In other words, the demand curve moves away from the head and flattens toward the tail. Anderson argues that these goods could actually increase in profitability because consumers are navigating away from mainstream markets. Let’s face it, we probably don’t watch any more movies than we used to — maybe a little bit more because they’re available on mobile devices now, but not like five, 10, 100 times more. Knowledge@Wharton: This research looks at movie rental data from about 2001 to 2005. Corporate Strategy and Innovation Conference, Program on Vehicle and Mobility Innovation, Wharton Technology and Innovation Conference, Individualized Major in Innovation Management, Is Tom Cruise Threatened? It used to be about 50/50. Below-the-line advertising is an advertising strategy in which a product is promoted in mediums other than radio, television, billboards, print, and film. If you look at an average Barnes & Noble store, they would have maybe 100,000 book titles while Amazon would have 4 million or 5 million. The long tail theory, first postulated in 2004 by writer Chris Anderson, is based on the notion that as retailers use the internet to offer a greater number of products at less cost, they will no longer have to rely on big hits to prop up their sales. But so far from what I’ve seen, if anything, we will be living in a world of hits more and more. But a research paper coauthored by Wharton operations, information and decisions professor Serguei Netessine found quite the opposite effect: As consumers are deluged with a dazzling array of choices, they tend to stick to brands they know. The Long Tail theory was developed in 2004 by Chris Anderson, editor-in-chief of Wired magazine. for Rhapsody’s more obscure tunes (charted in red) makes up the so-called Long Tail. The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of “hits” (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. Knowledge@Wharton: You’re going to talk to us about a paper that has an intriguing title – “Is Tom Cruise Threatened?” — and looks at long tail theory. The long tail theory can be applied to the film industry in terms of how films are distributed. Serguei Netessine: Yes. The long tail also serves as a statistical property that states a larger share of population rests within the long tail of a probability distribution as opposed to the concentrated tail that represents a high level of hits from the traditional mainstream products highly stocked by mainstream retail stores. 232-The Long Tail-Chris Anderson-Business-2006 Barack 2019/08/13 2020/06/24 - hearts of the people who in the world , the business world is also true . Knowledge@Wharton: I wasn’t too worried about Tom Cruise after reading this research. It’s harder to display search results. That’s a safe way to offer niche products without committing too much to them. Knowledge@Wharton: What’s next for this research? While mainstream products achieve a greater number of hits through leading distribution channels and shelf space, their initial costs are high, which drags on their profitability. Not everyone has the proper bandwidth. The offers that appear in this table are from partnerships from which Investopedia receives compensation. I think if you are trying to bet on this strategy of offering a huge variety of products, you have to work double hard on recommendation algorithms and making sure that people find what they’re looking for. Essentially, you supplement your brick-and-mortar channel with your digital channel. Those products can then be shipped to the store, correct? Knowledge@Wharton: Amazon has relied heavily on offering tremendous variety. If you look at how many movies are available on Netflix, over time this number has been increasing and increasing. They look at what people like you have bought previously, for example. Those movies are numerous, but nobody really wants to watch them, so people kind of gravitate towards hits. It’s even harder to search on a mobile device. Overall, long tail occurs when sales are made for goods not commonly sold. Does this paper have a cautionary tale for that company? Over time, Amazon might monitor those sales and say, “Hey, this product, which used to be unknown to us, seems to be selling well. Movie watching increasingly is shifting towards online streaming, but not everyone likes it. The long tail concept considers less popular goods that are in lower demand. Soon after The Long Tail was published, BusinessWeek declared that Chris Anderson’s theory was the biggest idea of the year. The strategy theorizes that consumers are shifting from mass-market buying to more niche or artisan buying. We have mobile. Netessine: The big message is we didn’t really find any evidence of the long tail effect, and that goes contrary to the theory and contrary to a few studies that were done before us. An edited transcript of the conversation follows. We attribute it to the fact that, first, it’s hard to search this huge product variety. Long-tail may also refer to a type of liability in the insurance industry or to tail risk found in investment portfolios. It’s a big, big challenge to make a nice, searchable interface on mobile. Some of their original programming has become extremely popular. The Long Tail is an online film distribution service such as Amazon. Chris Anderson is a British-American writer and editor most notably known for his work at Wired Magazine. They only recommend something that somebody else has already watched, so they’re not going to recommend to you niche movies all that much. The head and long tail graph depicted by Anderson in his research represents this complete buying pattern. “House of Cards” comes to mind. People focused even more on hits probably because they don’t have energy to scroll on this tiny screen. Chris Anderson
