A Market of Multitudes
"Although we still obsess over hits, they are not quite the economic force they once were." With this fundamental hypothesis, Chris Anderson begins an important discussion about what happens when everything in the world becomes available to everyone. Anderson says we live in "a market of multitudes," where millions of items may sell only a few copies at a value that could be higher than the "hits" - those few items that sell millions each.
Anderson defines the "Long Tail" in Chapter 1 by discussing Internet-based retailers Rhapsody (music), Netflix (DVDs) and Amazon (books and merchandise). The assumption that the most popular products bring in the most important sales is flawed, he says.
Amazon, for example, has 100,000 top titles, but 25 percent of its total sales come from outside those titles. For Amazon, the Long Tail is the nearly 4 million books beyond the top sellers that consumers buy in small numbers. Anderson says these millions of "fringe sales" are cost-effective, because online retailers have no shelf-space to pay for.
In fact, most successful Internet businesses make money from the Long Tail: Google from small advertisers and eBay from collectibles are just two examples.
Anderson takes us on a journey of how and why the world became focused on infinite choice. He discusses how it came to be that there are far more niche goods than "hits," why the cost of reaching niches is falling, and how this leads to a flatter demand curve - making the hits relatively less popular and the niches consequently more significant.
Debating the 80/20 Rule
The Long Tail theory refutes the pure interpretation of the classic 80/20 Rule. According to Anderson, "Even if 20 percent of the products account for 80 percent of the revenue, that’s no reason not to carry the other 80 percent of the products."
Yet this can only be true in Long Tail markets, which are populated by online rather than traditional bricks-and-mortar retailers. Because online retailers have the "shelf space" to carry every product, even older products, they can sell the less popular products at higher margins.
The key Long Tail characteristics are:
- The ability for Long Tail retailers to offer more products
- The ability for consumers to find products via technology, and
- The ability for retailers large and small to make profits from niches, not just "hits."
Anderson acknowledges that hits and traditional retail stores will not disappear completely. In fact, their fate is inter-linked, because only the most popular products or those with the highest profit margin can be stocked on the physical shelf.
Wal-Mart is an example of this. While Wal-Mart appears to offer massive choice, it just scratches the surface in product offerings. In music, for example, Wal-Mart carries only about 2.5 percent of the new music released annually. This is the "paradox of plenty," says Anderson.
Living in a Long Tail World
Anderson recognizes that a Long Tail world is filled with "abundant choices," but he claims that technology such as recommendations and filters "encourage more exploration, not less." He views limitless choice as driven by consumer demand.
Anderson offers several examples of Long Tail companies. While eBay and Google are obvious ones, more surprising is a company like KitchenAid. KitchenAid has become something of a trend-setter in appliance color variety. While only three colors of KitchenAid mixers are typically available at traditional retailers, the manufacturer offers more than 50 colors online.
Anderson’s "Long Tail Rules" are based on two simple imperatives: "Make everything available" and "Help me find it."
He says that to take advantage of the Long Tail, companies must lower costs, think niche and "lose control" - sharing information, trusting markets and allowing consumers to sample product offerings for free. Anderson concludes that "on the infinite aisle, everything is possible."
Why We Like This Book
The Long Tail addresses the Internet revolution in economic terms. The author points to the intersection of culture and commerce as the real turning point in consumer demand. Anderson supports his hypothesis with real examples and statistical analyses that in combination offer credible evidence of Long Tails in a variety of industries. He provides social commentary on the phenomenon, but also offers specific advice to companies who want to capitalize on the Long Tail. The result is a "preview of 21st century economics," as Anderson puts it, that might prove important to those involved in any aspect of selling.