Authors: Chris Anderson
As an example, I recently went looking in my local Blockbuster for
Akira
, a Japanese anime classic. What section to look in? Science fiction? Animation? Foreign? Action? As it turned out, it didn’t matter—
they didn’t have the film. Physical stores’ advantages of immediate gratification are of little meaning if you can’t find what you want.
On Amazon, however, it was simply a matter of typing “akira” into the search bar (and just note how there’s no need to capitalize or even necessarily to spell it quite right). The film immediately came up, as did two other versions (as well as both new and used copies of all three). If I had wanted to browse by category, any of those above would have worked; the film was listed in all of them. A tempting package deal with
Ghost in the Shell
was offered, another virtue of dynamic marketing and positioning. Likewise, Amazon also recommended two other films it thought I might like:
Princess Mononoke
and
Ghost in the Shell 2
. And, of course, both of those were also in stock and cheaper than Blockbuster. The experiences I had with these two stores couldn’t have been more different.
In a sense, an online retailer is to a bricks-and-mortar store what Google is to a library. Because of the constraints of physical shelves, the real-world outlets are forced to create taxonomies and assign everything to them. I tremble to think where the Dewey Decimal System will place the book you’re reading right now. Technology? Economics? Business? Culture? None of them are quite right by themselves. Sadly, there is no category for “all of the above.”
Google, by contrast, will put it in no category at all. The book’s natural place (s) in the world will emerge spontaneously after the fact, measured in terms of incoming links. My publisher might call this a “business book,” but if the world decides it’s really more “popular economics” and links to it in that context, then that is what it is and what it will be, along with virtually any other description that someone may find relevant. In a Google world, meaning and ontology are entirely in the eyes and minds of the beholder. One thing can be many different things to many different people. As such, Google’s algorithms simply measure the wisdom of the crowd by calculating the most appropriate results for the keywords a searcher types in.
Meanwhile, Amazon will start by giving this book five or six category designations. Customers will then have their say by “tagging” it, which means typing in any words they choose to make their own categories (“Internet,” “blogger,” “to read later,” “Pareto,” “good geek gift,”
etc.). Others will be able to see what tags have been assigned, which is another useful piece of context that will help this book find its place in the world. This process of tagging creates what are known as “folksonomies”—after-the-fact categorizations based entirely on whatever people choose to say is meaningful about something. Interestingly, Amazon gives these tags so much weight that they appear
before
its own list of preset categories.
Still, that is only the start of the multidimensional process of teasing out what something is in the infinite bookstore. Amazon’s software will digest every word of this book’s text and determine a list of “statistically improbable phrases,” which are word combinations that do not appear in many, if any, other books. In a sense, these will comprise a unique fingerprint of my book, but they’re also an indication of any unique ideas or subject areas, which is useful in itself. The software will also list unique capitalized words, which will help define the factual foundation of my book. Then, Amazon will deploy all its usual collaborative filtering recommendation tools to find books that other customers looked at or bought along with mine, which will help define the book through its peer set.
THE TYRANNY OF GEOGRAPHY
Shelves have another disadvantage: They are bound by geography. Their contents are available only to people who happen to be in the same place as they are. That is, of course, also their virtue: The stores near you are convenient and offer the immediate gratification of sending your purchase home with you. For all the time we may spend online, we do, after all, live in the physical world.
The main constraint of bricks-and-mortar retail is the need to find
local
audiences. Whether we’re talking about movies, CDs, or any number of products, bricks-and-mortar retailers will carry only the content that earns its keep, products that attract the greatest amount of interest (and dollars) from the limited local population.
In America, 20 percent of the population live more than eight miles from the closest bookstore; 8 percent live more than twenty miles
away. The numbers for music stores, movie theaters, and video rental shops aren’t much different. Even if everyone wanted to buy that way, many can’t.
Remember, in the tyranny of physical space, an audience too thinly spread is the same as no audience at all. Thus, local demand must be at a high enough concentration to compensate for the high costs of physical distribution. In other, more obvious words, not enough local demand equals no store.
This is true for goods of any sort. There is a reason why ski stores are not often found in hot climates and diving stores are not often found inland (despite the fact that lots of people fly from both sorts of places to ski and dive). There may be a local demand for the goods, but again, the question for any store owner is whether there’s
enough
local demand. The calculation goes a little like this:
Sales =
The percentage of the population who might buy
Minus
The percentage not within ten miles of the store
Minus
The percentage that never comes in
Minus
The percentage that won’t see the item on the shelf
And so on…
It doesn’t have to be that way. In a sense, you can think of there being a Long Tail of customers, just like that of products. Imagine that the horizontal axis of the curve is towns, and the vertical is the number of potential customers for a product in each of those towns. A traditional retailer would have to focus on the head of the curve, where the customers are most concentrated. Yet as we’ve already learned, most of the customers are in the tail, distributed over many towns. That’s the dirty secret of traditional retail. Stores leave business on the table simply because their economics doesn’t allow them to pursue it.
In a nutshell, that is the business case for online retailers. Because they
can
reach all of those many low-density towns as efficiently as the
high-density ones, they can tap the Long Tail of distributed demand. That’s exactly what the Sears, Roebuck catalog did a century ago: tap the distributed demand for variety in the American heartland. Today, we just do it faster, cheaper, and with even greater variety.
