Lee Connor 308 212 835

The Long Tail, over the past decade, has been espoused as a transformational catalyst for the way we should perceive and conduct business moving into the technological age. Popularized by Anderson (2006) The Long Tail seeks to challenge traditional or legacy business models, running analogously with shifts in technology and consumer behaviour. This short paper will seek to provide an overview of the Long Tail, whilst evaluating its limitations, particularly, the extent that the theory transposes into reality. In other words we will assess the meaning and business significance of the Long Tail. The Long Tail, is unlike the standard Gaussian (bell curve) distribution, existing as the converse to the popular Pareto distribution- the notion, in business terms, that 80% of revenue will be generated through 20% of hit products. In stead, the Long-Tail describes a scenario whereby a business can realize profit from selling a large volume of unique, or non-hit, items. Savings generated through reduced distribution, inventory and other physical costs, enabled by technology and online markets, have made this strategy possible. The degree to which the statistical relationship is inverted, as purported, is widely contested (Davidson, 2005).

Netflix 23m, $7.99 p. month Netflix as a DVD rental-by-mail company in 1997 Chasing the Long tail, p62
Enter the Internet The internet revolutionized the entertainment industry. Storage and distribution costs are approaching zero, inventory is virtually infinite, and the overall authence is growing exponentially worldwide. In this new environment, the concepts of hits, windows of distribution, and shelf life should disappear (not including timesensitive content such as breaking news and sports). But it is not happening yet because of all the previous incremental evolutions in the industry that forced us to hold on to legacy business models and practices. Consumers are moving at light speed to watch all kinds of content online, but the big media corporations that own the rights to premium content are struggling to maintain their giant legacy businesses while embracing the new opportunities of the internet revolution. The long tail is often used to describe UGC sites such as YouTube. While this may be correct statistically, it is often used out of context. UGC demonstrates the statistical characteristics of a long tail distribution as plotted on a graph, but it doesn't demonstrate any business or economic traits that are typical of long tail distribution as it applies to commerce. The word "distribution" in entertainment lingo connotes two things: physical delivery and monetization. UGC lacks inherent monetization opportunity. If a piece of content can't be sold in some capacity on its own, the long tail theory of distribution will never work because profitability will always be zero or less.

Lee Connor 308 212 835

p.63 The second type of content, made-for-web video, has yet to see major success. While there are small success stories, nothing has risen to the economic level of television or film. This isn't to say it won't happen. But maybe there is a fundamental problem in applying a hits mentality to a medium that might be perfectly designed for the long tail. If storage and distribution are free and inventory is ever-expanding, the odds of getting a hit that garners any sort of critical mass are very low, given that consumers have so much choice and the barriers to entry for competition are very low. If the internet is really a medium for long tail distribution, then maybe success will come from developing many properties that target specific niches rather than a few hits that target the masses.

For an online video business to be successful employing long tail economics, the same principles apply as they do for any other business. If Netflix rents movies that no one is willing to pay for and spends more on delivery and marketing than it can take in in subscription fees, long tail or not, it will not make money, If Amazon pays more to store and deliver books than it makes on each sale, it will go out of business.

Despite the fanfare surrounding the Long Tail, the up-take of Long Tail oriented digital marketing strategies has been surprisingly slow, as digital marketers continue to overspend on the more costly short-tail without getting a significant boost in click-through rates to justify the outlay... whilst 70 percent of reportable display spending goes to short-tail websites, Internet users age 18 and over spend just 14 percent of their time online there, (ContextWeb, 2011, p.2). The same study asserts that advertisers can reach the same audience with the same demographics as found in the short tail, albeit at a lower cost, (ContextWeb, 2011).

Early discussions of Internet markets focused on how frictionless commercewould lead to fierce price competition online. However, while consumers certainly do benefit from lower prices online, our research indicates that they derive far more value from another important characteristic of Internet markets: the ability of online merchants to help consumers locate, evaluate and purchase a far wider variety ofproducts than they can via traditional brick-andmortar channels.

E. Brynjolfsson and M.D. Smith, Frictionless Commerce? AComparison of Internet and Conventional Retailers, Management Science 46, no. 4 [April 2000]: 563-585)

Consumer Surplus

E. Brynjolfsson Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at

Lee Connor 308 212 835

Online Book- sellers, Management Science 49, no. 11 (November 2003): 1580-1596.

