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July 18, 2006

The Wrong Tale: A Checklist for Long-Tail Implementations

longtailcover.gif

1. Make everything available.
2. Help me find it.
Chris Anderson, The Long Tail

I love authors like Malcolm Gladwell and Chris Anderson. They’re writer’s writers: digging through mounds of research, conducting interviews with famous people, crafting their text, and then publishing tomes with cool titles like The Tipping Point and The Long Tail. And they do this while holding down day jobs at pubs like the New Yorker and Wired.

Before I go any further, let me tell you that I highly recommend Chris’s current book, The Long Tail. My three reasons for this recommendation are:

  • First, it provides a fresh perspective that will help you understand success stories like Amazon, Google, Lego, RealNetworks, Netflix, and iTunes.

  • Second, it provides a framework that will help you more fully grasp the Dilbertian cluelessness of some companies in businesses like books, music, and movies.

  • Third, it may even help you create new companies and businesses that change the world. It’s one of those rare books like Geoffrey Moore’s Crossing the Chasm where you think to yourself, “This can help kick butt.”

Essentially the book explains how the market for lots of items that sell a few units is often as large as the market for a few items that sell a lot of units. Furthermore, the profitably of selling a few units of a lot of items may exceed the profitability of selling a lot of units of a few items. All this is possible because the Internet and other modern technologies have driven down the costs of production and distribution.

I love this “democratization of commerce” stuff. Other people will love the book too, so for quite a while you’ll find lots of positive stuff about Chris and his book. Just click here to see what I mean. From an author's perspective, there is no such thing as too much praise, but I'd like to address a different orientation: the tactical requirements of implementing a long-tail business.


“A very, very big number (the products in the Tail) multiplied by a relatively small number (the sales of each) is still equal to a very, very big number. And, again, that very, very big number is only getting bigger.”

The Long Tail is going to catalyze as many new businesses and new business units, God help us, as “Web 2.0” and “social networking.” The pitches for these businesses will go like this:

  1. Big companies are only serving 50% of the market.

  2. They’ll never serve the other 50% because they are too big, dumb, rich, and lazy. (Chris Anderson is going to make a shiitake load of money speaking to these big companies, though.)

  3. 50% of the market is such a big number that all we need to do is get 1% market share.

This line of reasoning is going to work for a while; it may even accelerate if an established company buys a long-tail company for $500 million or so (MyTail?). But it’s one thing to write about, or read about, a successful company after-the-fact and analyze how it achieved success. It’s another to build that successful company from scratch. Everyone knows that the innovator’s dilemma is to find a tipping point in order to cross the chasm. The question is not “why?” but “how?”.



This is a cynic’s checklist for the implementation of long-tail ideas. Unless you master these issues, you are telling the wrong tale. Chris discusses most of these items in his book. However, in the after-glow of reading all the long-tail success stories, most people will forget the tactical items it takes to succeed.

  1. Low-cost production. It cannot cost the company a lot to make a product that only sells a few units a year, and a few sales must satisfy any single producer, writer, artist, musician, or photographer. There are several ways to attack this problem:

    • You build the product after you have it sold, so you’re out of pocket for only a short time—for example, “just in time” printing of niche books.

    • Your suppliers produce things for you and then “consign” it to you--Apple, for example, doesn’t pay for music tracks until after it sells it.

    • All you have to do is distribute what’s already there. Apple doesn’t commission the creation of any music nor does Handango pay for people to develop software, ringtones, and desktop patterns. Production costs, if there were any, are long sunk.

    • People create the product for sheer enjoyment and the glory of some attention. For example, the pro-mateur photographers of iStockphoto are probably more motivated by the joy of their hobby and the glory of “selling” a photo than the actual income they receive.

    (Chris has writen a nice blog entry low-cost production called “Scaling Up Is Good, Scaling Down Is Even Better.” As Chris says, scaling down is a “core long-tail competency.”)

  2. Undemanding, unselfish, unfinancially motivated, just-plain stupid, or just-plain smart producers. A sustainable population of low-cost producers must exist because while it might be great for the distributor of millions of items that only sell a few units, you also have to consideer the producer’s stand point. Apple can “stock” a lot of songs that hardly ever sell and achieve volume, what if you’re the musician that produced a song that sold once on the Apple site?

    (On the other hand, there are the just-plain smart producers. They’re willing to give stuff away in order to build a following that enables them to ultimately sell things in large quantities. That is often sustainable—and quite sly.)