Initially, Anderson was the U.S. business editor of The Economist
In 2001, Anderson became the editor in chief of Wired Magazine
In 2004, Anderson wrote a blog on the Long Tail Theory
In 2006, Anderson’s blog … What can you do? Take Anderson’s signal example of … Netessine: Right. Contemporary recommendation algorithms are quite simple. For example, my co-author on this paper, Tom Tan, has been looking into what happens with product variety when you go from an internet channel to a mobile channel. This definition deals with the business strategy use of the term. Use features like bookmarks, note taking and highlighting while reading The Long Tail: How Endless Choice is … So, the demand for all movies goes down. In 2006, Anderson also wrote a book titled “The Long Tail: Why the Future of Business Is Selling Less of More.”. Here comes the twist. Knowledge@Wharton: Even Amazon seems to have caught onto this. Netessine: You have plenty of room for hits, plenty of room for Tom Cruise. A decade has passed since Chris Anderson wrote The Long Tail: Why the Future of Business is Selling More for Less, and his theory is being proven as … One could say that with all this internet [availability] and mobile and DVDs and so on, distribution of movies is much easier, so the market gets inundated by low-quality movies made by people we don’t know. Now author Chris Anderson talks about some of the theory's less-obvious implications. The term was first coined in 2004 by researcher Chris Anderson. Netessine: That’s an excellent point. At the same time, many of the 20th century megabrands, such as Levi, Gap, Lee Jeans, and others, have slowed — and in many cases declined. We found that when new movies appear, some of them become hits, some of them become niches, and product variety keeps increasing. “When people search for what to watch in this increasing product variety, they tend to gravitate much more towards hits.”. These goods can return a profit through reduced marketing and distribution costs. There are various contexts you can look at with long tail theory. This article also appears on the Knowledge@Wharton website. Chris Anderson popularized a theory about the long tail effect in a book first featured in Wired in 2004 and later published by Hyperion in 2006. The long tail theory –chris anderson 1. Chris Anderson (canderson@wiredmag.com) is Wired*'s editor in chief and writes the blog* The Long Tail. The concept overall suggests the U.S. economy is likely to shift from one of mass-market buying to an economy of niche buying all through the 21st century. Everyone has heard about Chris Anderson's article, book, and blog, The Long Tail. While the hits are the head of the curve, the niche products, with lower demand, represent the long tail, the tail of the curve. They sell everything. But I did wonder whether Netflix should be worried because their business model is increasingly about niches, and more content companies are trying to do the same. Chris Anderson himself says it best in The Long Tail: “The theory of the Long Tail can be boiled down to this: Our culture and economy are increasingly shifting away from a focus on a relatively small number of hits (mainstream products and markets) at the head of the demand curve, and moving toward a huge number of niches in the tail.” The book was widely read, and its title entered the management vernacular. If you look at their strategy for offering niche products, they don’t initially offer those products themselves. You can only focus on hits. A product if able to mobilize the enthusiasm of most of the use of ordinary people , it can be a great success. The concept drew in part from an influential essay by Clay Shirky, "Power Laws, Weblogs and Inequality" that noted that a relative handful of weblogs have many links going into them but "the long tail" of millions of weblogs may have only a handful of links going into them. When you looked at hits versus niche films in this case, what did you find? This limit does not apply on … Two years later, he publishes the eponymous book, where he elaborates his theory… You can learn a lot from those third-party sellers, and letting them on your platform is relatively risk free. My understanding is their physical stores really focus on the hits. Beginning in a series of speeches in early 2004 and culminating with the publication of a Wired magazine article in October 2004, Anderson described the effects of the … Download it once and read it on your Kindle device, PC, phones or tablets. A team at Wharton did some Long Tail analysis on the Netflix ratings data the company released for its Netflix Prize. That’s why it is critical for online sellers to develop finely tuned searches for their customers. I think at the time when Chris Anderson wrote his book, he was thinking about how information technologies are changing how we shop. Such is the power of the Long Tail. We don’t have the latest data, so I don’t know what proportion of revenue Netflix gets from top hits versus niches. For example- The head is a high street retailer such as HMV. Marketing refers to the activities of a company associated with buying, advertising, distributing, or selling a product or service. With a movie, that would be star power. as examples of businesses applying this strategy. The paper, “Is Tom Cruise Threatened? In comparison, long tail goods have remained in the market over long periods