No 8 Ventures

The Long Tail

Posted by: | Andy Lark | Innovation | 31.07.2006

The Long Tail is finally spurring debate. In short, this is how it works: For a major retailer – say Warehouse or WalMart, makes lots of money from blockbusters. Not so for the online retailers selling millions of tracks.

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.

In brick and mortar video rental outlets 90% of rentals are new releases. Not so at NetFlix. At Netflix, about seventy per cent are from the back catalog, and many of them are documentaries, art-house movies, and other little-known films that might never have had theatrical release. “The lesson is that what we thought was a naturally sharp drop-off in demand for movies after a certain point was actually just an artifact of the traditional costs of offering them,” Anderson notes. “Netflix changed the economics of offering niches, and, in doing so, reshaped our understanding about what people actually want to watch.”

It is refreshing to see some pretty big brains going at the notion and debating it. Lee Gomes at the notion in the WSJ to which Chris has responded. Nick weighs in, publishing a more detailed email from Lee.

Where do I sit? The Internet is changing everything (still). I”m not totally getting the math that the majority of sales come from the long tail though. For me this is about using the Internet to efficiently sell and distribute products and services that display Long Tail demand dynamics (produced in small volumes and wanted by few). Some business models – from TradeMe through NetFlix are brilliantly suited to this.

Anderson argues that we are witnessing the decline of the blockbuster. The “emerging digital entertainment economy is going to be radically different from today”s mass market,” he writes. “If the twentieth-century entertainment industry was about hits, the twenty-first will be equally about niches.” I”m not so sure of this as an absolute statement. What is certain is that we will see the emergence of very successful enterprises built to take advantage of the Long Tail.

The book is worth a read, as is this review in The New Yorker.

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