Jul. 26th, 2006

Anderson’s tall tail: critics wag the Long Tail

The sharks are circling the Long Tail on the web.

Lee Gomes in today’s Wall Street Journal throws a few spanners in the spokes of Wired editor Chris Anderson’s sensational Long Tail argument. 

Gomes took another look at the data Anderson uses to support his claim that thanks to the efficiencies of the Internet the sales of "misses"  will overtake the sale of "hits" over time.

– Anderson starts his book with an interview with digital jukebox Ecast. The CEO of ECast told Anderson that when ECast started 98% of the songs sold every month. Gomes checked in with ECast and discovered that since Ecast’s inventory has increased, the quarterly no-play rate has jumped to 12%. Rhapsody, an online music business similar to iTunes and Ecast, has a 22% no play rate. 

– Although Netflix and Amazon do make the sales and distribution of misses much easier, it could take decades for the misses to outsell hits. Incredibly, according to the Journal, Anderson "told me that he didn’t have any examples of this actually occurring." Ouch.

The Journal’s analysis of Amazon sales notes that only 25% of sales are in the tail; while incredibly 75% of revenue comes from 2.7% of sales. (On a separate note Amazon reported a 58% profit drop this week — um. Not good. Investors expects stellar earnings from the Seattle bookseller after so many years in the red).

– The Journal also reports that iTunes sales shadow Billboard hits. This informed source adds: " Its a hits business. The data tend to refute the Long Tail". Read Gomes’ full article here: "It may be a long time before the long tail is wagging the web".

Tim Wu, a Law professor at Columbia, also took Anderson to task in Slate yesterday "…like many business books, The Long Tail commits the sin of overreaching"… he continues:

"What are the Long Tail’s limits? As a business model, it matters most 1) where the price of carrying additional inventory approaches zero and 2) where consumers have strong and heterogeneous preferences. When these two conditions are satisfied, a company can radically enlarge its inventory and make money raking in the niche demand. This is the lifeblood of a handful of products and companies, Apple’s iTunes, Netflix, and Google among them, all of which are basically in the business of aggregating content…."

"But it’s important to remember that many industries don’t rely on the weird economics of information products. Take the oil industry, which Anderson doesn’t discuss, but whose significance is obvious—compare Exxon’s $371 billion in revenues in 2005 to Google’s $6.1 billion. The Long Tail doesn’t seem to tell us much about the future of the oil biz. It’s not really clear how Exxon might benefit from expanding the types of gas it makes available at its service stations. It would cost Exxon a lot to install extra pumps, and few people have well-developed tastes for types of gasoline. Since it’s not easy for Exxon to reduce its inventory costs, product diversification is expensive. There might be long lines in gasoline retail, but there’s no Long Tail."

"The Long Tail also sometimes doesn’t work in its home category: the information-technology industries. The key issue is the question of standardization. Sometimes consumers want a diverse set of product offerings. But sometimes they prefer a standard or compatible product. Most of Anderson’s examples are content firms, where product diversity is almost always a good thing. But in the information-transport industry, standardization is usually more important. Do people want 10 different types of (incompatible) Internet connections? Or just the fastest one they can get? How about 30 types of (incompatible) Ethernet cables?"

Read the full article here: The Wrong Tail: How to turn a powerful idea into a dubious theory of everything.

Anderson has given us a new lens to consider Internet-powered commerce. His theory may not quite rise to the heights demanded by professional economists, but its hard to deny that he is on to something.

Just witness the strength of the debate.

We’re still in the early days of the web: it takes bravery and chutzpah to stick your neck out and predict where its going. I’d watch this Wired editor if I were you.

Besides, have you ever seen a business trend birth more bad puns?  Wu’s closing comment is a classic:

"The Long Tail isn’t useful as a theory of everything. It is best and strongest when it helps us understand what’s happening to our culture. It shows, graphically, the difference between the mass culture we’ve had, and the folk culture we’re bringing back. That’s an achievement worth celebrating, and it’s why the Long Tail can leave us feeling like cavemen looking at a map of the world for the first time. But the book should come with a warning: There’s more to this economy than chasing tail." Booyakasha.

Note:  You can catch Long Tail author and Wired Ed-inChief Chris Anderson at our client, Golden Gate University, on Weds. September 20. Click here for the details: http://www.typepad.com/t/trackback/5784047

Post a Comment