Blockbusters stomp on the long tail, Harvard study finds
Remember the long tail? It was the omnipresent theory that suggested there were oodles of cash to be made by monetizing a market's disparate tastes via the Web.
Why sell a million copies of Led Zeppelin's Coda, when you can make a thriving business of selling two to three copies of your neighbor's garage band to Rick, two copies of a Nigerian band's tunes to Susan, and so on?
As new research highlighted in Harvard Business Review suggests, the answer may well be that the real money is in the blockbuster, not the long tail, after all:
Meanwhile, our research also showed that success is concentrated in ever fewer best-selling titles at the head of the distribution curve. From 2000 to 2005 the number of titles in the top 10 percent of weekly sales dropped by more than 50 percent--an increase in concentration that is common in winner-take-all markets. The importance of individual best sellers is not diminishing over time. It is growing....
Is most of the business in the long tail being generated by a bunch of iconoclasts determined to march to different drummers? The answer is a definite no. My results show that a large number of customers occasionally select obscure offerings that, given their consumption rank and the average assortment size of offline retailers, are probably not available in brick-and-mortar stores. Meanwhile, consumers of the most obscure content are also buying the hits. Although they choose products of widely varying popularity, top titles generally form the largest share of their choices. (The wide appeal of these top titles is, of course, what makes them popular in the first place.)
Not only this, but the researchers find that "no matter how I slice and dice the customer base, customers give lower ratings to obscure titles." So, not only is the long tail less profitable, it's also less enjoyable. Chris Anderson, the man who wrote The Long Tail and whose theory became de rigueur, tries to defend his theory, but it doesn't measure up to Harvard Business Review's analysis.
What's the takeaway? If you're a vendor, you're still better off trying to appeal to the short tail of demand, whatever your industry. If you're an open-source vendor, in particular, you probably can't afford to do otherwise. The economics of open source generally favor monetizing the unwashed masses of an existing market.
Indeed, this is the biggest opportunity in open source: To bring Open Product X, Y, or Z to an existing but top-heavy market, one where vast hordes of would-be buyers are priced out of a market or have been kept out by the complexity of existing products. This is what Alfresco does for Enterprise Content Management/Collaboration. It's what Openbravo does for ERP. It's what SugarCRM does for CRM. And so on.
Is there money in the long tail? Probably. Do you want it? Probably not.
I would agree with your point but for different reason, Netflix is extremely profitable on the blockbuster side of their business and therefore is able to afford having a huge catalogue of titles that will rent hundreds of copies subsidized by the movies that rent a million or more copies.
If you read Chris Anderson's defense of his book "...the top 10% of titles (out of more than a million in that data sample) accounted for 78% of all plays, and the top 1% account for 32% of all plays."
This would Mean that even as the head of the tail grows even more concentrated and powerful the tail is becoming larger and larger, perhaps if mr Matt Asay had chosen
a less inflamatory heading for the article the main point would not be obscured.
The blockbusters will continue to be blockbusters but the tail of the market (the 22% of plays remaining after the top 10%) continues to grow, and if you take into account the ability of the internet to lower the cost of entry perhaps there is profitability to be had for the players on the lower end of the spectrum.
Taking into account the examples mentioned by matt if Alfresco , Openbravo and SugarCRM had the same cost structure as SAP or Microsoft they would be dead in less than 2 quarters, but the open source model allows them to not only survive but thrive on the 22% tail end of the market.
I would agree with your point but for different reason, Netflix is extremely profitable on the blockbuster side of their business and therefore is able to afford having a huge catalogue of titles that will rent hundreds of copies subsidized by the movies that rent a million or more copies.
If you read Chris Anderson's defense of his book "...the top 10% of titles (out of more than a million in that data sample) accounted for 78% of all plays, and the top 1% account for 32% of all plays."
This would Mean that even as the head of the tail grows even more concentrated and powerful the tail is becoming larger and larger, perhaps if mr Matt Asay had chosen
a less inflamatory heading for the article the main point would not be obscured.
