The Long Tail by Chris Anderson
Review & Rating: Uplifting & Informative / 10
This is a book I wish I read ten years ago. Implied in the wish is a timeliness of the book. That’s not to say the Long Tail model discusses isn’t timeless. But Anderson's application of the model with various businesses and stories gave me the visceral reaction of lamenting my misfortune at not reading it sooner.
The accuracy with which Anderson’s views played out made me feel “oh god I’m too late to the game” at various moments. Though this effect was great in magnitude, it lasted a few minutes. The majority of the time was filled with hope and awe at how lucky I was to be alive today, to be in an era where the Long Tail was getting fatter and fatter for weirdos like myself.
Now, you may wonder what is this Long Tail? Ask Google. If you’re still interested, then this book may be worth a read to gain another perspective on the topic. That was why I read it.
If I were to summarize the book in a sentence, it would be: the internet allows niches to thrive. But you wouldn’t read for summaries. You read for context and the joy of the literary adventure. What is life without adventures?
Sometimes, a book can push the reader to start his own adventure. Sometimes, it works as a cheerleader supporting a past decision to start the adventure the reader is already on. The latter was what this book became for me.
Book Notes:
Increasing affluence in society lead to desire for independence and leaning into what makes people unique. Tails grow longer as a result.
The 98% percent rule: in a world of no packaging costs + instant access, consumers will look at almost everything. There’s a market for every niche song, show, content out there.
It’s amazing how Anderson pointed out Amazon, Google and Netflix has companies capitalizing on the long tail. This book was written 2006. It’s amazing he identified the shift this so early.
The top 100k books accounted for 70% of AMZN’s sales while the remaining 4.9m books accounted for 30%. That 30% is a sizeable market! That’s the long tail. Everyone focuses on the 100k that hit 70% and neglects the 30% for all the niches. But companies in the internet age and capture it. Rather, a successful internet business is successful because it is capturing the long tail.
Look at the tails. Who owns the tails?
What the crowd consumes per Walter Benjamin
“The conventional is uncritically enjoyed, and the truly new is criticized with version.”
Most industries end up focusing on formulas to generate hits. Everyone wants a formula to repeat past results. It’s used in movies, books, songs, and startups. Look at all the VCs who focus on marketplace or network businesses. There’s a formula and they all want hits. Even if the hits are garbage, it doesn’t matter because the crowd loves conventional. But that means everything else that falls out of the hit generation is neglected and those are huge.
Consider how VC-backed startups are a tiny fraction of the total number of startups. That market might not produce billion dollar companies but it’s a meaningful contributor to the economy. It’s actually the economic backbone because it doesn’t scale as well as the mega corporations. A VC-backed company like FB can’t live without them. The world doesn’t need Facebook but it needs the 100,000s of small businesses it serves.
It’s possible to see a world where the hits no longer become as material as they were in the past. A hit song doesn’t have the same dominant reach it did before. It’s all getting distributed along the long tail with ease of access and availability.
As we have more control of what we watch and more choice abound, we will move closer to consuming niche topics. This results in a decline in homogeneity of consumption.
Moving away from a hit-driven culture means hit-driven industries will need to invest in all the niche areas people might like. This will require more capital. Hence a business like YouTube with no content costs has a leg up to meet all demand. But in the world of professional content production, I imagine the one with the deepest pocket and decentralized forms of production like Netflix will beat a more centralized one like Disney.
In a world dominated by the tails, companies that embrace decentralization and creative freedom will win.
While everyone seems to have opened up to the VC model of investing in lot’s of businesses and having a few win out, I think that model will cease to be as effective. The VC businesses that became the mega companies are making a world that allows the tails to thrive, and I think we will see a shifting the types of companies that will thrive going forward. I think companies that aggregate niches will do better and see a world with a number of formidable-sized companies instead of a few giants. It could be that the public equity world will see much more mid-cap companies and they will never become the massive mega caps we see today. It’s possible the next large companies will be the decentralized aggregator of niches instead of one company trying to become a super app or own an industry like finance.
