THE LONG TAILWhy the Future of Business Is Selling Less of More
HYPERIONCopyright © 2006 Chris Anderson
All right reserved.ISBN: 1-4013-0237-8
Acknowledgments..........................................ixIntroduction.............................................11. The Long Tail.........................................152. The Rise and Fall of the Hit..........................273. A Short History of the Long Tail......................414. The Three Forces of the Long Tail.....................525. The New Producers.....................................586. The New Markets.......................................857. The New Tastemakers...................................988. Long Tail Economics...................................1259. The Short Head........................................14710. The Paradise of Choice...............................16811. Niche Culture........................................17712. The Infinite Screen..................................19213. Beyond Entertainment.................................20114. Long Tail Rules......................................217Coda: Tomorrow's Tail....................................225Notes on Sources and Further Reading.....................227Index....................................................231
Chapter One THE LONG TAIL
HOW TECHNOLOGY IS TURNING MASS MARKETS INTO MILLIONS OF NICHES
In 1988, a British mountain climber named Joe Simpson wrote a book called Touching the Void, a harrowing account of near death in the Peruvian Andes. Though reviews for the book were good, it was only a modest success, and soon was largely forgotten. Then, a decade later, a strange thing happened. Jon Krakauer's Into Thin Air, another book about a mountain-climbing tragedy, became a publishing sensation. Suddenly, Touching the Void started to sell again.
Booksellers began promoting it next to their Into Thin Air displays, and sales continued to rise. In early 2004, IFC Films released a docudrama of the story, to good reviews. Shortly thereafter, HarperCollins released a revised paperback, which spent fourteen weeks on the New York Times best-seller list. By mid-2004, Touching the Void was outselling Into Thin Air more than two to one.
What happened? Online word of mouth. When Into Thin Air first came out, a few readers wrote reviews on Amazon.com that pointed out the similarities with the then lesser-known Touching the Void, which they praised effusively. Other shoppers read those reviews, checked out the older book, and added it to their shopping carts. Pretty soon the online bookseller's software noted the patterns in buying behavior-"Readers who bought Into Thin Air also bought Touching the Void"-and started recommending the two as a pair. People took the suggestion, agreed wholeheartedly, wrote more rhapsodic reviews. More sales, more algorithm-fueled recommendations-and a powerful positive feedback loop kicked in.
Particularly notable is that when Krakauer's book hit shelves, Simpson's was nearly out of print. A decade ago readers of Krakauer would never even have learned about Simpson's book-and if they had, they wouldn't have been able to find it. Online booksellers changed that. By combining infinite shelf space with real-time information about buying trends and public opinion, they created the entire Touching the Void phenomenon. The result: rising demand for an obscure book.
This is not just a virtue of online booksellers; it is an example of an entirely new economic model for the media and entertainment industries, one just beginning to show its power. Unlimited selection is revealing truths about what consumers want and how they want to get it in service after service-from DVDs at the rental-by-mail firm Netflix to songs in the iTunes Music Store and Rhapsody. People are going deep into the catalog, down the long, long list of available titles, far past what's available at Blockbuster Video and Tower Records. And the more they find, the more they like. As they wander farther from the beaten path, they discover their taste is not as mainstream as they thought (or as they had been led to believe by marketing, a hit-centric culture, and simply a lack of alternatives).
The sales data and trends from these services and others like them show that the emerging digital entertainment economy is going to be radically different from today's mass market. If the twentieth-century entertainment industry was about hits, the twenty-first will be equally about niches.
For too long we've been suffering the tyranny of lowest-common-denominator fare, subjected to brain-dead summer blockbusters and manufactured pop. Why? Economics. Many of our assumptions about popular taste are actually artifacts of poor supply-and-demand matching-a market response to inefficient distribution.
The main problem, if that's the word, is that we live in the physical world, and until recently, most of our entertainment media did, too. That world puts dramatic limitations on our entertainment.
THE TYRANNY OF LOCALITY
The curse of traditional retail is the need to find local audiences. An average movie theater will not show a film unless it can attract at least 1,500 people over a two-week run. That's essentially the rent for a screen. An average record store needs to sell at least four copies of a CD per year to make it worth carrying; that's the rent for a half inch of shelf space. And so on, for DVD rental shops, video-game stores, booksellers, and newsstands.
