The Long Tail
I read an absolutely brilliant article on Wired.com today called "The Long Tail." fn1. In it, Wired's Editor in Chief Chris Anderson discusses demand for content (books, music, and movies) and how the internet is revolutionizing the way in which consumers find and purchase content, making niche content more profitable.
This is very important stuff, in my opinion, because it's a perspective that is largely ignored.
Anderson looks at the demand curve for entertainment content. The demand is similar to a negative exponential function (I think fn1). There are a very few items that have extremely high demand. There are more items that have smaller, but still substantial, demand. Finally, there are vast quantities of items that have ever-smaller demand. But the key is that the curve never crosses the x-axis. In other words, if I cut a CD tomorrow, there would be some (albeit tiny) market for it.
However, it is typically unprofitable to sell items for which there is such a small market, particularly in traditional retail venues. Consequently, most stores stop selling items at some point on the curve. For example, Wal-Mart will only sell albums which they believe will sell at least 100,000 units (a small minority of releases). Fn2. Blockbuster mostly stocks new releases and a few older movies. Barnes and Noble carries about 130,000 titles.
Basically, for any retail business, there is a calculation regarding how many units of an item must be sold to make stocking that item worthwhile. For example, a record store needs to sell at least two copies of a CD to pay the "rent" for the half-inch of shelf space occupied by that CD. If an item can't sustain a profitable volume, it won't be stocked.
The problem is that any brick and mortar store only draws from a limited geographic market. If you're a record store in the woods of Alabama, you may only have a couple customers who like Ambient Dub, so you'll carry few of these CDs. In fact, in any one record store's geographic market area, there may be so few Ambient Dub fans that carrying this sub-genre is not economical. BUT, if you aggregate all the Ambient Dub fans in the U.S., there are plenty to support the genre.
This is where the long tail comes in. With any entertainment item, there IS demand for the item. It may be small, but it's there. However, the demand may be spread thin. The dis-aggregation of of the market population for niche entertainment is a major factor which causes mass-production of culture and limited choice.
However, if the geographical dis-aggregation can be overcome by a medium which make geographic boundaries much less relevant, niche markets can be served profitably. The result can be seen in the sales result of a retailer like Amazon.com. Remember the 130,000 "popular" titles stocked by Barnes and Noble? Amazon makes more sales outside their top-ranked 130,000 titles than inside. In other words, the "long tail" market is actually larger than the market for popular material.
What's the upshot of all this? The internet is going to allow people to more effectively match their tastes with their entertainment choices, rather than being confined by the mass-market preferences that govern geographic retailing. And this almost certainly means a richer, deeper, and more diverse culture. It also means that alternative voices will have a greater chance of being heard. And both of these, I think, are happy conclusions for anyone who cares about the health of American society.
1. My math skills are embarrassingly rusty, and I can't remember the precise type of function which produces a graph which is asymtotic to both the positive x and positive y axis. Here, the x-axis represents the quantity of demand, and the y-axis represents the number of items with that demand.
2. I stumbled across it by accident, as I was searching in class to find what percentage of CDs are sold by Wal-Mart. (The answer, by the way, is about 20%. Between them, Wal-Mart, Target, and Best Buy control about half the total CD market.)
This is very important stuff, in my opinion, because it's a perspective that is largely ignored.
Anderson looks at the demand curve for entertainment content. The demand is similar to a negative exponential function (I think fn1). There are a very few items that have extremely high demand. There are more items that have smaller, but still substantial, demand. Finally, there are vast quantities of items that have ever-smaller demand. But the key is that the curve never crosses the x-axis. In other words, if I cut a CD tomorrow, there would be some (albeit tiny) market for it.
However, it is typically unprofitable to sell items for which there is such a small market, particularly in traditional retail venues. Consequently, most stores stop selling items at some point on the curve. For example, Wal-Mart will only sell albums which they believe will sell at least 100,000 units (a small minority of releases). Fn2. Blockbuster mostly stocks new releases and a few older movies. Barnes and Noble carries about 130,000 titles.
Basically, for any retail business, there is a calculation regarding how many units of an item must be sold to make stocking that item worthwhile. For example, a record store needs to sell at least two copies of a CD to pay the "rent" for the half-inch of shelf space occupied by that CD. If an item can't sustain a profitable volume, it won't be stocked.
The problem is that any brick and mortar store only draws from a limited geographic market. If you're a record store in the woods of Alabama, you may only have a couple customers who like Ambient Dub, so you'll carry few of these CDs. In fact, in any one record store's geographic market area, there may be so few Ambient Dub fans that carrying this sub-genre is not economical. BUT, if you aggregate all the Ambient Dub fans in the U.S., there are plenty to support the genre.
This is where the long tail comes in. With any entertainment item, there IS demand for the item. It may be small, but it's there. However, the demand may be spread thin. The dis-aggregation of of the market population for niche entertainment is a major factor which causes mass-production of culture and limited choice.
However, if the geographical dis-aggregation can be overcome by a medium which make geographic boundaries much less relevant, niche markets can be served profitably. The result can be seen in the sales result of a retailer like Amazon.com. Remember the 130,000 "popular" titles stocked by Barnes and Noble? Amazon makes more sales outside their top-ranked 130,000 titles than inside. In other words, the "long tail" market is actually larger than the market for popular material.
What's the upshot of all this? The internet is going to allow people to more effectively match their tastes with their entertainment choices, rather than being confined by the mass-market preferences that govern geographic retailing. And this almost certainly means a richer, deeper, and more diverse culture. It also means that alternative voices will have a greater chance of being heard. And both of these, I think, are happy conclusions for anyone who cares about the health of American society.
1. My math skills are embarrassingly rusty, and I can't remember the precise type of function which produces a graph which is asymtotic to both the positive x and positive y axis. Here, the x-axis represents the quantity of demand, and the y-axis represents the number of items with that demand.
2. I stumbled across it by accident, as I was searching in class to find what percentage of CDs are sold by Wal-Mart. (The answer, by the way, is about 20%. Between them, Wal-Mart, Target, and Best Buy control about half the total CD market.)
posted by N at 1:59 PM
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