of time and are still sold through off-market channels. Scrambled assortment is a strategy in which a company carries products outside of its primary line of business in order to attract more customers. Anderson argues that these goods could actually increase in profitability because consumers are navigating away from mainstream markets. The Long Tail wasn’t just a pet theory; as Anderson sketched it, the phenomenon arose out of actual innovations in commerce. In December 2012, KISSmetrics … Now we have new levels. Its time has come. If you haven't, you don't live on this planet (not that there's anything wrong with that). My daughter is the example of the average consumer: She always stops because she knows all the movies she wants, which are the hits, will be there. We looked at movies, partially because movies, Netflix and DVDs were the prominent examples in a book by Chris Anderson that looked at the long tail effect. In October 2004, Chris Anderson, editor in chief of Wired magazine, published an article titled The Long Tail. And you do make these impulse purchases sometimes at a grocery store. Knowledge@Wharton: One assumption out there is that maybe people go towards the hits because there are a lot of low-quality niche films. I think just like brick-and-mortar retail is not going away anytime soon, DVDs are not going to completely disappear. In early 2004, Chris Anderson, editor of Wired magazine, was asked to estimate how many of the 10,000 albums accessible via a Web-connected digital jukebox had at least one track played at least once per quarter. The Film Industry 3. The term was first coined in 2004 by Chris Anderson, who argued that products in low demand or with low sales volume can collectively make up market share that rivals or exceeds the relatively few current bestsellers and blockbusters but only if the store or distribution channel is large enough. The phrase The Long Tail, as a proper noun, was first coined by Chris Anderson. The long tail has quickly become a cocktail-party meme. 'In the past', manufacturers had to have 'hits'. But you found that is not the reason. Anderson’s research shows the demand overall for these less popular goods as a comprehensive whole could rival the demand for mainstream goods. The Long Tail: How Endless Choice is Creating Unlimited Demand - Kindle edition by Anderson, Chris. The theory of the firm is the microeconomic concept that states that the nature of companies and their existence is to maximize profits. That is not what we found. He was mostly thinking about comparing internet with brick and mortar. Anderson elaborated the concept in his book The Long Tail: Why the Future of Business Is Selling Less of More. Only products that run well get a place in this. Although I don’t agree with many of the conclusions in their paper (like some other academics, they got confused over definitions of “head” and “tail” and fell into the common trap of doing percentage analysis in an absolute numbers world), the data was interesting. The days sales of inventory (DSI) gives investors an idea of how long it takes a company to turn its inventory into sales. For example, because a store only has limited shelf space. People have looked at web pages, for example. Of course, people search differently on mobile and use mobile interfaces. Of course, many niche products will just never come up. How can companies get around this problem? That’s a pretty well-established and well-known theory proposed by Chris Anderson, who was editor-in-chief of Wired magazine. Topics magazine-12.10. The theory for online music was that a … When instead of 20,000 DVDs you can choose from 50,000 or 100,000 or 1 million, what happens is demand for all movies goes down…. “We found that, if anything, you see more and more concentration of demand at the top.”. These goods have low distribution and production costs, yet are readily available for sale. Chris Anderson, then the editor of Wired, explores the four key stages of any viable technology: setting the right price, gaining market share, displacing an established technology and, finally, becoming ubiquitous. The long Tail Theory –Chris Anderson 2. Chris Anderson is a British-American writer and editor most notably known for his work at Wired Magazine. Second, even if you rely on some kind of a recommendation system, which every company uses now, recommendation systems are pretty basic. How Theory of the Firm Can (or Can't) Maximize Profits, Why You Should Use Days Sales of Inventory – DSI. In his ground-breaking work, The Long Tail, Chris Anderson says that there’s money to be made in the long tail of niche offerings. So you have to be very careful about designing those algorithms and making sure that whatever niche products you add, they’re well-classified and actually show up in searches, and they’re not completely downplayed just because people buy them very, very rarely. If there is no demand for those products, then the sellers are going to die naturally. What they find is, again, you get the reverse of long tail effect. There are lots of titles that Barnes & Noble will offer you online, many more than what you can buy in the store. But when people search for what to watch in this increasing product variety, they tend to gravitate much more towards hits. Anderson’s long tail is a theoretical rationale for the explosive growth in numbers of niche apparel brands across all retail sectors. They will enjoy those products much more than your normal hits — like hit movies starring Tom Cruise, for example. Knowledge@Wharton: You talk about recommendation systems