  3. Near-zero inventory carrying costs. If you plan to sell a few units of lots of things it can’t cost you much to keep those things in inventory. This is separate from the cost of production. It might cost Ferrari a lot of money to make cars, but if it will consign them to you for free, what do you care?

    Actually, you do care: there’s warehouse space, insurance, and shrinkage. Even digital content like music, movies, ringtones, and photographs require bandwidth and storage. Not only must the product be cheap to make, it must be cheap to keep in inventory.

  4. Near-zero selling and marketing costs. Long-tail products must either “sell themselves” or external people must sell them for you. If you have to send one email or take one phone call to sell a Cecilio and Kapono ringtone, you’re dead. (Don’t know who Cecilio and Kapono are? That’s the point.) This is where two cool concepts butt heads: long-tail versus wisdom of the crowd. The former says a market of one is good. The latter says that when lots of people buy something, it’s probably good. How then does one person find something that’s good for her out of the millions of products to buy when there’s no crowd to follow?

  5. Near-zero support and training costs. Do you see a pattern developing? One support call or email, and you’re dead too. Your offerings must either require near-zero support and training, or other people must support it for love and glory.

  6. Fast fulfillment. This isn’t necessarily a long-tail issue as much as a common expectation these days. When I buy anything online, I expect instant delivery if it’s a file (that is, software, ringtones, desktops, and photographs). If it’s a physical product, then the company should ship it the next day, and I should have it within three days. Yes, this is unreasonable, but I want my taupe colored blender that fast.

  7. Infinite selection. Your tail, indeed, had better be long. I will give you about two chances to prove to me that you are infinite: a magenta colored MacBook case, an Ethiopian wedding song, the ringtone from the Counter Terrorist Unit phones in 24. Because everything is, after all, everything. This is an impossible expectation to fulfill, but that’s not my problem.

  8. Singleness of purpose. Don’t even think that about satisfying people in multiple segments—for example, music and books. Which is to say, “Two longs don’t make a right.” You should be so lucky to succeed in one segment. If you do, sell out and wait for the next book.

  9. Highly optimistic, if not delusional, personalities. There’s an old joke that the vice president of marketing of a startup asks the programmer when the software will be finished, and the programmer answers, “Good, fast, or cheap. Pick any two.” Essentially a long-tail company is saying, “You can have all three plus throw in ‘infinite’ to boot.” That’s all you’re saying you’ll deliver, so understand what you’re getting into.


Galileo said:

All truths are easy to understand
once they are discovered—
the trick is to discover them.

Guy said:

All truths are easy to understand
once they are discovered—
the trick is to exploit them.


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Comments

Bringing up Amazon in this context is perfect. Amazon has built the infrastrucure to sustain the holiday season. So, what do they do with all that excess capacity the rest of the year? Exactly! They provide it as outsourced infrastructure for anyone with the capabilities to tie together the Web Services.

But Ma and Pa can't do that. For them, there's Yahoo Stores or eBay. But what about a Web presence? It's so hard to build a professional looking site that is optimized for search (to find your market) and eCommerce integrated (to ring up the purchse). For them, there's SquareSpace or OpenCommerce.

And at very worse, there's always email, certified checks and USPS. You don't need much (any?) money to sell long tail items.

Jean-Baptiste Rudelle:

I definetely agree. Just look at Pandora.com The future of an personal shopper might not be that far away. We live in damn interesting times. And Guy, this is the second book (first one was Hindsights) you convinced me to buy. Thanks for the great tips!

André Hedetoft
Movie-geek
Just created a game where you get to play with my real life over at http://www.andrehedetoft.com

Interesting overview. From my experience, the future challenge of Long Tail lies in personalized filtering. Without an efficient tool, users will soon get lost in the tail.

For you in the above comment. There is an answer. It is called the fat tail? It is a new economic theory that really has a lot of promise for online videos. See it explained at
http://www.rabbitbites.com

"How then does one person find something that’s good for her out of the millions of products to buy when there’s no crowd to follow?"

"her"?? Where did she come from? In English, when the sex of an antecedent is not known, "him" is used. This writing is supposed to be in English, isn't it?

More to the point, has anyone calculated whether those who purchase "long tail" items
therefore do not purchase hits? In other words are those who sell both hits and the long tail just exchanging one sale for another? If so this would make it even more important to assure that there was as much profit on the long tail items as on the hits.

Isn't 'good, fast, cheap - pick two' a NASA-ism ?

