Update [21 Jan 2020]: Since I wrote this twelve years ago, the Long Tail theory has fallen into disfavor. Chris Anderson took down the original article I referenced. I have changed the link to a post by Hannah McNamee on what happened.
Chris Anderson's theory of the Long Tail became one of the most influential ideas of the Internet era, firmly establishing the idea that the declining cost of producing and storing digital content would shift the concentration of sales from a few blockbusters to a "long tail" of diverse products. Although the sales of each product would be smaller, the much higher numbers of such products would result in a greater opportunity. Now Harvard Business School professor Anita Elberse has published an article in the Harvard Business Review, Should You Invest in the Long Tail?, that argues that sales and profits still rest with the blockbusters and that the Internet's ability to let customers share recommendations may actually increase the concentration of hits.
Elberse cites data from music and video sales and rentals to show that while the tail is growing, most of the sales are concentrated at the short end. For instance, at Rhapsody, the top 10% of titles account for 78% of all plays, and the top 1% account for 32%. However, since Rhapsody offers over a million titles, that 1% accounds for 10,000 titles, which is more than most U.S. radio stations play in a year and equivalent to the entire music inventory at a typical Wal-Mart. However, as readers have pointed out in comments on the HBR site and Chris Anderson's site, whether this data confirms or contradicts the Long Tail theory depends on the definition of long tail. For instance Rhapsody, by carrying 100 times as many titles as Wal-Mart, automatically decreases the percentage of titles represented by the top sellers, but at the same time tripled total sales. If these sales needed to be fulfilled from a physical warehouse this might not be a profitable move, but in the digital world it's a favorable result. In fact, the mere presence of such titles might be an incentive for customers to patronize Rhapsody, even if they mostly bought the blockbusters.
Those debates aside, Elberse comes up with some interesting data:
- Customers who purchase a lot of content tend to buy the hits as much as anyone, but they also buy the more obscure titles.
- The light consumers tend to stick to the hits, analogous to the moviegoers who only go to the movies a few times a year in order to see a major blockbuster.
- Consumers of both types tend to give higher ratings to the popular products.
- The long tail products are more likely to be consumed by people who stick to a particular genre, such as classic rock ore romantic comedies.
- Of the 3.9 million digital tracks sold in 2007, 24% sold only one copy and 91% sold fewer than 100 copies.
One lesson here is that the long tail can be quite profitable as long as the cost to build and maintain the inventory is low - or zero in the case of the really obscure titles. This accords with what I've learned from my recent conversations with people in the music industry, where the back catalog of fully-paid-for works is often the source of all the profit while spending production and promotion budgets on new acts is more risky now that the average payback is lower. The other lesson is that the maximum return is still at the short end of the curve, but that short end is significantly fatter than it used to be.
