Authors: Chris Anderson
Google now has revenues of more than $5 billion a year, and that’s doubling every nine months. Although most of its revenues come from the head of the curve, most of its customers are somewhere in the tail, which suggests that this is where much of its growth will come in the future. And Google’s just getting started.
One of the interesting things about Google is how many ways it plays the Long Tail game. As discussed, it’s an advertising aggregator, creating a market where the Long Tail of advertisers can reach the Long Tail of ad-driven publishers. But Google is even better known as an information aggregator, and as such it has shown some interesting techniques in evolving away from a one-size-fits-all model.
One of the problems with Apple’s iTunes music aggregator is the limited way it displays very different genres of music. The same challenge exists with information—it may all start with words, but they can appear in many different contexts. Google realized that different contexts need different presentations. So if you’re searching for a place, you probably want a map view. If you’re searching for an image, you probably want a visual view. If you’re searching for video, you probably want a video view. Again, one size doesn’t fit all—even in the case of a search. Google now offers different styles of “vertical search” (search just within a single category): Google Local, Google Scholar (academic papers), Google Maps, Google Product Search, Google News, Google Book Search, Google Video, and so on.
Now that Google has been joined by Yahoo!, Microsoft, and others, the rise of the vertical search market is simply a case of slicing aggregation into niches, optimized for different needs. Each of Google’s search products has a unique presentation and pulls from a subset of
the information universe that gives the most appropriate and useful results. In other words, it customizes the display of searches in a way that’s meaningful for each particular medium.
The virtue of this is that if you know at least the kind of thing you’re looking for, and if you use a focused, fine-sliced aggregator rather than a generalized aggregator, you’ll get better results. And the better the result, the more likely people are to continue digging deeper, barreling down the Long Tail of everything.
HOW TO CREATE A CONSUMER PARADISE
The secret to
creating a thriving Long Tail business can be summarized in two imperatives:
The first is easier said than done. Fewer than a dozen of the 6,000 films submitted to the Sundance Film Festival each year are picked up for distribution, but most of the rest of them cannot be legally shown outside of a festival because their music rights have not been cleared. Likewise for most TV programming in the networks’ archives: It’s too expensive to clear the DVD or streaming distribution rights to the music.
Similar rights issues also keep classic music and video games under lock and key. Until we have some way to clear the rights to
all
the titles in
all
the back catalogs—thoughtlessly, automatically, and at industrial scale—legal restrictions will continue to be the primary barrier to growing the Long Tail.
The second necessary element is moving more quickly. From collaborative filtering to user ratings, smart aggregators are using rec
ommendations to drive demand down the Long Tail. This is the difference between push and pull, between broadcast and personalized taste. Long Tail businesses treat consumers as individuals, offering mass customization as an alternative to mass-market fare.
For the entertainment industry, recommendations are a remarkably efficient form of marketing, allowing smaller films and less mainstream music to find an audience. For consumers, the simplified choice that comes from following a good recommendation encourages exploration and can reawaken passions for music and film, potentially creating a far larger entertainment market overall. (The average Netflix customer rents seven DVDs a month, three times the rate of the bricks-and-mortar faithful.) The collateral cultural benefit is much more diversity, reversing the blanding effects of a century of distribution scarcity and ending the tyranny of the hit.
Now that you’ve got the big picture, here are nine rules of successful Long Tail aggregators:
LOWER YOUR COSTS
Rule 1: Move inventory way in…or way out.
Sears blazed the trail. It achieved its first big efficiencies with the old mail-order advantage of large, centralized warehouses. Today, the online sides of Wal-Mart, Best Buy, Target, and many others are using their existing warehouse networks to offer far more variety online than they do in their stores, because centralized inventory is so much more efficient than putting products on shelves in hundreds of stores.
To offer even more variety, companies such as Amazon have expanded to “virtual inventory”—products physically located in a partner’s warehouse but displayed and sold on Amazon’s site. Today, its Marketplace program aggregates such distributed inventory, products held at the very edge of the network by thousands of small merchants. Cost to Amazon: zero.
Digital inventory—think iTunes—is the cheapest of all. We’ve already seen the effect the switch from shipping plastic discs to streaming
megabits has had on the music industry; soon the same will come to movies, video games, and TV shows. News has left the paper age, podcasting is challenging radio, and who knows, you may already be reading this book on a screen. Eliminating atoms or the constraints of the broadcast spectrum is a powerful way to reduce costs, enabling entirely new markets of niches.
