Amazon, the long tail business and variety
April 12, 2008 | 12:52 pmThe internet has changed our world and we have taken advantage of the new possibilities. The change is profound, like a paradigm shift and we need to adapt our mental models to fully utilize it. We have never before been able to reach so many and still communicate on an individual basis. I read an interesting article by Chris Anderson in Wired about the new economic model for the media and entertainment industries.
He talks about the long tail business. The tail is the titles that never became a hit. In the traditional economy many titles never make it to the stores or cinemas, because they have to reach a certain level of popularity to carry its own cost. Retailers will sell only content that can generate sufficient demand to earn its keep.
This means that people have less chance to find out about non-hits. It also means that many of our assumptions about popular taste are actually the results of poor supply-and-demand matching. Businesses think that if something isn’t a hit, it won’t make money and so it won’t return the cost of its production and distribution. We assume, in other words, that only hits deserve to exist. It is tempting for the producers to stay with a popular concept or repackage hits over and over again.
The traditional entertainment economy has been much of a push-model with its limits: not enough shelf space for all the CDs and DVDs produced, not enough screens to show all the available movies, not enough channels to broadcast all the TV programs, not enough radio waves to play all the music created and not enough hours in the day to squeeze everything out.
In the internet economy on the other hand, you have the possibility to offer much more. You can reach the masses and distribute the goods much easier, especially if it can be completely digitalized and downloadable as music and pdf-documents. You might think that people would keep buying only the hit-music if they were offered a greater variety. But no, they don’t. More than half of Amazon’s book sales come from outside its top 130,000 titles. Amazon earns money from the tail. This is a pull-model. The consumer has the initiative and the consumer likes it.
Internet has made possible a market for books, music and films at low volume per title. Variety is possible. Amazon is not only selling form the tail, the head is also represented. They have both the hits and the misses. The hits are an entry point for many.
The consumer needs some help. You can feel quite helpless standing before millions of titles. Amazon and similar e-businesses guide the customer by following the contours of theirs and other buyers likes and dislikes, easing their exploration of the unknown. They process real-time information about buying trends and public opinion. They use recommendations to drive demand down the long tail. It is a win-win situation. I buy a lot of books and music albums and this is precisely what I appreciate. I want to explore and I want to be help to do that.
Amazon recommendations based on other customers, helps us to develop our tastes and can fan interest in a book long after it was published. Cultural diversity is increased. Customers helping customers is also a prerequisite for scalability.
What I find interesting with this is that if you offer people a variety of titles, they begin to choose from among the variety. There is obviously a market for cultural diversity. People like to explore and leave the main stream. Not all, but many. Another interesting thing is that also low volumes can find a market. The trend has been towards larger volumes and units and this way can only lead to decreased diversity. I believe cultural diversity is important for our society and the internet can help variety from being swallowed by mainstream.
Chris Anderson is, according to a layman as me, fully understanding the development of consumers change related to how we consume television, music and lyrics. But even how-to find information. We do not longer use the library like we did, we Google it instead. We mainly do not visiting a music store, we downloading it legal or non-legal. I have been watching more digital art such as old fashion ascii pieces then I have been at real life vernissages, to me Jolt Cola is cooler then champagne.
Push is dead but big companies, especially in entertainment industries is trying to keep it alive in a mouth-to-mouth resuscitation way. Unfortunately they make their consumers criminals instead of offering what the masses want, entertainment on demand without DRM-damaged attitude.
Future has been spoken.
Pull, we decide and then the hits will have lower amongt of downloads but the masses will win. Long-tail economy is a benefit for everyone, not just a selected few. Democracy.
On Demand, we decide when and how. Perhaps we should greet Microsoft? Don’t we all, the Internet oldies, remember their old quote… Where do you want to go today? Or if we speaking about Swedish IT-pioneers… Jonas Birgersson was right!
Alright Anders!
Your post about Anderssons interested me a lot, as you all can understand by my first comment, and I finally bought his newly written book; The Long Tail.
I had a positive feeling when walking to the Swedish store PocketShop at Arlanda Airport, mainly because I more or less was in Cyprus for a two week holiday – at least on my way. However when I entered the store I immediately found The Long Tail… Let’s put it this way: The book made my vacation in Cyprus even better.
We are familiar with the economic term “80/20”. 20 % of a business products making 80 % of it’s revenue, and more or less the 100 % of it’s profit. Chris Andersson flipping that around by writing his book “The Long Tail: Why the Future of Business is Selling Less of More (2006)” and making a crystal clear statement about the new economic we are facing.
Andersson interviewed Robbie Vann-Adibé, MD for a company with digital Jukeboxes which is capable to download requested songs by customers, from the Internet. Vann-Adibé tells Andersson that 98 % of 10.000 albums sells at least one track each quarter! Since the songs is downloaded from their own databas they don’t have great expenses in a stockroom perspective. Its amazing!
Andersson investigates the long tail effect even further by looking at Rapsody (an online music store). He founds out that song number 100.000, far down the long tail, still got thousands of downloads each month, and so was song 200.000, 300.000 and 400.000 with a fairly decreasing amongt of downloads a month, but people want the songs! Could any, regular and traditional, music store compete with this sort of numbers? None! The new technology is transforming the economic terms of today.
Chris Anderssons book The Long Tail is indeed – to quote Anders – food for thoughts!
Read more at Chris Andersson’s site The Long Tail here…
Read more about the idea of a long tail here…
Read a longer review of his book made by The NewYorker here…
(John Cassidy pinpointing, in the end of his article, out a few “blind spots” in Anderssons analysis. I do not agree on John Cassidys finalization of his review. To be frank, I don’t think John Cassidy fully understand Chris Anderssons point of view…)
Just my five cent’s!
An Chris Andersson update: He is writing a new book called “Free”, released during 2009.
Sounds quite interesting to me!
[...] några veckor sedan läste jag ut Chris Anderssons “The Long Tail“, och han har verkligen rätt. Internet medför en möjlighet att bli “guidad” [...]