A world that desires for mega cap companies is the same that desires for a few super hits. That is the same world that wants the rich to be super rich.
Sears was the OG catalog store selling tails. It competed against big brick and mortar stores by selling everything from their catalog and targeting rural towns. Reminds me of Costco targeting uncompetitive markets like the U.S. Northwest.
Sears had a ~800 page catalog where everything was cheaper since they had low operational costs (no physical footprint). Same model Amazon used.
On the back of new technology adoption—cars—Sears moved to open superstores since customers were free to travel anywhere now. Amazon leveraged the internet as people could travel anywhere on the web. It seems to be that every successful company merely follows the path of previously successful companies…just leveraging new technology or applies the same strategy in a different area.
Bezos started with books because it wasn’t the popular category. People were already buying clothing online. But the experience of buying books online was poor so he targeted the most neglected area. If something sucks, a small improvement can go a long way versus something that is already decent.
Books were a market with a long tail and physical limitations of stores were at odds with an industry that continued to pump out hundreds of thousands of new books a year.
Tails get longer with democratizing the tools of production. Tails get fatter with democratizing the tools of distribution. Instagram and Youtube have helped people do both. Filters like Google, blogs, and various curations/recommenders do the job of connecting supply and demand to move flow away from hits to niches.
Ease of production moves people from passive consumers to active creators (i.e. everyone takes pictures, makes videos). Creation doesn’t need to be commercial. It evolves to take on roles of being an outlet for enjoying life.
Is used to be that talent needed to find a means of production but it’s the opposite now. Production is plenty and talent is scarce.
“It is when the tools of production are transparent that we are inspired to create.”
Probability-based systems. Systems that appear out of control. Where order arises from chaos as individual messiness works out on the macro scale. That’s how Wikipedia works. Not only is the company radically decentralized in culture but also in the product itself. It gains greater accuracy as more people contribute, correct, police and use the site.
As Wikipedia grows, it becomes a self-healing organism as more users correct inaccuracies. That makes it more than robust. It’s ability to self-heal makes it anti fragile as people will rely on it more and that will reinforce the site’s ability to correct itself and add more information to it. I guess that’s what people mean by the network effect.
With the ease of production, commercial success often becomes the result of honest creation. It moves from a financial game to one of reputation where a self-published author isn’t selling a book for the masses but selling the self to a niche.
It’s not that dominating a niche will help the creator become a widely acclaimed commercial hit. This might happen. But that is misjudging how big some niches can become. The world is only going to get bigger, messier and more connected.
After production is distribution. Anderson calls them aggregators. They aggregate the long tail for ease of consumption by everyone. They are marketplaces like Craigslist, eBay and Amazon or media platforms like Netflix, Youtube and Spotify. Also can’t forget Google.
While digital aggregators are unbounded, physical ones like Amazon still face challenges with actually delivering physical goods they sell. I wonder if vertical integration becomes a requirement to push efficiencies further. It’s harder to do right so wouldn’t that make the few who do it successfully the ultimate winners? Digital aggregators would only have to pay their cloud taxes to Amazon.
The best stuff is in the tails. The worst is in the tails too. It’s the job of filters (i.e. tastemakers, curators) to pick them out for the consumers craving for niche content. The most popular things are rarely the best because they have to be generic enough to be popular. That creates opportunity for curators whose taste will make them leaders of niches.
“In a world of infinite choice, context—not content— is king.” - Rob Reid
Filterers will become the guides in a world dominated by long tails. They are the sherpas for those who wish to get closer to their genuine curiosities. Some aggregators are trying to accomplish this with algorithms but there will always be a place for human taste because there is a connection and trust there that people don’t have with algorithms.
“In today’s Long Tail markets, the main effect of filters is to help people move from the world they know (“hits”) to the world they don’t (“niches”).
The shelf is a zero-sum game with a narrow range of quality (average to good) while the internet is a non-zero-sum game with a wide range of quality (90% are turds to a few truly excellent).
