that Elberse used.

However, I'd like to argue from a different angle as to why the HBR piece is missing the point. I don't think that anyone ever said that you completely ignore the hits. Perhaps it's a problem of the name "the long tail" but it starts to make people focus all the way at the end of the tail -- the part that is the least profitable. It's the point where only one copy of something is sold every so often. The companies that suddenly announced they were going to focus on the long tail seemed to think that you focus only on that tip at the end. That was not the point at all. You don't ignore the hits -- you just recognize that with infinite shelf space, you can now supply much more beyond the hits -- and that aggregate amount can add up to a substantial sum that no store with limited shelf-space can match. So, Elberse is completely correct in suggesting that companies don't just focus on the tail end of the tail -- but anyone who did so in the first place was misinterpreting the point of the long tail concept.

Even more to the point is that the concept of the long tail changes the shape of the market. When shelf space was limited, it made it that much more difficult to even get a creative work produced at all. You had to be able to convince someone that your work would make it into the "hits" category, and then get them to finance the creation of the work. And, anything that didn't actually become a hit fell off the chart completely. You basically had a bimodal distribution of content: the hits that sold, and the crap that didn't and was no longer available. But there was a hidden third category that most people didn't think of: the stuff that didn't get created at all because it wouldn't sell enough alone to justify it.

Yet, with the combination of cheaper tools for content creation, combined with cheaper distribution tools and infinite shelf space, that third "hidden" category started to exist in the open, where it was invisible before. And, on top of that, many of the works that fell into the "crap" end of the old model, could migrate into the long tail and make enough sales to be decent. But the point remains that it spread out the distribution, made it possible for much more content to both be created and sold -- and there are plenty of companies capitalizing on that. That doesn't mean that the hits go away or that the long tail concept doesn't make sense. It just means that you don't focus on the long tail by only focusing on the crap end of the long tail -- but on the entire distribution.


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    Kirby (profile), Jun 27th, 2008 @ 4:32pm

    Also

    People are imperfect at always predicting what the hits will be. The longer tail stores can stock the products expected to be specialty, but sometimes they'll become bonafide hits, and I think that's where the long tail really has an advantage. Everyone knows that Halo 3 will sell a lot of copies. Nobody knew that Katamari Damacy would become a phenomenon and show up on game of the year lists, and a lot of brick and mortar retailers missed out on sales to Amazon on that truly remarkable title.

    Not to mention the satisfaction gap. I'm not surprised or particularly excited when I can buy Halo 3 at Wal*Mart or Amazon. But when I can get the hot item that is sold out everywhere and the kid at the Game*Stop hasn't heard of, I'm very happy with that store. I instantly have feelings of brand loyalty. Next time, I look at Amazon.com first before wasting my time running all over town looking for something that isn't A-list.

    (I've focused on video games, because that's the example in my head, but applies to other products as well.)

    You just can't get a copy of Harry Potter translated into Latin at your Barnes and Noble, and there's someone out there that'll be just thrilled to find it at Amazon.

     

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    Hm, Jun 27th, 2008 @ 5:47pm

    This is one of the better TechDirt articles I've ever read. And lately I'd been totally disappointed by the constant re-hashing of "omg streisand effect??!" stories.

    Excellent analysis and keep up the good work.

     

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      Kiba, Jun 28th, 2008 @ 7:15pm

      Re:

      I am surprised that you continue to read techdirt even though there are many rehashes on many of the subject that techdirt cover. With the same argument presented in each of the subjects covered techdirt on each sides, you would surely be bored by now.

       

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    Marc Cohen, Jun 28th, 2008 @ 5:52pm

    Long Tail

    I don't think that where you draw the line for a hit matters. When I look at the data in the HBR article I see the old 80/20 rule. Traditionally this measure indicates that 20% of customers account for 80% of sales or profits. In this case 20% of content accounts for 80% of revenue. One can go after the long tail if they are satisfied with 20% of the potential market. I think this data also gives the lie to the notion that the value of music is now on the publishing side. A back catalog really isn't worth that much. Check out the Ad-Supported Music Central blog at http://ad-supported-music.blogspot.com/

     

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    william fischer, Jun 29th, 2008 @ 5:31am

    HBR vs. The Long Tail

    Mike,

    I agree that Elberse seems to be playing a semantics game.