Rule 2: Let customers do the work.
“Peer-production” created eBay, Wikipedia, Craigslist, MySpace, and provided Netflix with hundreds of thousands of movie reviews. At the same time, self-service enabled Google to sell advertising for a nickel a click and Skype to sign up 60 million users in two-and-a-half years. Both are examples where users happily do for free what companies would otherwise have to pay employees to do. It’s not outsourcing, it’s “crowdsourcing.”
The advantage of crowdsourcing is not just economic; customers can do a better job, too. User-submitted reviews are often well informed, articulate, and most important, trusted by other users. Collectively, customers have virtually unlimited time and energy; only peer production has the capacity to extend as far as the Long Tail can go. And in the case of self-service, the work is being done by the people who care most about it, and best know their own needs.
THINK NICHE
Rule 3: One distribution method doesn’t fit all.
Some customers want to go to stores. Some customers want to shop online. Some customers want to research online, then buy in stores. Some customers want to browse in stores, then buy online. Some want it now; others can wait. Some customers are near stores; others are scattered to the winds. Some products have concentrated demand; others have distributed demand. If you focus on distributing to just one customer group, you risk losing the others.
It may sound like metaphysics, but the best Long Tail markets transcend time and space. They’re not constrained by any geographic boundaries, nor do they make any assumptions about when people want what they want. ITunes’ advantage comes primarily from its huge variety and convenient downloads, but being open 24/7 doesn’t hurt either.
Today, you can get
CSI
on broadcast TV, video-on-demand, iTunes download, DVD (purchase or rent), and TiVo season pass, and watch it on any device from a plasma screen to a Sony PSP. Likewise for some NPR radio shows, which you can get via terrestrial broadcast (real time and delayed), satellite broadcast, Web streaming, podcast, and, if you like, an emailed transcript. Multiple distribution channels are the only way to reach the biggest potential market.
Rule 4: One product doesn’t fit all.
Once upon a time, there was one way to buy music: the CD album (so few CD singles were sold that many artists didn’t bother offering them). Now consider the choice you have online: album, individual track, ringtone, free thirty-second sample, music video, remix, sample of somebody
else’s
remix, streamed or downloaded, all in any number of formats and sampling rates.
Umair Haque calls this “microchunking.” Increasingly, the winning strategy is to separate content into its component parts (“microchunks”), so that people can consume it the way they want, as well as remix it with other content to create something new. Newspapers are microchunked into individual articles, which are in turn linked to by more specialist sites that create a different, often more focused, product out of content from multiple sources—the blogger as DJ, remixing the news to create something new.
We’ve seen this before in the form of product and brand segmentation—a dozen different kinds of spaghetti sauce for a dozen distinct palates. Now that trend is being extended to everything from individual video-game characters and levels (mix your own game) to selling cookbook chunks one recipe at a time. Each recombination taps a different distribution network and reaches a different audience. One size fits one; many sizes fit many.
Rule 5: One price doesn’t fit all.
One of the best understood principles of microeconomics is the power of elastic pricing. Different people are willing to pay different prices for any number of reasons, from how much money they have to how much time they have. But just as there’s often room for just one version of a product in traditional markets, there’s often room for only one price, or at least one price at a time. In markets with room for abundant variety, however, variable pricing can be a powerful technique to maximize the value of a product and the size of the market.
EBay, for instance, offers auctions (typically lower prices, but at the cost of greater hassle and uncertainty) or “Buy It Now” (higher prices). Even iTunes, which has stuck with a single price of $0.99 per track for simplicity’s sake, will give you a lower price if you buy the tracks as part of an album. Rhapsody has gone even farther, experimenting with track prices from $0.79 to $0.49, and finding that cutting the price in half roughly triples sales.
The natural model for music and anything else where the marginal costs of manufacturing and distribution are close to zero is variable pricing. Retailers can charge more for the most popular items and less for the less popular. Why hasn’t that happened already? Because the labels typically charge a fixed wholesale price of around $0.70 per track, largely to avoid “channel conflict” with CDs, which still produce the bulk of the music business revenues. However, in 2007, acts like Radio-head and Prince experimented with distributing music for free or, in the case of the former, actually let customers set their own price. Someday the labels will see the light and pricing will become more fluid, allowing retailers to draw consumers down the Tail with lower prices.
