Chris Anderson, author of "The Long Tail" spoke at the eBay South Campus yesterday as part of the eBay Speaker Series. I've gotten a bit of a repuation for writing good speaker notes for these events (I think its because I can type fast) so I tried my best again. I got a signed copy of his book, and started reading it this morning. It was cool to see an acknowlegment in the book of Terapeak (an eBay Certified Provider), who helped out Chris with his data analysis. These are notes, and while I tried for accuracy please don't take these as direct quotes from Chris.
"The Long Tail – Who needs blockbusters?"
You guys inspired the book, in many ways. You have shown me the way. This was the result of a 2 year project involving Stanford, Harvard, and MIT.
Let me talk a little bit about the 20th century. In the 19th century, we were fragmented by geography. Then came the cultures of mass media, especially the radio in the 30s. The power of broadcast enabled one-to-many communication. It became incredibaly efficient to take one thing and distribute it to everyone. This caused us to become a blockbuster culture – this was what the physics allowed. This peaked on March 21st, 2000. NSync’s No Strings Attached, which was the fastest selling record ever.
Hit records have fallen dramatically since 2000. The music industry is flat, but the hits have fallen dramatically.
In the 1950s, we were synchronized culturally. We are fragmented now. Our lens has been on the “head.”
Music – Walmart is America’s largest CD retailer, but they have 25,000 items for sale at most in the store. On Rhapsody, there are 900,000. Music – 40% of Rhapsody’s business is with tracks that are not available in Walmart. This is the market that we thought was effectively 0% -- it is heading to 50% over time.
Chart comparing Blockbuster’s sales rank vs. Netflix. Example of trying to find “Akira” in a Blockbuster, and how finding is important too.
“Power laws” – they are incredibly ubiquitous. They are in nature and ecomonics both: wars, earthquakes, biology, etc… A proper power law should be a straight line, but with movies, its not, because there is a limited supply of screens. There is a bottleneck in distribution in the American market.
Example of Amazon sales data 2001 vs. now. They are seeing more sales in the long tail. If a listing doesn’t have all the metadata, reviews, etc… it will not get sales. This is an information problem.
Example of Netflix – their tail drops off too, but Chris thinks this is due to a switch to foreign languages.
Normal distribution under scarcity (non-zero marginal costs) = bell curve. If things cost money, businesses focus on the middle. Normal distribution under abundance = curve going up to the right. Blogs – large number of low quality blogs, small number of high quality blogs. Network effects (word of mouth) identify the good things and diminish the bad things. Google Pagerank is a perfect example of this. (Graph of frequency vs. rank)
eBay – Great long tail example. We did a study on eBay, and it kind of blew up on us. Typically what we do is rank sales of products. But eBay doesn’t have the concept of the SKU (in most categories), because everybody lists products differently. So – we weren’t able to come up with a proper long tail analysis.
Q: Do you see the culture going back to the “Heavy Head”?
A: I don’t. Let me answer that 2 ways. I see more and cheaper distribution. Digital technology will continue to lower the costs of distribution. The shift toward niches is natural. However, the internet is a fantastic amplifier, but what is interesting is that you see those amplifiers being applied to things that come up from the bottom, instead of just those things that come from the top down. You will still have hits, but the story is different.
Q: The Power Law – if you plot it on a hyperbolic scale, does it plot better, or is there still a drop-off?
A: First time I’ve got that question (laughs). No matter how you plot it, you’d see a drop-off. It would look different, but there would still be a drop-off.
Q: Have you seen a difference in the profitability in the tail?
A: It’s actually more profitable in the tail. The acquisition cost of a DVD when it is released is 21 dollars. Blockbuster has to charge the price set by Walmart: 16 bucks. Netflix delays getting copies until the acquisition costs go down (a few weeks later). Also, the longer a movie has been out, the more satisfaction goes up. Blockbuster is in a market where the acquisition costs are higher, and the satisfaction is lower.
For Amazon, they lower the discount as you go down the tail.
Q: For products where it costs a lot to produce them, does it apply?
A: Cars are an example where the long tail doesn’t apply. The most important thing in a car is quality. Any variation on the manufacturing side will lead to lower quality, so customization is not common. The dealers hate customization because it cuts them out.
Q: Because we see the power law in nature, do you think that humans have brought it on ourselves to find quality things?
A: That’s a great question. What you are talking about is some sort of evolutionary advantage – and I think it’s true. What’s interesting is why do you see it happen in earthquakes?
Q: Does the exponent change as you go down the tail?
A: 2 important things: they are fractal. Music follows a power law, but so do the top sellers in jazz. You always have hits and non-hits. What you are talking about is the predictive value. You should be able to predict the demand by adding items, but it turns out that you don’t have that. Adding things to the tail change the dynamics, but we don’t know how the exponents change.
Q: What do you think the impact on the creation of content?
A: Forces that create the long tail: democratization – this populates the tail, distribution – anyone can put something out there. This probably will have an impact on the blockbusters. It’s not dramatic yet, but I expect that model is reaching the end of its life.
Q: Is there a long tail for revenues/profits for media items?
A: Media that doesn’t pass word of mouth muster falls off much quicker – these are the “bad hits.” But those media that are organic hits, the good hits, have more opportunities for audience.
Q: How much of the YouTube phenomenon is a result of culture change/the “ADD effect”?
A: That’s a great question. On news sites, half the traffic goes not to the front page, but to individual stories. The album has been micro-chunked. What you are seeing is not necessarily ADD, but one size doesn’t fit all. We thought that we wanted TV in 30 minute increments, but in fact it was the advertisers. Online, the peak time is less than 3 minutes. Sometimes you want a snack, not a meal. This is the natural shape of demand that had been suppressed by the distribution.
Q: Will the tools themselves (The filters) succumb to the long tail?
A: Absolutely. Take music filters – you might start with taxonomy. The filters at the head are not necessarily the same at the tail.
Q: It seems like the long tail effect is stronger in things that we take a personal interest in, like books and media.
A: I took things I thought wouldn’t have a long tail effect, like flowers. Some people care passionately about them. (mentions “The Omnivore’s Dilemma”) Most of us are happy with Walmart and Safeway, but there was demand for the kinds of food that wasn’t sold there. As you know, Walmart beats up suppliers – there is a shortage of organic milk, and Walmart has to beg for it. Longtail Libations – long tail of beer is micro-brews. The supply chain wanted 4 beers, but now the supply chain is more efficient.
Q: One of the effects of everyone getting what they want is a lost culture. Do you think that will continue?
A: That is a great question to end on. What is the loss to society? My argument is that there is certainly a loss, but the upside outweighs the downside. Us all watching I Love Lucy is a superficial connection. In your niche interests you can find people who share your interests passionately. The rise of tribal culture -- you think of tribes being in conflict, but think of being part of many tribes simultaneously, and expose you to a rich variety of culture, even if you lose something in the mass culture.