Notes

[MUSIC]
So, hi again everyone.
Today, I'm very excited to present to you
a concept that I
think is really, really important for
understanding how online and offline come
together.
it's called the long tail.
The idea was developed by a fellow called
Chris Anderson
who actually wrote a book elaborating on
the entire concept.
I'm going to give you the key ideas from
Chris's book.
But this is something that you really want
to keep in mind as you
think about how the Internet is changing
our behavior with respect to both selling
and
also shopping and buying.
So just to get us going, I'll first of all
show you how we're going to proceed.
We're going to start out with a little bit
of background on
what things used to be like before the
internet came along.
Then I'm going to present The Long Tail
Concept
and a little bit of economics on it.
Then I'm going to to introduce the
research study by some colleagues at MIT,
where they looked at Omni Channel and how
the Long Tail played out there.
And then finally a piece of my own
research on something
I'm calling, the spatial long tail.
I'll become clear what that is as we go
through our session.
So, let's start at the start by looking at
a picture of the so-called long tail.
It'll be coming up a lot, so if you don't
get the full thing right now, that's fine.
I just want to give a brief overview.
So the long tail has two axes, a y axis
and an x axis.
The Y axis is a measure of popularity
which in
many cases is going to be the sales of the
product.
It could also
be the number of downloads, the number of
people who follow somebody on Twitter, for
example.
Just some measure of popularity.
On the X axis, all the products are lined
up from the
most popular product all the way down to
the least popular product.
So let's take a common example that I
think we could all relate to.
Let's think about all the books that are
available for sale on amazon.com.
And let's imagine there are perhaps five
million books for sale.
I'm not sure what the number is, but I
know it's a
huge number, and certainly way more than
the number of
books that could ever be sold in a
physical retailer.
And let's imagine that the top-selling
book
is Harry Potter and the Sorcerer's Stone.
People seem to like Harry Potter.
So let's imagine that's the top book.
And way, way down the tail, at rank
3,900,000, there could be some other book
that's
a much more obscure book about, you know,
gardening in Philadelphia or something of
that sort.
So the idea of the long tail is, that the
products that
are way out in the orange area to the
right are so unpopular.
Or so niche, and so slow to turn over that
it just wouldn't make
sense for you and I to have a physical
book store to sell them.
That's the idea.
The products on the head, on the other
hand,
those are the ones that we would want to
stock if we had a physical store, because
those
are the ones that are going to sell the
most.
That's the distinction between the head
and the tail and
the key idea of the long tail is that the
internet makes it
possible for us to have access to all of
those products in the tail.
And in fact, depending on what kind of
seller you are, the total sales and
profits
coming from all those products in the
tail, can really add up to be quite a lot.
Ok, so that's a basic description.
Let's continue on with a little bit of
background and a little bit of history.
So historically, pre-internet at least, we
all lived in a world of so called hits.
Blockbusters,
Blockbuster movies, Blockbuster,
Blockbuster music albums and so on.
And most people ended up buying using
consuming the
things that were popular, and firms also
were motivated to
try and produce those Blockbusters
However, because of the
internet, economics of distribution have
really been changed a lot.
Now it's possible to offer much, much more
variety than ever before.
So, now I want to address the long tail
from two different perspectives, both the
supply side and the demand side.
Both of these perspectives are important
when we think about markets.
So on the supply side, because of the
Internet, it's now possible for sellers to
just
offer a lot more variety, whether it's
variety
of beer, diapers, flowers, movies, songs,
you name it.
It's possible to offer a lot more variety
because
the economics of distributing those
products has changed dramatically.
Secondly, there's also a demand side
explanation for the long
tail or a demand side story that goes
along with it.
So in the old days, how would I
find out about sort of unusual products
and services?
Perhaps through friends and family, or
people that I meet, acquaintances.
But, essentially I may be locked out of
understanding those products
or coming across them because they
wouldn't be carried by the retailers.
Remember, the retailers or the stores
would only really carry the products that
were in the head, so to find products in
the tail was very, very difficult.
So, one implication of this is our tastes
now are
becoming more varied because, simply, we
have access to more demand.
Acc-, sorry, access to more variety of
product than we ever had before.
So now let me compare and contrast the
economics of the long tail, that we're
going to look at in a second, with the
old economic ideas that are still pretty
useful,
but have been around for a long point in
time.
A long period of time.
So, there was a fellow called Pareto who
noticed
many, many years ago, back in 1897, that
about 80%
of all the wealth of the residents and
citizens of
the UK was owned by only 20% of the
people.
more recently we've often discovered that
80% of the profits that we make
are based on only 20% of the products that
we sell, or 20% of
the customers that we have.
Hence the common 80/20 rule.
Now the long tail kind of changes that
rule
a bit because its just its not necessarily
80/20 anymore
we can have a huge tail of products a
faster
number that actually account for
individually very very little profit.
But collectively account for a lot.
So let's continue on and see how that
works out.
Another law thats kind of an interesting
one is named after a fellow
called George Zipf, Zipf's Law.
And what he found is if you take a
manuscript or a book the word that's the
second
most popular word in the book, or most
used
word is about half as frequent as the most
popular.
And the third most commonly used word is
about
one third of the occurrences as the most
popular one.
This law also applies to other things like
the
distribution of populations and so forth
within a country.
So here's
two key principles on the slide that
really underly this idea of the
long tail, and also come up again when we
talk about preference isolation.
So let's start with the first one, what I
put
on this slide is this idea of tyranny of
locality.
What does that mean?
That means that the things that are
available to you locally
are dictated by whatever the local sellers
decide to offer you.
And they may be different from your own
taste, so
now what I like to do before we get into
more detail on the long tail, is to ask
you all out there two questions.
One related to supply and the other
related to demand.
So I'd like you to think about a product
that you use or a product that
you like, that you can't find available
locally,
because it's just not popular among your
local neighbors.
So imagine you like to sunbathe and go to
the beach, and you like to use a
special kind of lotion that you can't
find,
because most of the pharmacies in the area
only
offer very high SPF products, and that's
not what you want.
So try and think of a product that you
can't find locally.
That's going to be a demand-side
explanation for the long tail, where
all of that variety is going to be
available on the internet.
Secondly, I'd like you to think about if
you were a seller on the supply side, and
you had a sort of unusual product and
where were you, would want to sell that
product.
So the product that was mentioned in
Chris's book and I'll just
mention here again There's actually a very
good
movie called Once Upon a Time in India.
Now, if I wanted to show that on physical
screens in the United
States, I'd probably have to go to large
cities like Los Angeles and
New York where there's a high
concentration, perhaps of people from
India, or
who have an affinity with Indian culture,
And I would show it there.
It wouldn't have been possible for me to
show it to the
two and three people all over the country
in different markets who actually
would be interested.
But now through the internet, what I can
do, is
I could make it available for download,
and with two
people watching here, and three here, four
here and five
here, that would add up to a lot of
demand.
So hopefully you can see through those two
examples, and the one
that you've thought about, that the long
tail addresses both demand for product.
You can get that variety now.
And also it affects the way product is
being supplied.
So let's go back to our diagram.
Just going to to make two more points
on the diagram.
And there are two questions on the bottom
that I'm going to lead us through.
So here is the head in the red, and the
tail in the orange again.
And the first question I'd like to pose to
you and then I'll release my answer for
it, is how satisfied would you be with a
random product that you drew from either
the head or the tail?
Might be one of those fantastic
movies from that great little country
that's
south of the equator, what's it called?
Not Australia, the other one, the one to
the,
to the right, New Zealand, called Lord of
the Rings.
So, that's a pretty popular movie, and if
you just
randomly sort, odds are you'd be quite
happy with it.
You might like it eight out of ten.
If on the other hand I sampled a really
obscure, odd movie.
That was not that popular, a niche movie
from the tail.
And I showed you that, odds are you
probably wouldn't like
it very much.
So in general, as you go from he head
to the tail, the average level of
satisfaction declines.
But that's just the average, as you've
learned from Pete,
[INAUDIBLE]
and variance is also very important.
Now, there may however be a product in the
tail that most other people don't like,
but for you
is a ten out of ten movie, or song, or
book, or whatever it is else that you're
looking for.
So if there were an efficient way for you
to filter and get
into the long tail, you could find stuff
that you really, really love.
That's the idea.
So on average as you go from the left to
the right Your
satisfaction would be coming down if you
were
shown a random product, but your
satisfaction could be
really high if you were able to go into
the right and find the things you exactly
wanted.
So let's continue with those ideas.
What are the main characteristics of the
long tail that we have here on the slide?
So, first of all the ratio of niche
product sales to big hit sales is
changing.
Now there's more demand coming from all of
those niche products.
Being added together.
The distribution
efficiency is also changing.
You can now get access particularily to
content-type products on tablets, and also
mobile phones.
In terms of being able to find your
way into the long tail, that's where
consumer reviews
and so on come in, and we're going to
be talking more about reviews in a
subsequent discussion.
So, the long tail, as I put here
on the slide, is just culturally
unfiltered by scarcity.
So in the old days,
the owner of the store, again our friend
Chris who's doing the video here, the
owner
of the store he would decide what as going
to be offered on a local market.
He would decide what movies he would show
on the screen.
He would decide what beer was going to be
available in his liquor store.
But now, through the long tail, all of
those things
can be made available through the
Internet.
[MUSIC]