LOSE CONTROL
Rule 6: Share information.
The difference between an overwhelming shelf of look-alike products and the bliss of “rank by best-selling” is information. In one case, the
store knows what sells best but doesn’t tell its customers. In the other, it does. So too for “rank by price,” “rank by review,” and “sort by manufacturer.” All that data already exists; the question is how best to share it with customers. More information is better, but only when it’s presented in a way that helps order choice, not confuse it further.
Likewise, information about buying patterns, when transformed into recommendations, can be a powerful marketing tool. Deep information about products, from reviews to specifications, can answer questions that would have otherwise halted a purchase. Explaining why a consumer is getting a certain set of recommendations builds confidence in the system, and helps consumers use it better. Transparency can build trust at no cost.
Rule 7: Think “and,” not “or.”
One of the symptoms of scarcity thinking is assuming that markets are zero-sum. In other words, the mistake of assuming that everything is an either/or choice. Release this version
or
that version. Sell this color
or
that color. On shelves or broadcast channels, that’s natural enough: There really is room for only one product in any single slot. But in markets with infinite capacity, the right strategy is almost always to offer it
all
.
The problem with choosing is that it requires discrimination, and the process of discrimination requires time, resources, and guesswork. Someone must decide, on the basis of some criteria, that one thing is likely to be more successful than another. They may be right at the macrolevel, but such a decision almost always gets it wrong at the microlevel. Consider the phenomenon of the “alternative ending” on DVD movies. Even if most people like the standard ending best, there are always some who prefer the alternative one. Now they can have both. Extend that to the foreign language option, the choice of standard or widescreen, and even the variety of cuts for various ratings (PG, PG-13, R, and uncensored)—each option has an audience, even if it’s not as big as the primary audience.
All those “extras” are enabled by the abundant capacity of the DVD, allowing directors to “waste” storage with content that they could not have included in a more scarce medium, such as a theatri
cal screen or a videotape. So, too, for any digital market online, where the falling price and rising capacity of storage ensure that whatever capacity you want, it’s only a matter of time before it’s virtually free. The more abundant the storage and distribution, the less discriminating you have to be in how you use it. “And” is a far easier decision than “or.”
Rule 8: Trust the market to do your job.
In scarce markets, you’ve got to guess at what will sell. In abundant markets, you can simply throw everything out there and see what happens, letting the market sort it out. The difference between “pre-filtering” and “post-filtering” is predicting versus measuring, and the latter is invariably more accurate. Online markets are nothing if not highly efficient measures of the wisdom of crowds. Because they’re information-rich, it’s relatively easy for people to compare goods, and spread the word about what they like.
Collaborative filters, for instance, are a market-based way to do product promotion. Popularity rankings are another voice of the market, amplified by the positive-feedback loop of word-of-mouth. And ratings are collective opinion, quantified in ways that make it easy to compare across products and sort them. All of these tools can order variety in ways that make sense to consumers, without some retailer having to guess at what will work. The lesson: Don’t predict; measure and respond.
Rule 9: Understand the power of free.
Free gets a bad rap, evoking piracy and other such evaporations of value. But one of the most powerful features of digital markets is that they put free within reach; because their costs are near zero, their prices can be, too. Already, one of the most common business models on the Internet, from Skype to Yahoo! Mail, is to attract lots of users with a free service and convince some of them to upgrade to a subscription-based “premium” one that adds higher quality or better features. Because digital services are so cheap to offer, the free cus
tomers cost the company so little that it can afford to convert only a tiny fraction of them to paying customers.
Samples, from thirty-second music clips to video previews, are possible because the cost of delivering bits on broadband pipes is so low. Video-game makers routinely distribute demos with a few free levels; if you like them, you can pay to unlock the others. In 2005, Universal released the first nine minutes of
Serenity
(a sci-fi film) online, free and uncut. Why? Because it could. The cost of delivering nearly 10 percent of a movie to anyone who wanted to watch it online was trivial compared to the marketing value of pulling an audience into the plot and leaving them with a cliffhanger, an itch that only a paid trip to the movie theater could scratch.