Lee Gomes at WSJ cites some data that indicates the Long Tail may not be as strong as Anderson has represented:

This "98 Percent Rule," as Mr. Anderson names it, suggests the remarkable prospect that no matter how much inventory you put online, someone, somewhere will show up to buy it. He writes, "Everywhere I looked the story was the same. ... The 98 Percent Rule turned out to be nearly universal."

Except it's not. Ecast told me that now, with a much bigger inventory than when Mr. Anderson spoke to them two years ago, the quarterly no-play rate has risen from 2% to 12%. March data for the 1.1 million songs of Rhapsody, another streamer, shows a 22% no-play rate; another 19% got just one or two plays.

Mr. Anderson told me in an email that he only mentioned the 98 Percent Rule to show how he first got interested in the book's overall subject, adding, "I have no idea how broadly it applies today."

In the book's main sections, Mr. Anderson writes that as things move online, sales of misses will increase -- so much so that they can equal or exceed the sales of hits. The latter is the book's showstopper proposition; it's mentioned twice on the book's jacket.

I was thus a little surprised when Mr. Anderson told me that he didn't have any examples of this actually occurring. At Netflix and Amazon, two of his biggest case studies, misses won't outsell hits for at least another decade, he said. None of these qualifications are in the book.

(Subscription required for link: http://online.wsj.com/article/SB115387606762117314.html?mod=Portals)

I read about the Long Tail book on your blog and read it. It's awesome. Thanks for the tip!

I still think the Long Tail principles will work mainly in favor of digital media and content distribution...while the rest of companies out there could do themselves in trying to serve the long tail and keep their inventory lean and distribution costs low at the same time. If it were that simple, everyone would be doing it, right?

******What about long tail of startups and ideas?******

Here is my (as yet unpublished) theory-
--Google is asking its employees to build out several products essentially creating a very large set of services. Many of these services are not market leaders such as Orkut or Blogspot. However, by creating so many products at a relative low cost it can capture a large piece of the online consumer pie. And how is Google's cost of creating services low- they have mastered the low-cost grid infrastrucuture and have democratized decision-making to a large extent.
--A lot of Web2.0 companies also seem like the long tail in the following sense- Google, Yahoo! and MSN have captured the top end of the tail when it comes to consumer online behavior. So rather than compete with Google on search or Yahoo! on email, these startups (unknown to themselves) are competing for the long tail of services- Where is the site that shows the square of the area of Pizza slice on a Google Map? Where is the site that displays the strength of Wi-Fi networks in neighborhoods with lots of local coffee shops? And of course, Word on Web2.0, Outlook on Web2.0, Excel on Web2.0, etc.

You can read more of my ideas on innovation, disruption and open-source by clicking on my name above. (Shameless plug.)

I contacted Professor Michael Smith, one of authors of the Amazon study which influenced Anderson's initial post on the long tail. I also read his research. He said the area under the graph equals 100% but no one knows the starting point of the long tail. (He also said 40% of Amazon's sales came from affiliates---long affiliates beats long tail?). I also read Shirky & Kottke & others.

In my humble opinion, the value of the long tail depends not on its length but on its weight. I subscribe to the theory that the long tail only weighs 20% of a given market (still worth chasing in a huge market--not so much in a small one). Also consider this anomaly. Wal-mart has a limited CD selection and yet was #1 seller. I'd call that long branches. For more on this weighty issue see:

http://blog.sellsiusrealestate.com/?p=1334
http://blog.sellsiusrealestate.com/?p=1348

Voip........what or WHO is the LongTail in VOIP????
Since Level3 provides almost ALL VOIP players, what is your thoughts on the Long Tail for Level3???
skibare

Key problem with the Long Tail concept--but not the book, as Anderson addresses it--is this problem, as you state it: "Low-cost production. It cannot cost the company a lot to make a product that only sells a few units a year, and a few sales must satisfy any single producer, writer, artist, musician, or photographer."

As Anderson noted, selling gobs of books that only move 100 units a year can make Amazon.com lots of money. But it's not commercially sustainable to release books that only sell 100 copies of year.

Even if you build units as needed or fulfill only electronically, the upfront creative investment and production investment is still relatively high.

Now those of us who write Take Control books for Tonya and Adam Engst (takecontrolbooks.com) know now that for most of the books we write (all the ones I've written, fortunately), you can put substantially less time and effort in as for a print book and receive the same rewards in revenue.