In each case, retailers will carry only content that can generate sufficient demand to earn its keep. However, each can pull from only a limited local population-perhaps a ten-mile radius for a typical movie theater, less than that for music and bookstores, and even less (just a mile or two) for video rental shops. It's not enough for a great documentary to have a potential national audience of half a million; what matters is how much of an audience it has in the northern part of Rockville, Maryland, or among the mall shoppers of Walnut Creek, California.
There is plenty of great entertainment with potentially large, even rapturous, national audiences that cannot clear the local retailer bar. For instance, The Triplets of Belleville, a critically acclaimed film that was nominated for the best animated feature Oscar in 2004, opened on just six screens nationwide. An even more striking example is the plight of Bollywood in America. Each year, India's film industry produces more than eight hundred feature films. There are an estimated 1.7 million Indians living in the United States. Yet the top-rated Hindi-language film, Lagaan: Once Upon a Time in India, opened on just two screens in the States. Moreover, it was one of only a handful of Indian films that managed to get any U.S. distribution at all that year. In the tyranny of geography, an audience spread too thinly is the same as no audience at all.
Another constraint of the physical world is physics itself. The radio spectrum can carry only so many stations, and a coaxial cable only so many TV channels. And, of course, there are only twenty-four hours of programming a day. The curse of broadcast technologies is that they are profligate users of limited resources. The result is yet another instance of having to aggregate large audiences in one geographic area-another high bar above which only a fraction of potential content rises.
For the past century, entertainment has offered an easy solution to these constraints: a focus on releasing hits. After all, hits fill theaters, fly off shelves, and keep listeners and viewers from touching their dials and remotes. There's nothing inherently wrong with that. Sociologists will tell you that hits are hardwired into human psychology-that they're the effect of a combination of conformity and word of mouth. And certainly, a healthy share of hits do earn their place: Catchy songs, inspiring movies, and thought-provoking books can attract big, broad audiences.
However, most of us want more than just the hits. Everyone's taste departs from the mainstream somewhere. The more we explore alternatives, the more we're drawn to them. Unfortunately, in recent decades, such alternatives have been relegated to the fringes by pumped-up marketing vehicles built to order by industries that desperately needed them.
Hit-driven economics, which I'll discuss in more depth in later chapters, is a creation of an age in which there just wasn't enough room to carry everything for everybody: not enough shelf space for all the CDs, DVDs, and video games 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 nowhere near enough hours in the day to squeeze everything through any of these slots.
This is the world of scarcity. Now, with online distribution and retail, we are entering a world of abundance. The differences are profound.
MARKETS WITHOUT END
For a better look at the world of abundance, let's return to online music retailer Rhapsody. A subscription-based streaming service owned by RealNetworks, Rhapsody currently offers more than 1.5 million tracks.
Chart Rhapsody's monthly statistics and you get a demand curve that looks much like any record store's: huge appeal for the top tracks, tailing off quickly for less popular ones. Below is a graph representing the top 25,000 tracks downloaded via Rhapsody in December 2005.
The first thing you might notice is that all the action appears to be in a tiny number of tracks on the left-hand side. No surprise there. Those are the hits. If you were running a music store and had a finite amount of space on your shelves, you'd naturally be looking for a cut-off point that's not too far from that peak.
So although there are millions of tracks in the collective catalogs of all the labels, America's largest music retailer, Wal-Mart, cuts off its inventory pretty close to the Head. It carries about 4,500 unique CD titles. On Rhapsody, the top 4,500 albums account for the top 25,000 tracks, which is why I cut the chart off right there. What you're looking at is Wal-Mart's inventory, in which the top 200 albums account for more than 90 percent of the sales.
Focusing on the hits certainly seems to make sense. That's the lion's share of the market, after all. Anything after the top 5,000 or 10,000 tracks appears to rank pretty close to zero. Why bother with those losers at the bottom?
That, in a nutshell, is the way we've been looking at markets for the last century. Every retailer has its own economic threshold, but they all cut off what they carry somewhere. Things that are likely to sell in the necessary numbers get carried; things that aren't, don't. In our hit-driven culture, people get ahead by focusing obsessively on the left side of the curve and trying to guess what will make it there.
But let's do something different for a change. After a century of staring at the left of this curve, let's turn our heads to the right. It's disorienting, I know. There appears to be nothing there, right? Wrong-look closer. Now closer. You'll notice two things.