SCARCE AIR
The introduction of radio—and then television—was meant to have exactly that kind of egalitarian effect. For mass-market fare, the economics of broadcast are hard to beat: They allow you to reach a million people as cheaply as one. Yet while the costs of the transmitter and license are fixed, the advertising revenues are variable. The more people you reach, the more money you make. In the Short Tail of hits, it’s as simple as that.
After the arrival of broadcast in the middle of the twentieth century, there was suddenly a way to bring a show to every home and a newsreel to everyone every night. Compared to going to live theater or the movies, radio and television were an incredibly democratizing force, extending the audience for audio and video news and entertainment farther down the tail of demand than anything before or since.
Still, don’t forget that broadcast technologies have limitations of their own. It’s the physics: Airwaves can carry only so many stations, and coaxial cables only so many TV channels. And, most obviously, there are only twenty-four hours in a day that can be programmed.
If you’re a television or radio executive, these constraints have a very real effect. Each slot on the dial, each channel on a cable lineup has a cost. Sometimes it’s the cost of broadcasting licenses and cable carriage fees; other times it’s the expectations of an advertiser. In either case, there’s only one way to turn a profit (or at least break even): get a big enough audience to make the most of that valuable broadcast slot.
The traditional solution is to focus on hits. Aside from using scarce distribution resources efficiently by aggregating and concentrating audiences, hits also benefit from network effects in marketing, otherwise known as buzz. Once advertising gets them to a certain level of popularity, word of mouth can kick in and organically break them through
to the next levels, all the way up to blockbuster status if they’ve really struck a chord.
But how do you make a hit? Well, there are two basic options: (1) search far and wide for rare, unpredictable genius, or (2) use lowest-common-denominator formulas to manufacture something optimized to sell. You can guess which one is most common.
The result is the hit-driven media and entertainment culture that has come to define the second half of the twentieth century. It’s defined by:
Umair Haque, who writes about digital media economics, phrases it in terms of “consumer attention.” A formulaic TV show designed for broad, if shallow, appeal may get watched (along with commercials that go along with it). But it will get watched more if there’s little else on, which was pretty much the case for most of television’s history. So, too, for movies and radio:
The general principle of the last hundred years of entertainment economics was that content and distribution were scarce and consumer attention was abundant. Not everyone could make a movie, broadcast on the airwaves or owned a press. Those who could and did had control of the means of production. It was a sellers’ market, and they could afford to waste attention.
One statistic—ad clutter on television—is telling. Following deregulation in the mid-1980s, network TV ad time per hour increased from six minutes and forty-eight seconds in 1982 to twelve minutes and four seconds in 2001 (that’s an increase of roughly 100 percent!). Why? Because Americans continued to watch more and more television, even as the ad load went up. Since they continued to give their attention despite getting less and less content, why not exploit that? As
Haque puts it, from a network perspective, “increased ad time was a cost borne by the players on the other side of a two-sided market.” No wonder the ads were taking over.
THE DANGERS OF “HITISM”
It takes a long time to unlearn the last century’s lessons in distribution scarcity. But we’re starting to do so, starting with the first generation to grow up online.
In 2001, the first wave of “digital natives” came of age. Kids who started using the Internet as twelve-year-olds in 1995 turned eighteen (the beginning of Nielsen’s 18–34 demographic that is highly coveted by advertisers). The males of the species, in particular, were watching less television. Given a choice between the infinite variety and easy addodging online versus network TV, they were choosing the former—the 18–34 viewership figures started to drop for the first time in a half century.
Although the shift is still small, it’s real: The audience is migrating away from broadcast to the Internet, where niche economics rule. Given greater choice, they are also shifting their attention to what they value most—and that turns out
not
to be formulaic fare with lots of commercials. They are, to use Haque’s term, starting to take back their attention, or at least value it more highly.
The lesson for the entertainment industry should be clear: Give people what they want. If that’s niche content, then give them niche content. Just as we’re starting to rethink the premium we pay for hits and stars, we’re also starting to realize that the nature of the goods and participants, and their incentives, in this new market are also different.
It’s human nature to see things in absolutes and extremes, black or white, all one thing or all another—hits or misses. But of course the world is messy, gradated, and statistical. We forget that most products aren’t big sellers, because most of the ones we see on the shelves do indeed sell in huge numbers, at least compared to those that didn’t make it to the store in the first place. Yet the vast majority of virtually everything, from music to clothing, is at best only modestly popular. Most
things fail the hit test, yet somehow they continue to exist. Why? Because the economics of blockbusters is not the only economics that works. Blockbusters are the exception, not the rule, and yet we see an entire industry through their rarefied air.
For instance, Hollywood economics is not the same as Web video economics, and Madonna’s financial expectations are not the same as Clap Your Hands Say Yeah’s. But when Congress extends copyright terms for another decade at the request of the Disney lobby, they’re playing just to the top of the curve. What’s good for Disney is not necessarily what’s good for America. Likewise for legislation restricting technologies that allow digital file copying or video transmission. The problem is that the Long Tail doesn’t have a lobby, so all too often only the Short Head is heard.
These are some of the other mental traps we fall into because of scarcity thinking: