Wednesday, November 5, 2008

The Long Tale of the Tail

Supply and Demand seems to be the running them of the article. Actually, lack of supply and lack of demand sounds more appropriate. First off, for a company to sell their product they need an audience. Without an audience there is no profit. Not only do the customers buy the products but they also advertise.

One problem we have today is that we live in a world of scarcity. A world where there is not enough shelf space for all the CDs, DVDs, and games produced. Not enough screens to show all the available movies. Not enough channels to broadcast all the TV programs, and not enough radio waves to play all the music created. Now however with online distribution and retail, we are entering a world of abundance. What we have to learn is that our society is not just driven for the most popular product. Everyone has their own little niche of movies or music. Also an important point from the article is that the entertainment business looks to make hits, and not sales. We assume that hits are the only types of music that should exist.

Now this is where the tale of the tail comes into play. Rhapsody (a company owned by Real Networks) is a subscription based streaming music service that offers more than 735,000 tracks. As a subscriber to Rhapsody they have their entire hit songs located on their main page, but they also have a wide variety once you go looking. This is known as the tail effect, with the hit songs making up the bigger and furrier part of the tail, and the lesser known songs making up the end of the tail. Other companies using this long tail method include Google and eBay.

There are three rules/ lessons that Anderson proposes for the entertainment industry. The first rule is to make everything available. If the public are not able to find what they are looking for on your site then they will move on to the next site. Netflix is an example of a company who constantly adds to their library of movies.

Anderson’s next rule of thumb is to cut the price in half and then lower it. When looking at the price of individual songs online the average song should only cost around 65 cents. Yet, when you log into the iTunes server, the price of an individual song costs 99 cents. He also poses the question that if a song has stopped making revenue, do you lower the price of the song.

His last rule of survival is titled “help me find it.” Websites need to help reroute their customers so there is minimal confusion.

The long tail method is a great way to explain the trends of the web over time. It helps put in perspective how companies react to customer likes and dislikes.

1 comment:

HAYNE said...

Actually, scarcity is a condition present everywhere and all the time. It's been an eternal problem: we never have enough. Further along that tangent are opportunity costs, and a whole slew of economic thoughts that would digress from the point of your article.. SO.
I thought it was really interesting how economics was applied to the "over-abundance" of goods the internet is able to supply.
I'm assuming the 3 lessons Anderson is proposing to the entertainment industry is in an attempt to maximize their revenue? As I understand it, everything he says is logical (especially the first rule he defines). However, I feel like each online company's market analyst could've picked up on these points, and what he's saying isn't anything really fresh. I'm sure corporations just have their own names for the "long-tail" method.