That's never universally true, but it's great that a three-base hit for a computer ebook with Take Control requires maybe 40% or fewer of the sales of reaching first base (earning out the advance) with a print book. Print computer books need to sell at least 8,000 to 10,000 copies to make it worth having written them, while ebooks can sell a few thousand and reap identical rewards (in this model).

"How then does one person find something that’s good for her out of the millions of products to buy when there’s no crowd to follow?"

Just my thoughts (I wrote something similar on my blog a while back):

Like Nike, you attract what Everett Rodgers calls the "venturesome innovators." These are the "celebrities" of the industry -- those influential few who love starting trends.

Nike targets elite athletes, who attract the influential "early adoptors". These guys then start attracting the masses.

Another case: If you're familiar with Beanie Babies, you know it didn’t become a success overnight.

Instead, Beanie Baby marketers targeted kids from high-class communities -- by selling their products in affluent toy stores.

The kids brought them to schools, creating a buzz among the influential network.

McDonald's then -- seeing a great opportunity -- offers those puppies (literally) in their Happy Meals, attracting of course: the masses.

Just my two cents, if it's worth anything.

Guy, just thought I'd pass along the fact that Chris will be doing an online chat on 7/24 at 1:30 PM PDT. You'll need Skype to participate, but it should be interesting nonetheless.

http://www.sixapart.com/typepad/news/2006/07/long_tail_chat.html

Regards.

Guy.. you're damn right!

your this sentence struck me:
"But it’s one thing to write about, or read about, a successful company after-the-fact and analyze how it achieved success. It’s another to build that successful company from scratch."

bcoz that's what I've been thinking too.

The other day I saw the duct tape marketing guy talk on how to beat walmart. I was thinking.. it's easy to sit in a comfortable chair with the coffee on your side n write on your blog how to beat walmart.

But go out there n try to do it.. n they'll be peein' in their pants!

'talking' marketing conceps.. long tail, short tail, crooked tail.. n how to use them to make a revolution.. is 10x easy then going out n building the next google.

when I was 13 I said.. if I ever wanna climb mount-evert I'd learn from the guy who's been there done that.. not someone who wrote 10 books on it.

great post.
a whole buffet for thought.
thanks for it!

Shariq.

I'm not sure if I agree about the point #8 of only mastering one product type. Does the long-tail have to be large selection of one type of item or just a large selection of items people want?...in fact one could argue Wal-Mart super centers are the original retailer to take advantage of the long-tail and online retailers are only expanding on that with lower costs of selection and easier discovery of the products. Maybe that is the long-tail of shopping, where Abebooks or Amazon is the long tail of a product type...what do you think?

******************

I think it's hard enough to serve one long-tail market. To be the long-tail of long-tails is too hard, in my opinion. Even if you pulled it off, it might not be believable!

Thanks,

Guy

You should also add to your list, "If possible, let the users decide what the product is".

That's why threadless works – artists upload artwork, the community votes on it, and threadless prints the shirts that gets the most votes.

They also print in limited quantities, then "rerelease" the shirts that sell best.

Uhh Candy, you're scaring me. Are you some sort of blog-stalker or something?

Thanks Guy for your sharing.Whilst hypermarkets are gulping a major share of the groceries market in my country, one can observe at the same time the emergence of new type of niche convenience stores, which are not after mass volume and low price, catering to niche exclusive specialist market serving to known and acknowledged individuals. Reminds me : the yin in the yang or the yang of the yin...

I'm clicking my way to Amazon between keystrokes!

"...lots of items that sell a few units is often as large as the market for a few items that sell a lot of units."

Levelling the product playing fields - I like it.

Thanks for the review. I'm off to Amazon.

Hey Guy -- I too think Gladwell is a great writer. I read Freakonomics, Tipping Point, and Blink back to back and one of the difference between the two sets of writers is that Gladwell gets down and spends time with his own interviews, often spending lots of time. He conducts tons of original research, where the Freakonomics guys mostly rely on others' research.

There are many other differences, of course, but that one gives Gladwell's writing a stronger feel.

Thanks for the detailed summary Guy!

I thought you mentioned in a recent post to "not believe all this long tail strategy stuff you hear." Two things came to mind 1) a friend with a small online used book store operating way out in the tail and doing so-so and, 2) Mr. Jimmy Buffett who has had only one "hit" in his career but has sold shiitake-loads of his music. I guess it means word of mouth can/may create sustainability out in the tail.

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