What factors are driving this change, and what are its implications for the structure of markets?

ifyou have one-in-a million tastes,there are still over a thousand like-minded
consumers who share your niche tastes.
p.68 Production technologies Print on Demand Systems CNN reporters p.69

The more products retailers make available, however, the harder it is for consumers to locate the product in which they are interested.In fact,consumers can become overwhelmed when choices are poorly organized, and they may actually reduce their purchases as a result. Thus, the Long Tail makes it critically important that retailers provide tools to facilitate the discovery of products through both active and passive search. Passive tools, such as most recommender systems, use the consumers revealed preferences from past purchases or even page views to identify new, interesting products. Consumer search is also facilitated by tools combining both active and passive search, such as customer product reviews, online communities or the readership of product-focused blogs.
80-20 Pareto principle

Anatomy of the Long Tail

Lee Connor 308 212 835

QuickTime and a decompressor are needed to see this picture.

There can also be societal and political implications ifconsumer tastes become Balkanized and common experiences become,well,less common.8Will democracy and social cohesion suffer if each voting group reads its own custom news feeds and commentary while experiencing only carefully tailored movies, music and videos?
M. Van Alstyne and E. Brynjolfsson, Global Village or CyberBalkans: Modeling and Measuring the Integration of Electronic Communities, Managment Science 51, no. 6 (June 2005): 851-868.

Not all popular analysis is as celebratory as Bhatia. Gomes (2006) is particularly skeptical of Andersons (2006) sweeping generalizations and unsubstantiated assumptions.

This 98 Percent Rule, as Mr. Anderson names it, suggests the remarkable prospect that no matter how much inventory you put online, someone, somewhere will show up to buy it. He writes, Everywhere I looked the story was the same. . . . The 98 Percent Rule turned out to be nearly universal. Gomess criticisms

Lee Connor 308 212 835

Kalbach (2007) asserts that, simply

adding more information isnt virtually free, it comes at the cost of noise to the consumer the long tail with all of its special interest markets is a really noisy place, (p.36). Indeed

QuickTime and a decompressor are needed to see this picture.

p.37

Anderson,C.(2006).The long tail.New York:Hyperion.

The 'Long Tail could be perceived as a reflection of a changing consumer behaviour or, furthermore, consumer culture.

It means that lots of products that have low demand or sales volumes can collectively make up a market share that rivals or exceeds the relatively small number of bestsellers and blockbusters in that industry - if the store or distribution channel is large enough. The term 'long tail' itself refers to the graph shape that demonstrates this theory. The six themes of the long tail are: 1. The long than hits.

tail assumes that in, virtually all markets, there are far more niche goods

Lee Connor 308 212 835

2. Due to economies of scale created by technology, the cost of connecting and distributing niche products to niche groups and individuals is decreasing. 3. The Internet and Internet communities are tools which enable and drive demand for niche products 4. User generated or technically generated filters can help negotiate the vast Long Tail 5. The Long Tail is, indeed, long,- the vast quantity of obscure or niche goods, combined, has the potential to rival, in terms of net revenue, hit goods. 6. As these factors align, the shape of the demand curve changes The three forces of the long tail are: 1. Democratise the tools of production. 2. Democratise the tools of distribution. 3. Connect supply and demand.

BRAND STRATEGY

Concluding, the Long Tail, as we have investigated, provides valuable description (and even analysis) to this phenomenon of business and consumer interaction, enabled by technology. Notable, whilst contested, examples; Amazon, Netflix and Google attest to the undeniable presence of the Long Tail, yet it is not in and of itself, their sole, driving force. Whilst comprising an impressive ability to generate consumer surplus, an exclusive focus on the Long Tail, interestingly, also has the potential to produce unexpected, negative, social externalities.

The Long Tail does present a potential risk to legacy business models as it can represent an opportunity for new entrants or an edge for competitors. However, venture capital cannot rely on the Long Tail as a practicable business model, as the theory cannot accurately predict, with efficacy, individual industry interaction. In addition, monopolization, on the one hand, and market saturation, on the other, represents conspicuous barriers to entry.

Lee Connor 308 212 835

This risks and opportunities described by the Long Tail, I believe, may be simply considered equal to the general risk presented by technology. To this end, the Long Tail represents, perhaps, only tangential business significance, as a tool for description and analysis. Organizations should not ignore the Long Tail- to the extent they must show diligence and responsiveness to technological change, maintain awareness (as always) of competitors actions and capitalize on Long Tail opportunities when prudent to do so. New business ventures, built on the Long Tail as a strategy, will have, at best, varying degrees of business success.