The Long Tale

Chris Anderson at the Media Center seminar.  Starts by reviewing the content of The Long Tail, go read it again.  His presentation used dark red letters, which in a brightly lit room was a demonstration of the long tail, there was abundant knowledge to be read, but it was hard to discover.

Distribution of income vs. goods reveals a power-law, a new market beyond the 20% mainstream market.  Every single digital inventory item being sold at least once, in a world of unlimited shelf space and abundance.

Holds up a copy of the SJ Mercury News with an article on Eric Schmidt talking about the long tail more than financials in yesterday's Google analyst briefing.

Schmidt is a fan of a concept, popularized in a Wired magazine article last year, called the ``long tail,'' which says that a large number of products with low sales volume can collectively make up a sizable market.

For Google, the long tail includes the tens of thousands of businesses not being served by conventional means of advertising. Schmidt believes Google has an opportunity to appeal to those businesses by offering them the ability to create highly targeted ad campaigns.

Low Marginal Costs, all eliminated except Rights (a huge issue).  Eliminates constraints.  The long tail is abundance. 

Carver Mead's book Understanding LSI, building what we now call Moore's Law, his rule: "waste transistors."  For instance, graphic user interfaces, what could you do if transistors are free? 

Virtually unlimited capacity plus virtually free distribution equals custom streams, not mass markets.

20th century about hits, the next is about niches.  The biggest money may be in the smallest sales.  Google's advertisers are people who were not advertisers before.

Two models:

1. Digital catalogs: Services such as Netflix and Amazon, with unlimited offerings but physical
2. Digital retailers: Like Rhapsody, lowest profit threshold for stores with no physical goods.

Rule 1: Make everything available.  Embrace niches like documentaries.  Go deep with archives, versions, remixes, outtakes, edits for different audiences and language, background material.  Bring on the Bollywood. Our children will never know the meaning of the phrase "out of print."

Rule 2:  Price it Right. Entertainment (want) prices down the Tail, Information (need) prices down the tail.  For information, you have an audience which is price insensitive.  Amazon gives access and people are willing to pay (this seemed odd to me, Amazon could also just be lowering prices for what they buy in bulk).  You can compete with free, convenience is worth paying for.  $0.99 is designed to prevent channel conflict, the right price is $0.29 for a college student.  The further you go down the tail the more important links to help you find stuff.  In 1990s you had and explosion of goods, now there is an explosion of information about goods.

Where the book will go:  Implications outside entertainment: physical goods, ads.  Will also talk in depth about recommendation engines (where an archived Ska band is four clicks away from Britney Spears).  Tivo recommendations suck.  Wants to act on recommendations the moment I get them and seamlessly integrate my trust networks.  Right click on Evhead's post about a TV show and have it recorded for you at home.  These recommendations are everywhere and will drive attention down the tail.  Make it easier to make choices.

Does the availability of the long tail reduce the demand for hits?  Flatten the bell curve into a power law?  The effect of the tail wagging the dog?  Cost for marketing is significantly lower, so you can save marketing resources for hits that deserve it.  Talks about TV's Long Tail, good graphs of Tivo season passes, from Desperate Housewives to a college baseball season pass with two people at the end of the power law.

Outside entertainment examples

• Google, Ads (I'm working on how Sell Side Advertising works within the Tail)
• eBay, Goods
• CapitalOne, Credit (of course, now you have a national plague of debt)
• Offshoring, Child Labor (enabled by the telecom bubble)

Rise of secondary markets: used, gray and overstock goods (add commodity to this).  Prahalad's Pyramid, irony that the poor pay the highest prices.  Products that sell for $0.01 to $0.10 that are profitable.  The cell phone operator of a village. 

Dr. Sheddy revolutionizing health care in India through telemedicine and x-rays.  Capping factor was the consumables (X-ray film), going digital let them do 3,000 a day around the clock.

Newspaper have done pretty well at this, such as by monetized archives.  Classified sweet spot will be hard to compete with,  Yahoo wants to take the classified business.

Mary asks about smaller companies leveraging them  The long tail is the units of what they share, not what they produce.   Broadly the power comes from lower marketing costs, (within having something good, getting access to distribution and marketing), word of mouth.   Looking at Netflix, Reid Hastings sees it as not just access to marketing content but as a marketing vehicle to others.

He actually believes spam will be solved, has 4 levels of filters and it works for him (no wonder he doesn't respond to my email!), Typepad is not solving the comment spam problem, but there should be group filtering applied. 

Scarcity of advertisers and outlets, how does this apply to publishing?  At Wired, we are not allowed to do anything online because of the Lycos purchase.  Transactional ads and brand ads, former want to go the Google route.  Bill Gross solved the targeted ad problem, through algorythms.  Putting a brand in proximity within something you feel good about continues to do fairly well.  Until someone comes up with something as revolutionary for brands, the market will remain the same.

Most media is in for a real shakeup as distribution and revenue models change. More than 90% of music is still sold through CDs, but Tower is seeking bankruptcy protection.  The Rights issues don't allow them to clear rights in time to provide industrial scale availability.

Overall, the talk focused on examples of transacting niche goods, or models of consumption.  But far less focus on models of production such as open source and open content.  The exploration in recommendation engines will be fascinating, but   Greg Elin asked about the secondary effects of the tail...as niches are revealed, what new niches are produced as a byproduct. 

In a world of abundance, you can't understate new capacities to produce.  I think Chris' talk must be fascinating for larger companies with under leveraged assets.  But if they focus only on the low hanging fruit of monetizing archives, you end up with an unblogged WSJ (its kind of like producing RSS feeds as your sole investment into Social Media, which doesn't necessarily open conversations or engage the energies of your constituents), and they will not take the key step of sharing control with the former audience.