2 Imperatives of the Long Tail and 9 rules

pg 217
The secret to creating a thriving Long Tail business can be summarized in to two imperatives:

1. Make everything available
2. Help me find it

9 Rules:
Lower your costs
Rule 1: Move inventory way in ... or way out
Rule 2: Let customers do the work

Think niche
Rule 3: One distribution method doesn't fit all
Rule 4: One product doesn't fit all.
Rule 5: One price doesn't fit all.

Lose control
Rule 6: Share information
Rule 7: Think "and," not "or"
Rule 8: Trust the market to do your job.
Rule 9: Understand the power of free.

Long Tail driving infinite chioce and fragmentation - is this good or bad?

pg 176
Consumers preferred movie theaters with more screens, and casinos with more tables; the more options they were given, the lower their perceived risk of being stuck with something they didn't want.

Research documented in paper, The Lure of Choice, that concluded that "more is better."

Availability and convenience equals more sales - this is why retail stores place all those little items next to the cash register.

pg 181
Vin Crosbie, media analyst and Corante writer, "each individual is a truly unique mix of generic and specific interests."
...the problem is that once people shift their attention online, they don't just go from one media outlet to another -- they simply scatter. Infinite choice equals ultimate fragmentation.

The shift from generic to the specific doesn't mean the end of the existing power structure or a wholesale shift to an all-amateur, laptop culture. Instead, it's simple a rebalancing of the equation, an evolution from an "Or" ear of hits or niches (mainstream culture vs. subcultures) to an "And" era...Mass culture will not fall, it will simply get less mass. And nich culture will get less obscure.

On the other side of the fence supporting a more cynical view of this is Christine Rosen, a senior fellow at the Ethics and Public Policy Center...

"Are we promoting a creative individualism or a narrow individualism? An expansion of choices or a deadening of taste?

Rosen argues that infinite choice leads to "egocasting," the thoroughly individual and extremely narrow pursuit of one's personal taste.

Chris' response:
pg 191 Today we're not so much fragmenting as we are re-forming along different dimensions...over time the power of human curiosity combined with near-infinite access to information will tend to make most people more open-minded, not less.

We will still share our culture with others, but not with everyone.

Infinite Shelf-space and the Economics of Abundance

pg 143
eco-nom-ics: n The social science of choice under scarcity.

Scarcity mental traps:

• Everyone wants to be a star
• Everyone's in it for the money
• If it isn't a hit, it's a miss
• The only success is mass success
• "Direct to video" = bad
• Self-published = bad
• Independent = they couldn't get a deal
• Amateur = amateurish
• Low-selling = low-quality
• If it were good, it would be popular

We're in the midst of the biggest explosion of variety in history.

Paradox of choice, by Barry Schwartz argued that too much choice is not just confusing, but downright oppressive.

But the solution is not to limit choice, but to order it so it isn't oppressive.

Long Tail is garbage without filters like Google

pg 99
For a generation of customers used to doing their buying research via search engine, a company's brand is not what the company says it is, but what Google says it is.

pg 108
The catch-all phrase for recommendations and all the other tools that help you find quality in the Long Tail is filters... In today's Long Tail markets, the main effect of filters is to help people move from the world they know ("hits") to the world they don't ("niches") via a route that is both comfortable and tailored to their tastes.

pg 116
Niches operate by different economics than mainstream. And the reason for that helps explain why so much about Long Tail content is counterintuitive, especially when we're used to scarcity thinking.

Two types of filters:
1. software - technology such as Amazon's recommendation list (ie 'those who bought these products, also bought this")
2. people - these are experts (e.g. critiques) that recommend music, videos, etc.

More discussions on filters at Chris Andersons' blog on Filters 101 25July2005

Hybrid vs Pure Digital Retailers breaking the Tyranny of the Shelf

pg 90
Hybrid retailers: Amazon.com, eBay, Nextflix, BestBuy

The online retailers of physical goods, from BestBuy.com's camera selection to Netflix's DVD library, can offer inventory hundreds of times greater than their bricks-and-mortar counterparts, but eventually even they hit a limit. By contrast, the companies that sell digital goods, from albums or songs on iTunes to TV shows or amateur clips on Google Video, can theoretically go all the way down the Tail, expanding the variety they offer to encompass everything available.


Pure Digital: iTunes, Rhapsody, YouTube

The only way to reach all the way down the Tail -- from the biggest hits down to all the garage bands of past and present -- is to abandon atoms entirely and base all transactions, from beginning to end, in the world of bits. That's the structure of the second class of aggregators, the pure digital retailer.

