This book began with a quiz I got wrong. Robbie Vann-Adibé, the CEO of Ecast, a 'digital jukebox' company, asked me to guess what percentage of the 10,000 albums available on the jukeboxes sold at least one track per quarter. I knew, of course, that Vann-Adibé was asking me a trick question. The normal answer would be 20% because of the 80/20 rule, which experience tells us applies practically everywhere. That is: 20% of products account for 80% of sales (and usually 100% of the profits).
But Vann-Adibé was in the digital content business, which is different. So I thought I'd go way out on a limb and venture that a whopping 50% of those 10,000 albums sold at least one track a quarter. Now, on the face of it, that's absurdly high. Half of the top 10,000 books in a typical book superstore don't sell once a quarter. I was, needless to say, way, way off. The answer was 98%. 'It's amazing, isn't it?', Vann-Adibé said. 'Everyone gets that wrong.' Even he had been stunned: as the company added more titles to its collections, far beyond the inventory of most record stores and into the world of niches and subcultures, they continued to sell. And the more the company added, the more they sold. The demand for music beyond the hits seemed to be limitless. True, the songs didn't sell in big numbers, but nearly all of them sold something. And because these were just bits in a database that cost nearly nothing to store and deliver, all those onesies and twosies started to add up.
What Vann-Adibé had discovered was that the aggregate market for niche music was huge, and effectively unbounded. He called this the '98 Percent Rule.' As he later put it to me, 'In a world of almost zero packaging cost and instant access to almost all content in this format, consumers exhibit consistent behaviour: they look at almost everything.'
THE CHANGING ROLE OF HITS AND NICHES
I realised that Vann-Adibé's counterintuitive statistic contained a powerful truth about the new economics of entertainment in the digital age. With unlimited supply, our assumptions about the relative roles of hits and niches were all wrong.
Scarcity requires hits – if there are only a few slots on the shelves or the airwaves, it's only sensible to fill them with the titles that will sell best. And if that's all that's available, that's all people will buy.
But what if there are infinite slots? Maybe hits are the wrong way to look at the business. There are, after all, a lot more non-hits than hits, and now both are equally available. What if the non-hits – from healthy niche products to outright misses – all together added up to a market as big as, if not bigger than, the hits themselves? The answer to that was clear: it would radically transform some of the largest markets in the world.
And so I embarked on a research project that was to take me to all the leaders in the emerging digital entertainment industry, from Amazon to iTunes. Everywhere I went the story was the same: hits are great, but niches are emerging as the big new market. The 98 Percent Rule turned out to be nearly universal. Apple said that every one of the then 1 million tracks in iTunes had sold at least once (now its inventory is twice that). Netflix reckoned that 95% of its 25,000 DVDs (that's now 55,000) rented at least once a quarter. Amazon didn't give out an exact number, but independent academic research on its book sales suggested that 98% of its top 100,000 books sold at least once a quarter, too. And so it went, from company to company.
Each company was impressed by the demand they were seeing in categories that had previously been dismissed as beneath the economic fringe, from the British television series DVDs that are proving surprisingly popular at Netflix to the back-catalogue music that's big on iTunes. I realised that, for the first time, I was looking at the true shape of demand in our culture, unfiltered by the economics of scarcity.
That shape is, to be clear, really, really weird. To think that basically everything you put out there finds demand is just odd. The reason it's odd is that we don't typically think in terms of one unit per quarter. When we think about traditional retail, we think about what's going to sell a lot. You're not much interested in the occasional sale, because in traditional retail a CD that sells only one unit a quarter consumes exactly the same half-inch of shelf space as a CD that sells 1000 units a quarter. There's a value to that space-rent, overhead, staffing costs, etc. – that has to be paid back by a certain number of inventory turns per month.
However, when that space doesn't cost anything, suddenly you can look at those infrequent sellers again, and they begin to have value.
THE LONG TAIL
As I researched this phenomenon further, Rhapsody, an online music company, gave me a month's worth of customer usage data, and when I graphed it out, I realised that the curve was unlike anything I'd seen before (See Figure 1).