    When looking at consumer research, what I find interesting are non-intuitive, actionable insights. Elberse’s discovery that, as she modestly states, “may be of intellectual interest to readers,” that there’s money to be made in blockbusters is neither. A record executive that states “if we just had more platinum records, we’d make more money,” would not be applauded for strategic vision.

    I found the tone of the piece somewhat arch as if Elberse felt it necessary to provide a necessary tonic to the success of Anderson’s book. There’s a hint of straw man building when she suggests “…that it would be imprudent for companies to upend traditional practice and focus on the demand for obscure products.” As if, a Blockbuster executive might put forward the shifting the product off the new release wall and replacing it with the French New Wave.

    To look at the Rhapsody data and to come away with the insight that the music that is most popular to music consumers is also of most interest to Rhapsody customers is not that interesting.

    That, as Anderson puts in his rather polite response, Rhapsody gets 68% of its demand from titles that are not available in traditional retail stores, is the type of insight could really upend the entertainment media value chain. Even limited just to the arena of producing more blockbusters, if companies can monetize inventory they had previously written off and find more ways make profits on titles that fail to appeal to a larger audience, they can afford to make more bets and increase their odds of having more blockbusters in their portfolio.

    The notion that entertainment co’s might be able rethink their portfolio strategy seems much more useful than Elberse’s advice that “When producing niche goods for the tail end of the distribution, keep costs as low as possible.”

    One of the key tenets of the Long Tail was that new modes of distribution were causing a regression towards zero in inventory carrying and transactional costs. This is why a company like Netflix (NFLX trades at 3x BBI) can have an inventory position vastly superior to a regular video store. Elberse’s advice that retailers need to “Strictly manage the costs of offering products that will rarely sell,” especially given to retailers who traditionally have operating margins close to 3% and are already very cost focused just doesn’t seem that useful.

    In a final dig, noting the delicious irony that Anderson’s ideas were contained in a bestseller, she again (just as her Rhapsody and Quickflix data seem to reinforce Anderson’s thesis) states the obvious and inadvertently makes Anderson’s point. Publishers were willing to make a surprisingly large bet on a book with a few too many mentions of Power Laws to generally attract a large audience. In making a large bet, Hyperion signaled their awareness that bestsellers can make money and in Anderson’s case, maybe they took to heart that with new potential audiences for niche content, they had a hedge that allowed them to make the “jaw dropping” offer and subsequently win the bidding war and make a decent return.

     

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    PaulT (profile), Jun 30th, 2008 @ 12:56am

    "Crap"?

    "You basically had a bimodal distribution of content: the hits that sold, and the crap that didn't and was no longer available."

    Not exactly. I'd argue another way actually, in that a big problem with the industry has been that the crap was often the stuff that did sell, while some quality work was left ignored. The obsession with hits, especially in the music industry, has led to a homogenised, bland mainstream environment. If you couldn't convince someone that your work would sell based on comparisons to some previous hit, it may have been ignored.

    The strength of the long tail is that over time, minor hits and even failures can become more widely noticed and eventually more successful than the flavour-of-the-month that happens to sell at the time. The only real danger is that since every new work is now directly competing against every work made before it, more people will start to ignore the new stuff. I don't see that as problem that exists right now, however.

     

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      Mike (profile), Jun 30th, 2008 @ 10:00am

      Re: "Crap"?

      Not exactly. I'd argue another way actually, in that a big problem with the industry has been that the crap was often the stuff that did sell, while some quality work was left ignored.

      That's a good point... I was basically using "crap" facetiously, but your point is one that should be highlighted as well...

       

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