“..with good filters, averages don’t matter. Diamonds can be found anywhere.”
Think about how the best keyboards won’t be at BestBuy. You have to find the keyboard aficionados and read what they say. They’ll take you to some weird sites where you have to bid for custom keyboards.
There are tails within tails.
Long tails are profitable because of lower CAC. People are dying for the niche things that interest them. They find them on their own accord, you just need to provide it to them as an option. Lower CAC => higher LTV => higher ROIC. Long tail products are cheaper to acquire and if inventory cost is nil, it’ll be higher in profitability!
There is scarcity in time, attention and income. Command those and you win.
People misunderstand 80/20. Often, it’s 80/10. It doesn’t need to add to 100 since the 80 and 20 are talking about different things! You can have 95/20 as well (95% of sales come from 20% of products). This rule is often applied to sales but people forget profits is what you keep. Try applying it to profits!
Brick and mortar might’ve only sought to keep 20% of the goods that account for 80% of sales in the market. The long tail is about holding all of em. The 80/20 is just an observable fact, not necessarily a strategic imperative.
Greater access will increase our desire to consume but not at greater cost. It’s a non-linear relationship.
“The primary effect of the Long Tail is to shift our taste toward niches, but to the extent we’re more satisfied by what we’re finding, we may well consume more of it. We just won’t necessarily pay a lot more for the privilege."
Niches can charge higher prices than mass market products. Remember scarcity.
“…you can think of cities as the Long tail of urban space in the way the Internet is the Long Tail of idea space or cultural space.”
I would add that metropolitan cities are also a Long Tail of ideas and culture in a far more intimate way than online communities. Major cities are well art, culture and all kinds of niches are born!
Constraints of physical space make errors of commission costly (i.e. opportunity cost of selling a product that doesn’t move volumes and forgoing another top product for it). Zero inventory cost focuses on avoiding errors of omission since the cost to take on another product is nothing….they should have had it lest it hits a profitable niche.
Beautiful paragraph:
“Wal-Mart’s shelves are a display case a mile wide and twenty-four inches deep. At first glance that may look like everything, but in a world that’s actually a mile wide and a mile deep, a veneer of variety just isn’t enough.”
Learn to stop thinking in the mindset of generating hits. Think about the long tail, not the short head. Everyone is obsessed with the short head and that’s where all the media and attention is. Go direct, embrace amateur, be independent, good doesn’t mean popular and do it for the work (not for the result).
People love to be in control and feel like they have more options. That’s Psych 101. Amazon gave this with an online store with near limitless options, no salesperson and freedom to buy from anywhere.
The paradox of choice references the negative paralysis of having too many choices. But what people want isn’t to have all the options but to be in control of the process of choosing. So people don’t want the decision to be made for them. They want to be the one to decide. People don’t like having many choices when there is no information about ll fo them. But online, there are reviews and various sources to check out the options and make an informed (we think) decision. In that world, more choice is better!
“The more choice we have the more we have to decide what it is we really want. The more we reflect on what we really want, the more involved we get in the creation of the goods we buy and use [via customization]. The more we participate in the creation of products and services, the more choices we end up creating for ourselves.” - John Hagel
Consumers will choose to go to casinos with more tables and theatres with more screens. More choices alleviated the risk of getting stuck with something they didn’t want. Think about how you would pick a restaurant for a big party. Probably the one with a wide menu selection for everyone.
With wider selections, shorter search times and near instant deliveries, consumption will increase. This should lead to fatter tails than heads.
“Mass culture will not fall, it will simply get less mass. And niche culture will get less obscure.”
Long tail aggregator playbook:
Lower costs => move away from physical limitations (and costs)
Let customers do the work => reviews + recommendations + user generated content
Distribute to all => online
Have near unlimited choice
Have elastic pricing => auctions, tiered, % of use
Give up control => share information, transparency builds trust at no cost
Offer everything => and > or
Let the market sort itself out, you focus on executing. “Online markets are nothing if not highly efficient measures of the wisdom of crowds."
Power of free