It started like any other demand curve, ranked by popularity. A few hits were downloaded a huge number of times at the head of the curve, and then it fell off steeply with less popular tracks. But the interesting thing was that it never fell to zero. I'd go to the 100,000th track, zoom in, and the downloads per month were still in the thousands. And the curve just kept going: 200,000, 300,000, 400,000 tracks – no store could ever carry this much music. Yet as far as I looked, there was still demand. Way out at the end of the curve, tracks were being downloaded just four or five times a month, but the curve still wasn't at zero.
In statistics, curves like that are called 'long-tailed distributions', because the tail of the curve is very long relative to the head. So all I did was focus on the tail itself, turn it into a proper noun, and the 'Long Tail' was born.
One of the most encouraging aspects of the overwhelming response to the original article, which focused on music and DVDs, was the breadth of industries in which it resonated. Readers saw the Long Tail everywhere, from politics to public relations, and from sheet music to college sports.
What people intuitively grasped was that new efficiencies in distribution, manufacturing and marketing were changing the definition of what was commercially viable across the board. The best way to describe these forces is that they are turning unprofitable customers, products and markets into profitable ones. Although this phenomenon is most obvious in entertainment and media, it's an easy leap to eBay to see it at work more broadly, from cars to crafts.
Our growing affluence has allowed us to shift from being bargain shoppers buying branded (or even unbranded) commodities to becoming mini-connoisseurs, flexing our taste with a thousand little indulgences that set us apart from others. We now engage in a host of new consumer behaviours that are described with intentionally oxymoronic terms: 'mass-clusivity', 'slivercasting', 'mass customization'. They all point in the same direction: more Long Tails.
THE THEORY OF THE LONG TAIL
The theory of the Long Tail can be boiled down to this: our culture and economy are increasingly shifting away from a focus on a relatively small number of hits (mainstream products and markets) at the head of the demand curve, and moving towards a huge number of niches in the tail. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly targeted goods and services can be economically attractive as mainstream fare.
But that's not enough. Demand must follow this new supply. Otherwise, the Tail will wither. Because the Tail is measured not just in available variety but in the people who gravitate toward it, the true shape of demand is revealed only when consumers are offered infinite choice. It is the aggregate sales, use, or other participation of all those people in the newly available niches that turns the massive expansion of choice into an economic and cultural force. The Long Tail starts with a million niches, but it isn't meaningful until those niches are populated with people who want them. Collectively all of this translates into six themes of the Long Tail age.
- In virtually all markets, there are far more niche goods than hits. That ratio is growing exponentially larger as the tools of production become cheaper and more ubiquitous.
- The costs of reaching those niches is now falling dramatically. Thanks to a combination of forces including digital distribution, powerful search technologies, and a critical mass of broadband penetration, online markets are resetting the economics of retail. Thus, in many markets, it is now possible to offer a massively expanded variety of products.
- Simply offering more variety, however, does not shift demand by itself. Consumers must be given ways to find niches that suit their particular needs and interests. A range of tools and techniques – from recommendations to rankings – are effective at doing this. These 'filters' can drive demand down the Tail.
- Once there's massively expanded variety and the filters to sort through it, the demand curve flattens. There are still hits and niches, but the hits are relatively less popular and the niches relatively more so.
- All those niches add up. Although none sells in huge numbers, there are so many niche products that collectively they can comprise a market rivalling the hits.
- Once all this is in place, the natural shape of demand is revealed, undistorted by distribution bottlenecks, scarcity of information and limited choice of shelf space. What's more, that shape is far less hit-driven that we have been led to believe. Instead, it is as diverse as the population itself.
Bottom line: A Long Tail is just culture unfiltered by economic scarcity.
This article featured in Market Leader, Autumn 2006.
NOTES & EXHIBITS
FIGURE 1: RHAPSODY MUSIC DOWNLOADS, DECEMBER 2005 (FOR THE NUMBER OF TITLES EQUIVALENT TO THE WAL-MART INVENTORY). BUT EXTEND THE GRAPH AND NOT ONLY THE TOP 60,000 TRACKS ARE DOWNLOADED ONCE A MONTH, THE TOP 900,000 TRACKS ARE DOWNLOADED TOO.