The blockbusters will continue to be blockbusters but the tail of the market (the 22% of plays remaining after the top 10%) continues to grow, and if you take into account the ability of the internet to lower the cost of entry perhaps there is profitability to be had for the players on the lower end of the spectrum.
Taking into account the examples mentioned by matt if Alfresco , Openbravo and SugarCRM had the same cost structure as SAP or Microsoft they would be dead in less than 2 quarters, but the open source model allows them to not only survive but thrive on the 22% tail end of the market.
I would agree with your point but for different reason, Netflix is extremely profitable on the blockbuster side of their business and therefore is able to afford having a huge catalogue of titles that will rent hundreds of copies subsidized by the movies that rent a million or more copies.
If you read Chris Anderson's defense of his book "...the top 10% of titles (out of more than a million in that data sample) accounted for 78% of all plays, and the top 1% account for 32% of all plays."
This would Mean that even as the head of the tail grows even more concentrated and powerful the tail is becoming larger and larger, perhaps if mr Matt Asay had chosen
a less inflamatory heading for the article the main point would not be obscured.
The blockbusters will continue to be blockbusters but the tail of the market (the 22% of plays remaining after the top 10%) continues to grow, and if you take into account the ability of the internet to lower the cost of entry perhaps there is profitability to be had for the players on the lower end of the spectrum.
Taking into account the examples mentioned by matt if Alfresco , Openbravo and SugarCRM had the same cost structure as SAP or Microsoft they would be dead in less than 2 quarters, but the open source model allows them to not only survive but thrive on the 22% tail end of the market.
I'm not convinced that the long tail is a dead model.
However, in terms of "owning" the long tail provider positioning in the market, the strategy is very powerful, *even* if most of your sales comes from the short head. Being positioned in customers' or prospects' minds as "the place that has all the XYZ (movies to rent, books to buy, etc.) I might want" makes it more likely that I will use that provider as my default supplier of *all* XYZ, whether blockbuster or obscure.
Even more powerful as a incentive to use a supplier is easy on-line access combined with long tail supply. The ease and certainty in ordering something from a supplier that one knows will carry the desired XYZ trumps being pretty certain that one can find the desired XYZ at a local physical store. And, of course, on-line access and the corresponding ability to carry larger inventory (because you've got it all located at a giant warehouse somewhere in Nevada rather than multiple stores strewn throughout the US) are highly integrated pieces of the same strategy.
And *everyone*, no matter who they are, has a mix of mainstream blockbuster and long tail individual-desired XYZs in their likely purchasing mix, making a long tail offering more attractive, *even* if the amount of long tail XYZ purchases are relatively small.
I think Anderson overstated his thesis, but, let's face it, who's going to buy a book with a diffident theme rather than a "there's a new world out there" theme, especially from the editor of Wired!
So in sum, even if long tail profitability is rather small (and it's undoubtedly somewhere between the HBS article and Anderson's febrile vision), competitive advantage adheres to a market entrant that offers (and more importantly, owns) that market position (e.g., Amazon, Netflix).
A bestselling novel can be profitable for a publisher. But the likely candidates for bestsellers get bid up and publishers often guess poorly. Hence they often lose money on a blockbuster strategy. The same holds for movie studios. Netflix needs to provide ready access to new release "blockbusters" and their customers punish them if they are not readily available. This forces Netflix to eat a lot or margin on their new release business and is large reason why they focus of having great merchandising algorithms to push customers off of the new release wall. more thoughts at http://blog,workhound.co.uk
Bill
workhound.co.uk
A bestselling novel can be profitable for a publisher. But the likely candidates for bestsellers get bid up and publishers often guess poorly. Hence they often lose money on a blockbuster strategy. The same holds for movie studios. Netflix needs to provide ready access to new release "blockbusters" and their customers punish them if they are not readily available. This forces Netflix to eat a lot or margin on their new release business and is large reason why they focus of having great merchandising algorithms to push customers off of the new release wall. more thoughts at http://blog.workhound.co.uk
Bill
workhound.co.uk