and setting niche products apart by focusing on their attributes. The long tail is a business strategy that allows companies to realize significant profits by selling low volumes of hard-to-find items to many customers, instead of only selling large volumes of a reduced number of popular items. Meanwhile, even as consumers flock to mainstream books, music, and films (bottom), there is real demand for niche fare found only online. The long tail was popularized by Chris Anderson in an October 2004 Wired magazine article, in which he mentioned Amazon.com, Apple and Yahoo! Netessine: I think Amazon is particularly good about it. From the results of the research done on this topic and from what I can tell, people become even more complacent with more information technology and focus just on a few things that they know well or they know that people around them like. In 2004, Anderson coined the phrase "long tail" after writing about the concept in Wired Magazine where he was editor-in-chief. Knowledge@Wharton: There’s still plenty of room for hits. KISSmetrics Received 142,149 Visitors From Long-Tail Keywords. When faced with this huge and increasing variety of choice in movies that people can watch, they tend to gravitate more and more towards what they know best, such as movies in which Tom Cruise appears. According to Chris Anderson, there is a demand curve established in any sector: the most consumed products (hits) generate the highest demand and the least consumed cause the lowest demand. The eponymous book was published in 2006. Netessine: That’s kind of the way to go. Netflix is now relying on original programming, which is very much niche focused. They allow third-party sellers to come on their platform and sell those products. Distribution management oversees the supply chain and movement of goods from suppliers to end customer. The book became a New York Times bestseller and won the Gerald Loeb Award for Best Business Book of the Year, simply titled The Long Tail. [Also,] there is only a limited amount of time that we have in a given day to watch a movie. And variety actually has increased tremendously. Redbox is a great example. He said that with the internet and all these digital technologies coming in, people are going to increasingly shift towards niche products that are uniquely tailored to their tastes. The key difference between the opinion of the book and the study by Wharton researchers is how they define “hits” and “niches.” Netessine spoke about the paper’s findings with Knowledge@Wharton. The long tail is a theory devised by Chris Anderson. Netessine: There are various directions. The long tail theory, first postulated in 2004 by writer Chris Anderson, is based on the notion that as retailers use the internet to offer a greater number of products at less cost, they will no longer have to rely on big hits to prop up their sales. You can also look at music that you play. An Empirical Study of the Impact of Product Variety on Demand Concentration, https://mackinstitute.wharton.upenn.edu/wp-content/uploads/2018/02/20171030-MackTalk-Netissine.mp3, Navigating Digital Disruption: How to Thrive Through Innovation Management. Knowledge@Wharton: An omni-channel strategy for a retailer might be offering their hits at the store but having their niche products online. An Empirical Study of the Impact of Product Variety on Demand Concentration,” coauthored with Tom Tan of Southern Methodist University and Wharton’s Lorin Hitt, was published in Information Systems Research. The new edition of Chris Anderson's well-publicised book The Long Tail has the subtitle Why the Future of Business is Selling Less of More. Anderson is also author of The Long Tail: Why the Future of Business Is Selling Less of More. Long Tail theory in a wider interpretation is the Wired editor Chris Anderson’s brainchild: „The Long Tail, Why the future of Business is Selling less of More” states that the items that individually have low demand, if accumulated can draw in significantly more demand and therefore can imply multiple times more income than popular products that sell in huge volume. Knowledge@Wharton: People think DVD rentals are going out of style, but you see Redbox in every grocery store. Netessine: Absolutely. The long tail of distribution represents a period in time when sales for less common products can return a profit due to reduced marketing and distribution costs. Now we can think about whether we want to bring it in and sell it ourselves.”. Netessine: That’s right. This theory is supported by the growing number of online marketplaces that alleviate the competition for shelf space and allow an unmeasurable number of products to be sold, specifically through the Internet. In other words, the demand curve moves away from the head and flattens toward the tail. Netessine: Yes, absolutely. Anderson has spoken to numerous management audiences about its implications. Do you mostly visit a few top web pages versus niche web pages? Meanwhile, if there is demand, then Amazon is still getting its transaction. But I think you are right — it’s probably much more towards the niche movies nowadays. We found that, if anything, you see more and more concentration of demand at the top. “If you are trying to bet on this strategy of offering a huge variety of products, you have to work double hard on recommendation algorithms.”. offerings which are in less demand compared to the actual popular product Nevertheless, as a company they captured a big percentage of market share with only 300 or 400 titles. 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