The internet is helping revive niche products by making them easier to find and cheaper to deliver. But will the power of the big hit be reduced?by Frances Cairncross / November 19, 2006 / Leave a comment
The Long Tail by Chris Anderson (Random House Business, £17.99)
Back in the 1980s, before Chris Anderson became editor-in-chief of Wired, the magazine that has become the bible of the internet world, he played bass for a post-punk band called Egoslavia. If you hunt a bit on the internet, you can hear one of their songs (not bad, actually). The discovery by an online gossip sheet of this musical arcanity is a nice irony: Anderson’s book is basically about the way the internet reduces the power of the big hit and boosts audiences for the arcane and obscure.
The “long tail” is a concept already familiar to the online cognoscenti. Anderson’s book began as a piece in Wired two years ago, and it sometimes reads like an expanded magazine article. But it gains depth and charm from Anderson’s grasp of the internet’s impact and of the vast opportunities for innovation it has created. At Wired, which Anderson rescued from a wobbly patch after the dotcom boom, he has hobnobbed both with the big commercial pioneers of internet-based businesses and with the young geeks who set the pace in technology, music and ideas. His book should be read by anyone who wants to understand the social and economic implications of the internet.
So what is the long tail? It was originally a way of describing a graph—a swooping downward curve with a long tail running low across the horizontal axis but never quite touching it. Anderson stumbled upon this distinctive shape early in 2004 in a conversation with Robbie Vann-Adibé, chief executive of Ecast, a virtual jukebox which pipes music down a broadband connection to bars and cafes. Anderson was astonished to learn that 98 per cent of Ecast’s (then) 10,000 CDs sold at least one track every quarter. Although a few tracks accounted for most plays (the early peak of the curve), almost every track along the long tail was requested by somebody at least once every three months.
At Rhapsody, another online retailer, each of the top 1,000 tracks was bought more than 10,000 times in a typical month. But Rhapsody had a library of 1.5m songs. When Anderson trawled through Rhapsody’s sales figures, he discovered that almost every one of those tracks sold each month—even if just to a handful of people. Looking around, Anderson found this pattern repeated with books and videos that could be purchased or rented online.
His deduction: take away the constraints of shelf space that restrict what retailers can offer and that force them to concentrate on the few products that sell best—and suddenly you unleash demand for an immense array of niche products that would once never have found a market. The effect is even more powerful if the product can be sold in digital form, as with music, saving the distribution costs that bricks and mortar incur. Interestingly, the mere fact of online availability seems to increase proportionate sales of small units: Barnes & Noble, Anderson reports, finds that the least popular 1.2m titles represent 1.7 per cent of its sales in stores but 10 per cent of online sales.
Is this just the power of expanding market size? After all, Adam Smith argued two centuries ago that larger markets allowed greater specialisation, and the internet in theory opens up the entire world to niche producers. That is clearly part of the answer, but several other things are also happening. The most important is the impact of the search engine, with its ability to locate obscure items online. Anderson points out how cumbersome, compared with the capability of Google, are the categories of merchandise in even the best-run supermarket. Imperfect information creates imperfect markets, and discriminates against niche players.
Another driver, reinforcing the search engine, is the power of online recommendations, and the creation of software such as that used by Amazon to tell you what other customers bought. Anderson differentiates between “pre-filters” such as editors or department stores, which predict taste and select news stories or trousers that they hope customers will like; and post-filters such as blogs or reviews, which notice tastes and amplify them. The constrictions of physical space, whether for news stories or clothes, force the first kind of filter on the physical world; the wide open spaces of the internet are particularly suited to the second sort.
So what are these niche products that sell so much better online than in the physical world? Well, in the worlds of music, films and books, many are older titles. At Blockbuster video stores, Anderson found, 90 per cent of rented films are new releases. But at Netflix, an online DVD ordering service, some 70 per cent come from the back catalogue. Classical music accounts for 6 per cent of CD sales, but 12 per cent of sales on iTunes, which digitally delivers music. Many other products sold online are amateur efforts, or the result of what Anderson calls “mass volunteerism” of the sort that fills the entries in Wikipedia, the vast online encyclopaedia written for no pay by knowledgeable (or sometimes ignorant) individuals. And much of the content of the far end of the long tail is there because it deserves to be. “Let’s get one thing straight—the Long Tail is indeed full of crap,” Anderson writes. But some people are willing to pay for crap. The tracks or videos that sell just once a month clearly appeal to someone.
What are the commercial implications of this phenomenon? First, there is the rise of the niche business. The growth of eBay, that giant online jumble sale, and the thousands of small companies that flourish largely because customers use Google, are proof that the internet has helped many businesses to sell small quantities of improbable products that would never previously have found a viable market. Search machines cut the costs of reaching customers, and digital distribution, where it is possible, cuts production costs.
Second, some businesses will be affected by what Anderson calls “crowd-sourcing”: individuals willing to do for nothing what others do for money. One example is free reviews—of films, hotels, tourist destinations. Another is the posting online of photographs, films, music. Sometimes crowd-sourcing will undercut a professional skill: why pay for a professional photographer when someone armed with a digital camera and an internet terminal can do the job as well? Sometimes it may give companies speedy feedback on their products from an army of online reviewers. Sometimes it may allow amateurs to evolve into professionals.
Third, there is some erosion of the mass market. Give people greater choice, says Anderson, and enough of them will take it to reduce the power of the hit, the blockbuster and the bestseller. But is he being too optimistic? His exhibit A, the music industry, not only has a product that can be delivered online (unlike films, which are still mired in rows about how digital distribution should treat rights to their background music), but is also under attack from piracy to a greater degree than any other business with a digitised product. Yet elsewhere hits retain great power: seven of the world’s ten most successful films have appeared since 2000, and The Da Vinci Code has, within three years of being published, become the bestselling book in Britain of the last 20 years.
The problem is that the limits on human time are ultimately a bigger block than the limits on money. Watching a niche film means not watching a blockbuster. True, the iPod has expanded the time people spend listening to music; and true, young people often manage to do three electronic things at once. But the Egoslavias are still up against Justin Timberlake or Snoop Dogg. Clever and expensive production and marketing—and intrinsic talent, too—mean that they will usually lose out. Online recommendations may steer enthusiasts to niche products, but they also reinforce the power of the hit.
Indeed, for all the democratisation of the internet that Anderson so admires—the crowd-sourcing, the Wikipedia writers, the small businesses flourishing through eBay—this electronic world has rapidly fallen under the sway of a very small number of large companies. Google, whose chief executive, Eric Schmidt, enthusiastically endorses The Long Tail, dominates the search engine; eBay has no large rival; Amazon is synonymous with online book retailing. The network effect on the internet is unprecedented: if eBay is where most people sell their used cars, why offer yours anywhere else? The opportunities for niche businesses are huge—but the electronic path to the niche runs through a remarkably narrow gate.