First, that line isn't quite at zero. It just looks that way because the hits have compressed the vertical scale. To get a better view of the niches, let's zoom in and look past the top sellers. This next chart continues the curve from the 25,000th track to the 100,000th. I've changed the vertical scale so the line isn't lost in the horizontal axis. As you can see, we're still talking about significant numbers of downloads. Down here in the weeds, where we'd always assumed there was essentially no meaningful demand, the songs are still being downloaded an average of 250 times a month. And because there are so many of these non-hits, their sales, while individually small, quickly add up. The area under the curve down here where the curve appears from a distance to bump along the bottom actually accounts for some 22 million downloads a month, nearly a quarter of Rhapsody's total business.
And it doesn't stop there. Let's zoom and pan again. This time it's the far end of the Tail: rank 100,000 to 800,000, the land of songs that can't be found in any but the most specialized record stores.
As you can see, the demand way out here is still not zero. Indeed, the area under this curve is still another 16 million downloads a month, or more than 15 percent of Rhapsody's total. Individually, none of those songs is popular, but there are just so many of them that collectively they represent a substantial market. Today, Rhapsody runs out of inventory at around 1.5 million tracks, but a year from now the number will probably be more than 2 million. A year after that it could be 4 million.
What's extraordinary is that virtually every single one of those tracks will sell. From the perspective of a store like Wal-Mart, the music industry stops at less than 60,000 tracks. However, for online retailers like Rhapsody the market is seemingly never-ending. Not only is every one of Rhapsody's top 60,000 tracks streamed at least once each month, but the same is true for its top 100,000, top 200,000, and top 400,000-even its top 600,000, top 900,000, and beyond. As fast as Rhapsody adds tracks to its library, those songs find an audience, even if it's just a handful of people every month, somewhere in the world.
This is the Long Tail.
You can find everything out here in the Long Tail. There's the back catalog, older albums still fondly remembered by longtime fans or rediscovered by new ones. There are live tracks, B-sides, remixes, even (gasp) covers. There are niches by the thousands, genres within genres within genres (imagine an entire Tower Records store devoted to eighties hair bands or ambient dub). There are foreign bands, once priced out of reach on a shelf in the import aisle, and obscure bands on even more obscure labels-many of which don't have the distribution clout to get into Tower at all.
Oh sure, there's also a lot of crap here in the Long Tail. But then again, there's an awful lot of crap hiding between the radio tracks on hit albums, too. People have to skip over it on CDs, but they can more easily avoid it online, where the best individual songs can be cherry-picked (with the help of personalized recommendations) from those whole albums. So, unlike the CD-where each crap track costs perhaps one-twelfth of a $15 album price-all of the crap tracks online just sit harmlessly on some server, ignored by a marketplace that evaluates songs on their own merit.
What's truly amazing about the Long Tail is the sheer size of it. Again, if you combine enough of the non-hits, you've actually established a market that rivals the hits. Take books: The average Borders carries around 100,000 titles. Yet about a quarter of Amazon's book sales come from outside its top 100,000 titles. Consider the implication: If the Amazon statistics are any guide, the market for books that are not even sold in the average bookstore is already a third the size of the existing market-and what's more, it's growing quickly. If these growth trends continue, the potential book market may actually be half again as big as it appears to be, if only we can get over the economics of scarcity. Venture capitalist and former music industry consultant Kevin Laws puts it this way: "The biggest money is in the smallest sales."
The same is true for the other Long Tail markets we've looked at:
When you think about it, most successful Internet businesses are capitalizing on the Long Tail in one way or another. Google, for instance, makes most of its money not from huge corporate advertisers, but from small ones (the Long Tail of advertising). EBay is mostly Tail as well-niche products from collector cars to tricked-out golf clubs. By overcoming the limitations of geography and scale, companies like these have not only expanded existing markets, but more important, they've also discovered entirely new ones. Moreover, in each case those new markets that lie outside the reach of the physical retailer have proven to be far bigger than anyone expected-and they're only getting bigger.
In fact, as these companies offered more and more (simply because they could), they found that demand actually followed supply. The act of vastly increasing choice seemed to unlock demand for that choice. Whether it was latent demand for niche goods that was already there or the creation of new demand, we don't yet know. But what we do know is that with the companies for which we have the most complete data-Netflix, Amazon, and Rhapsody-sales of products not offered by their bricks-and-mortar competitors amounted to between a quarter and nearly half of total revenues-and that percentage is rising each year. In other words, the fastest-growing part of their businesses is sales of products that aren't available in traditional, physical retail stores at all.
These infinite-shelf-space businesses have effectively learned a lesson in new math: A very, very big number (the products in the Tail) multiplied by a relatively small number (the sales of each) is still equal to a very, very big number. And, again, that very, very big number is only getting bigger.