Saturday, June 30, 2007

Book review: The Long Tail: Why the Future of Business Is Selling Less of More by Chris Anderson

The Concept

Once Chris Anderson articulated the concept, it seems fairly straightforward, even obvious. To illustrate the basic idea, imagine that you are opening a book store. But you only have enough room to sell ten titles. (Just to show the concept.) Which book do you pick? If your purpose is to maximize your profit, you’ll pick the ten books you think will sell best. You are looking for the best sellers. On July 17 one of your books probably would be Harry Potter and the Deathly Hallows.

Books stores in the real world are faced with a similar problem. They have limited shelve space. They can hold more than ten books. For example a typical Barnes and Noble carries around 40,000 different books. But they still have to pick which 40,000 books they think will sell the best.

If you were to graph books by volume sold across the world and sort them in the order they were sold, you’d see that there are a few books which sell in the millions. Coming down the curve there would be books in the hundred thousands, then tens of thousands, and so on. A typical book store will try to carry the most popular books. These books would move quickly. The book store restocks and makes more money. Having a poor selling book sitting on the shelves is a lost opportunity.

What Amazon realized is that there is still demand for books beyond the 40,000 Barnes and Noble carries. If you go down the demand curve you’ll find there are books selling thousands of times a year, hundreds of times a year, some even sell once or twice a year. Amazon carries several million books. Some where around 40% of their book sales come from the demand beyond the most popular 40,000 books.

This is the long tail. It is the products that are not normally available in a physical store. Selling millions of low volume products can be almost as much money as selling thousands of high volume products.

The long tail phenomenon works with books, music, movies and so on. Many of the online businesses are meeting the demand for the less popular, but still in demand, products. Because an online business doesn’t have to worry as much about shelve space, they are able to carry a much, much greater product line

The Book Review

Chris Anderson does a great job of explaining the concept of The Long Tail. He shows how over the last couple hundred years the history of business is a history of hits. Businesses tried to carry what would sell the most. Bookstores carried the best sellers. Movie theaters showed the top selling movies. Music stores only carried records they thought would sell in volume.

This has changed with the development of the internet. Now companies like Amazon can sell almost any book ever printed. This is the long tail, all the products that businesses can sell that before they couldn’t sell in volume high enough to generate a profit. Now companies like Netflix can carry almost any professional movie ever made. YouTube is taking this a step farther and providing an outlet for all the amateur movies recorded. iTunes sells a huge portion of the songs recorded. There are other businesses exploiting the long tail.

Chris Anderson found that there are a couple requirements for an online store selling products to be successful with the long tail concept. The first couple conditions make sense, there has to be a way for more people to create the product, and a way to get the product out to the consumers. Computers now allow many more people to be involved in the production of books, movies and songs. The third condition is there has to be a way for customers to find what they want. Internet search engines make it almost trivial to find that unusual game, toy, or electronic device that you’ve heard about or even just wondered if it existed.

What it means

The Long Tail concept provides a framework for understanding possible new business development. If you are thinking about starting up a business, especially one on the internet, it would be very worth while to read this book.

As bloggers most of us exist in the long tail. There are a few like Instapundit who get 200,000 hits a day. My wife and I have been blogging a year and two thirds. We still haven’t hit a total of 200,000 hits. We are part of the long tail. Understanding this, we recognize that in aggregate, a thousand of us bloggers have as much influence as Instapundit.

The world is a complex place. It can be overwhelming. A model like The Long Tail provides insight and understanding into what otherwise would be just over powering noise.

Chris does a great job of explaining the idea, and providing examples. He has a lot of interesting data. This book is very insightful, and well worth reading.

Technorati tags: ,


Roo said...

As an amazon marketplace seller I can totally agree with this article about the long tail. I currently only stock between 4-6,000 books building my way slowly upto a stock of 10,000 is my target. The majority of my stock is not going to be stocked by bricks and mortar shops, though I do find the best sellers don't seem to stay on my shelves toolong so would be happier stocking more for a faster turnaround. The stock I do have does tend to have a higher sale price though, usually as they are not as easily located in traditional bookshops.
Buyers from all walks of life are turning to amazon for value and convenience and bookstores in the high-street are having to join in somewhat with online sales or be left behind as they compete with sellers that have much lower overheads and are paying less to store, display and attract customers.
This book is on my reading list, hopefully it will come my way soon without having to pay the going rate for it and then be able to sell it on for a profit!

Henry Cate said...

Roo, I think you'll find "The Long Tail" very worth reading. I've actually read it twice now. I read it about a year ago, and the reread it this last month.

Kim Anderson said...

Thanks for this fascinating review! As well as for the recommendation of the Saturday Book Review!

I appreciate the value of those long tails that you represent!