Tyranny of the Shelf
2 of the 3 forces of the long tail focus on the ability of the Internet to decrease distribution costs and how do-it-yourself tools from the PC desktop to Adobe Photoshop have reduced the cost of "manufacturing" products and services.

However, the other key cost item in retailing is the cost of inventory, that is, money that is tied up in keeping store shelves stocked with physical goods, in anticipation of consumers purchasing the goods. This is why key metrics in retailing have evolved such as inventory turns, indicating the number of times goods are sold then restocked in a given time period.

pg 96 The biggest cost to [book] publishers is the cost of returns from booksellers, which the publishers freely accept as a matter of industry practice.

The ultimate cost reduction is eliminating atoms entirely and dealing only in bits. Pure digital aggregators store their inventory on hard drives and deliver it via broadband pipes. The marginal cost of manufacturing, shelving, and distribution is close to zero, and royalties are paid only when the goods are sold. It's the ultimate on-demand market: Because the goods are digital, they can be cloned and delivered as many times as needed, from zero to billions.

The importance of intermediaries in the Reputation Economy

I had a business meeting in Singapore and decided to stay with a friend. However, I needed to track down a Lego toy for my 10 year-old son and I turned to the ever-reliable concierge at the Conrad Hotel which is my home whenever I'm in Singapore. Sure enough, the concierge staff were able to point me to the nearest retailer, complete with their phone number and address.

As the Internet becomes truly a place of infinite information, we need to rely on intermediaries or trusted sources such as the Conrad concierge. Several trusted sources have evolved in the early years of the Internet, most of them facilitating search (e.g. Google, Amazon.com, etc). However, the holy grail of marketing, now shifts from search, or knowing where to buy the latest Lego toy, to deciding which toy to buy.

In my search for the best value for an LCD TV, I would now turn to another trusted source, this time my electronics-guru and friend, Joel Garcia. Needless to say, as transactions shift to the online world, I would be developing the online equivalent of the Conrad concierge and Joel.

Enter the world of the Reputation Economy (pg 73). "Measured by the amount of attention a product attracts [or an authority like Joel], reputation can be converted into other things of value: jobs, tenure, audiences, and lucrative offers of all sorts."

Just like in the real-world, there's the challenge of discerning between the snake-oil salesman and the true authority. The only challenge in cyber-world, is that you may not have the luxury of developing long-term relationships with these sources. Who then becomes the trusted source?

Chapter 4: Three Forces of the Long Tail

Chapter 4 is an important chapter which helps explain the forces driving the long tail phenomenon. There are lots of blogs discussing this book and ironically it's now a "hit" in Amazon, as the #1 book. I've taken an excerpt from John Hagel's blog explaining these 3 forces:

1. Democratizing of the tools of production – especially affordable digital technology that makes it economically feasible to make products, even in small quantities. In Chris’s words, this results in “more stuff, which lengthens the Tail”.
   
   Wikipedia (wiki is Hawaiian word for quick or fast) is an example of Force #1, democratizing tools of production, with an open source version of Encyclopedia Brittanica. Adobe's Photoshop can turn an amateur artist into a graphics designer. Blogs provide a venue for amateur writers, Youtube does the same for video producers, etc. Lulu.com can turn your book into a paper/hardback and give it an ISBN# -- all for less than US$200 (pg 76)!
   
   
2. Democratizing distribution – here Chris places particular emphasis on the role of a variety of Internet aggregators in creating “infinite shelf space” businesses where virtually every product in a category can be economically accessed. Again, to quote Chris, this creates “more access to niches, which fattens the Tail”.
   
   Amazon.com, iTunes, Myspace, eBay etc all work on Force #2, providing shelf-space for sellers who originally couldn't get the attention of record labels, publishers, etc. In the future, a force in Southeast Asia, would serve this function for independent music artists in a portal called mobiuslive.net.
   
   
3. Connecting supply and demand – Chris focuses here on the emergence of businesses and taste makers that act as filters, helping to cost-effectively and flexibly connect people with available goods, no matter how narrow the interest or specialized the product. These filters can take a variety of forms, including search algorithms, sorting algorithms, editorial recommendations and customer reviews. Chris suggests that more efficient tools to connect supply and demand “drives business from hits to niches”.
   
   Force #3 is related to #2, but deal specifically with the Internet's ability to match supply with demand unimpeded from the limitations of geography, as the whole world gets online. This requires very sophisticated search engines like Google that are getting smarter in understanding the actual "intent" of the consumer (ie based on a search criteria and context, regardless of language), Google search will be able to assess whether your search for "Lincoln" relates to a US President or a luxury car.
   
