Long Tail Economics - Chapter 8

For Rhapsody (digital music store), the tail is the area where the track rank is beyond 25,000 where users are still downloading tracks at the rate of 250 times / month (or approx $250 in gross revenues per month). This may not seem much, but by aggregating the tracks beyond 25,000, this translates to 25% of Rhapsody's total volume. (pg 20)

Offline, in bricks-and-mortars retailers (Tower Records), the top 1,000 albums make up nearly 80% of the total market. By contrast, that same top 1,000 Online, accounts for less than 1/3 of the market. pg 137

Amazon's sales of books beyond the top 100,000 translates to 25% of sales.

Experience of eTailers (Amazon, Netflix, Rhapsody) is that the more choices you offer, the more demand increases. In fact, "fastest-growing part of their business is sales of products that aren't available in traditional physical retail stores at all". (pg 24)

The recent phenomenon that enabled the long tail is Internet Economics, which has driven distribution and packaging costs, almost down to zero. That is, the cost of packaging a music track and delivering it to consumers -- is almost zero. Due to limited shelf-space, thousands of products such as garage-band music, had no way for them to reach consumers. With iTunes, and the future - mobiuslive.net, these consumers now have easy access to market.

"Long Tail products may not account for most of the sales, but because they're often cheaper to acquire, they can be very profitable, as long as inventory costs are kept close to zero. pg 134

"Offline,in bricks-and-mortar retailers, the top 1,000 albums make-up nearly 80% of the total market...By contrast, that same 1,000 online accounts for less than a third of the market. Seen another way, a full half of the online market is made up of albums beyond the top 5,000.



Other references:
www.thelongtail.com

Tyranny of Locality and Physics (pg 17)

Typical movie theater serves customers in a 10 mile (16km) radius, smaller radius for music and bookstores, even much less (1-2 miles) for video rental shops.

Due to the cost of distributing goods and maintaining retail outlets, 'retail' companies serving customers (including theaters), have no choice, but to consider only content (ie movies, books, music) that are destined to be hits to offset the cost of retail and distribution.

Other drivers to this hit-driven economics is the constraint of the physical world - physics:
Radio spectrum can only accommodate so many stations, Cable can handle a maximum number of channels,
TV stations have at most 24 hours of programming a day

First Publication of Long Tail concept - Wired, Oct 2004

Long tail distribution or power distribution (y = 1/x) began as a series of presentations by Chris Anderson, editor in chief of Wired Magazine.

80:20 Paretto Principle was the past, '98% rule' is for today

Robbie Vann-Adibe, CEO of Ecast, a digital jukebox company, asked the author, what percent of the 10,000 digital albums he had, sold at least 1 track per quarter. Most would answer 20% citing the 80:20 rule. But it turned out to be 98%, concluding that there is demand for even the most esoteric music, and only 2% turned out to be useless or have not been discovered by consumers.

I believe if he modified the query from 1 track to some number, say 4, we would eventually make it to the 20% threshhold. The real piont of discussion is not whether 80:20 is still relevant, but the fact that (pg 8) "in a world of almost zero packaging cost and instant access to almost all content in this format, consumers exhibit consistent behavior: They look at almost everything." I would rephrase that as:

consumers will exercise their right to more choices... and more importantly, you reach more consumers, thereby increasing the diversity of your consumers... thereby increasing the likelihood of finding demand for your goods.