Chasing the Long Tail

The Long Tail, Why the Future of Business is Selling Less of More, is a seminal work that from the first chapter intrigues the mind, offering a peek into the universe of possibilities provided by the internet age for book lovers, music fiends and bargain shoppers, to name a few. Chris Anderson, who is also the editor of Wired magazine, postulates that although we have become a hit-obsessed culture, where the blockbuster books, movies and songs account for most retail sales -- thanks to the internet and all the supply-chain improvements that modern society has made, harking back to the invention of mail-order catalogs -- the future for American business is somewhere else.

The book – an expanded version of a piece Anderson wrote in Wired a few years ago, has been a smash success since its publication in 2006, and made it onto the New York Times best seller lists; a new edition of it was released last year.

Anderson, citing research by others who have studied the impact of changes to freight delivery, warehousing and marketing since the end of World War II, says we are moving from an era dominated by big hits to one where businesses will be successful selling small volumes of the many products that don’t become smash successes, what he euphemistically calls the “non-hits”. He dubbed this phenomenon “The Long Tail,” in that when charting total sales, the graph typically resembles a hockey stick with a long blade, where the hits represent the stick handle as a narrow but tall vertical, while the “non-hits” represent the long, skinny horizontal blade.

“Our culture and economy are increasingly shifting away from a focus on a relatively small number of hits (mainstream products and markets) at the head of the demand curve, and moving toward a huge number of niches in the tail. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly targeted goods and services can be as economically attractive as mainstream fare,” according to Anderson.

“We are turning from a mass market back into a niche nation,” Anderson writes, “defined now not by our geography but by our interests.” And it is the internet, and companies such as Google, iTunes and Amazon that are turning us back to this splintered nation of varied interests. “The existing media and entertainment industries are still oriented around finding, funding, and creating blockbusters,” he writes.

Anderson credits the wide reach of the internet, coupled with the ability of new media to drive down production, storage and delivery costs to near zero, with fostering this change and creating a market where small sales volumes of many products can be as profitable for firms as can the customary gigantic volumes of a very limited number of products of the current age.

“We are witnessing the end of an era,” according to Anderson, referring specifically to changes in the commercial radio market. “Culture has shifted from following the crowd up to the top of the charts to finding your own style and exploring far out beyond the broadcast mainstream, into both relative obscurity and back through time to the classics.”

Anderson’s arguments are compelling and well thought out, and he ties together a number of historical developments into an interesting present day chain. What is going on today “is the culmination of a string of business innovations that date back more than a century – advancements in the way we make, find, distribute, and sell goods. … It took decades for these innovations to emerge and evolve. What the internet has done is allow businesses to weave together those types of improvements in a way that amplifies their power and extends their reach. In other words, the Web simply unified the elements of a supply-chain revolution that had been brewing for decades.”

Anderson cites as the beginning of the revolution the creation of large, centralized warehouses beginning in the late 19^th Century, primarily at railheads in the Midwest. And he credits Richard Sears, who founded a small catalog business and turned it into the powerhouse Sears, Roebuck and Co., a mail-order company that forever changed retailing by offering a catalog containing more than 200,000 products at time when merchandising was dominated by small, high-priced stores that typically offered a fraction of those items at much higher prices. When Richard Sears opened his first warehouse in Chicago in 1906, it contained more than 3 million square feet of floor space, and was the largest business building in the world.

Anderson traces the development of American business from the giant warehouse to the evolution of superstores, fired in large part by the mobility fostered by the growth of the automobile industry and the interstate highway system. And from retailing, he says that food selling was the next stop on the evolutionary chain of mass marketing. Telephone communications was next, according to Anderson, as WATS lines allowed toll-free calling and moved catalog sales from the mail to the phone.

Around the same time, book superstores developed, led by Crown Books, which began selling a limited number of titles at deep discounts. Barnes and Noble and Borders then created the book superstore concept, carrying five times the number of titles that the average local store did at the time, up to 175,000 different books. The next chapter, of course, is the internet book store, which is unrestrained by the need to build shelves and stores to contain the 6.1 million titles currently in print. “What the Internet presented was a way to eliminate most of the physical barriers to unlimited selection,” says Anderson.

Traditional merchandising is governed by the so-called 80/20 rule, in that 20 percent of products typically account for 80 percent of a store’s revenue. In Anderson’s new world, because the new-age store is able to offer so many more titles – easily 10 times as many as traditional stores – the top 20 percent becomes the top 2 percent. And while this 2 percent still generates a disproportionate amount of overall revenue (now reduced to 50 percent from 80), the next 8 percent accounts for 25 percent of sales and the bottom 90 percent supplies the remaining 25 percent. “Where the Long Tail economics really shines … is in profits. Because of the low cost of inventory, the margins for non-hits can be far higher in Long Tail markets than in traditional bricks-and-mortar,” he writes.

Unfortunately, Anderson falls into the trap of trying to run the entire world through his “Long Tail” mousetrap. Not content to simply show us how certain markets have been revolutionized by the internet, he tells us that there’s a “Long Tail” of education, labor and even terrorism. As Tim We wrote in Slate soon after the book was published, Anderson “threatens to turn a great theory of inventory economics into a bad theory of life and the universe. … When you put it down, there’s one question you won’t be able to answer: When, exactly, doesn’t the Long Tail matter?”

Many of Anderson’s conclusions have also been challenged by critics who believe his assumptions don’t hold up.

Anita Elberse, writing in the Harvard Business Review last year, said, “Although no one disputes the lengthening of the tail (clearly, more obscure products are being made available for purchase every day), the tail is likely to be extremely flat and populated by titles that are mostly a diversion for consumers whose appetite for true blockbusters continues to grow. It is therefore highly disputable that much money can be made in the tail.”

While Elberse may be overstating her case, she does raise a reasonable caution flag for those of us who might rush in to try to make a living by peddling only “non-hits” over the web. Erik Schonfeld, writing in TechCrunch, praises Elberse for challenging some of Anderson’s theory, but adds, “ … to say there is no money in the Long Tail is nonsense. … Elberse herself notes that demand is being pushed down the tail. … The choice is not head or tail. It’s both.”

In all, The Long Tail is a fascinating read. The book weaves together the evolution of the American commercial miracle – which created a marketplace of a previously unimagined plethora of goods at the lowest prices that had ever been seen – with the internet revolution, and predicts an interesting future, at least for the businesses best able to take advantage of the reduced costs of creating, storing and delivering goods. Just be sure to keep the salt shaker handy, and take a dose when Anderson goes too far. His thoughts on the evolution of today’s new world – from Google to eBay to iTunes and beyond – are well worth the effort of slogging through his occasional hyperbole.

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