   On the supply side, niches are growing much faster than the retailers ability to categorize products such as music. For example, Rhapsody has hundreds of genres of songs compared to dozens in a typical record store. This makes a website's search functionality a critical component of the user experience. Web 2.0 Tag clouds are now common features in websites where a commonly searched category, e.g. 'Pop' for music, would be highlighted, usually in larger font from other common search categories.
   

Long Tail pioneers prior to the Internet

Anywhere in history where we saw the cost of production and/or distribution going down by orders of magnitude, we would find the "Long Tail." For example, a former railway agent in Minesota, Richard Sears, saw opportunity in printing catalogs of products and selling to farmers back in the late 1800s. He partnered with Alvah C. Roebuck, and together they built Sears and Roebuck in 1906, and revolutionized product distribution and retailing.

The supermarket is another example of the longtail at work. Instead of daily trips to the grocer and other stores to address a family's needs, the supermarket enabled weekly trips and provided a 'one-stop-shop' for all your grocery needs. The US Food Marketing Institute describes the effect on society:

The supermarket helped create the Middle Class. Its low prices freed up substantial funds for families to spend on cars, homes, education, and other needs and amenties of life. pg 45

Needless to say, these disruptive business models would not have been possible without the following enablers:

1. The railroad as the lowest cost of transportation (at that time) for Sears
2. Refrigerators which promoted weekly trips to the supermarket.
3. Toll-free 800 numbers for direct mail order in US

Needless to say, the most recent and the most important enabler as of the last decade is the Internet. By combining its low cost distribution and online retailing capabilities with the credit card, Amazon.com was born, along with other e-tailers.

Tectonic Shifts: 1) Peer-to-Peer or P2P 2) Apple iPod led to demise of the Hits

In 2001, Apple released its innovative iPod, the ultimate personal radio.
In 2006, 10m users share pirated music daily.

This shows that there's always been demand for the non-hit and the Internet gave music consumers away to get around the limited distribution of record stores.

"Music itself hasn't gone out of favor -- just the opposite. It's never been a better time to be an artist or a fan. But it's the Internet that has become the ultimate discovery vehicle for new music." (pg 36).

News Corp. chairman, Rupert Murdoch - "Young people don't want to rely on a Godlike figure from above to tell them what's important," he said. "They want tcontrol over their media, instead of being controlled by it." (pg 37)

The Age of the Hits - I Love Lucy watched by 74% of US households in 1954

The Church had one of the best distribution infrastructure and was the main mass cultural unifier in Western Europe, thanks also to the Guttenberg's press, which made the Bible the most mass produced media (pg 27).

The 'watercooler effect' where everyone talked about the same thing, had much to do with the power of media, as well as the limited content (ie TV shows) available during that era. Now with 100s of cable stations, 100s of thousands of DVDs, millions of tracks, etc, all becoming available to most homes, there's no longer a dependence on hits.

There will still be hits, e.g. Britney Spears, Disney's Pirates of the Carribean, Blizzard's World of Warcraft, but it won't have the same dominant impact on the market. *NSYNC, on 21 March 2000 sold 2.4m copies of No Strings Attached, its second album (pg 31). It went on to sell 11m copies in 2000. The US music industry had over 1,000 hit albums (ie platinum, multi-platinum, diamond) in 2002. This dropped to less than 600 in 2005 while the industry dropped 25% in sales that same period!


Hit-Driven Economy -- Hit-Driven Culture (pg 38)

Average cost of producing a Hollywood movie is $60m and costs another $60m to market. This explains why Hollywood is still stuck in hit-driven mode - "setting out to make a hit is not exactly the same thing as setting out to make a good movie." (pg 39).

Hollywood economics has also driven a hit-driven culture -- " we follow weekend box office results as we do professional sports...in our fixation of star power, we cheer the salary inflation of A-listers and follow their absurd public lives with an attention that far exceeds our interest in their own work." pg 39.

One only needs to search on Brad and Angelina duo to validate this observation. "from superstar athletes to celebrity CEOs, we ascribe disproportionate attention to the very top of the heap. We have been trained in other words, to see the world through a hit-colored lens."

It's all about allocating scarce resources to the most "deserving" which is to say, the most popular...the world of shelf space is a zero-sum game: One product displaces another....Economically, this is the same as saying, "If there can only be a few rich, let them at least be super-rich."

We are turning from a mass-market back into a niche nation, defined not by our geogrpahy, but by our interests. (pg 40)