Sunday, August 19, 2007

The future doesn't lie in hits!

For this post in this blog, I choose to write about this new economic force, the long tail, which was so well researched and explained in the book with the same name, The Long Tail, by Chris Anderson. I am reading this book which I am sure many would have read by now. My attempt with this blog would be to get the gist of the whole book.
The Long Tail talks about the social and economic implications of the Internet on the way online businesses are carried out. The book says that, the future does not lie in hits. Chris, writes this whole book only to emphasize on this one fact. The future does not lie in hits. It says, how the advent of Internet is creating unlimited choices to the customers, which was not possible in the case of physical retailers. Take the case of a retail music store. An average record store needs to sell at least four copies of a CD per year to make it worth carrying: that is the rent for a half inch of shelf space. This is the case for every DVD rental shops, video-game shores, booksellers, and newsstands. In each of these case the retailers carry only the content that can generate sufficient demand to earn its keep. To handle these constraints, decision makers in these business come up with an easy solution: to focus on releasing hits. This would be a sure shot way of revenues coming since, a hit ensures full house theatres, music CDs getting sold out fast, ready listeners and viewership to TV channels and radio stations. But as it takes all sorts to make this world, we have a great number of people whose choices depart from the mainstream somewhere. This is a world of scarcity. With online distribution and retail, we are entering a world of abundance. The differences are profound.

A case study on Rhapsody
This will enable you to gauge the power of The Long Tail.

Rhapsody is an online music retailer that offers an subscription based streaming service for more than 1.5 million tracks. Checking the demand curve of its monthly statistics shows a trend that would be common to any record store: huge appeal for the top tracks, tailing off quickly for less popular ones.

An easy observation in this graph would be on the action happening to a tiny number of tracks on the left-hand side. But the profound difference that we are talking about lies in the right side. Surprised?. Yes. It is this long (almost straight) curve to the right that has made the world rethink about its business decisions. So, if you have a music store that has a finite amount of space on the shelves, you'd be looking for a cutoff point that is not far from the peak.

Now lets analyze the right side of the curve. You might think why bother to look there which is flattening to zero. There is nothing to look there. Right? Wrong.
First, the curve isn't flattening to zero. If you zoom and follow the graph and draw the curve from 25,000 track to the 100,000th track, the songs are still downloaded significantly on an average of 250 times a month. And these songs are non-hits. And because there are so many of these non-hits, their sales, while individually small, quickly add up. The area under this curve that seems to touch zero actually translates to for some 22 million downloads a month, which is almost a quarter of Rhapsody's total business. That means every single one of the tracks is downloaded and heard. Though conventional retailers draw a line at somewhere 60,0000 tracks, the market for the rest of the tracks is never ending, even though the audience is a handful of people every month.
This is the Long Tail.


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