Chris Anderson, editor-in-chief of Wired magazine, published the book The Long Tail: Why the Future of Business is Selling Less of More, in July 2006, fleshing out the theory he first wrote about in the October 2004 issue of Wired. According to the Long Tail website, "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." Fools Shruti Basavaraj and Alyce Lomax recently asked Anderson some questions about the book and its interesting and disruptive implications for business in an interview, excerpted here.
On media
Alyce Lomax: When it comes to the media aspects of the Long Tail, I was wondering what the future is for making money, because the big media companies have traditionally been hit machines, but so many people are sharing their talent and expertise for free now. Is the future dim or bright for artists being paid for their work? And is there some point where there is so much good free stuff that consumers don't feel the need to pay?
Chris Anderson: It depends on the kind of artists we are talking about. If you are talking about musicians in particular, there are a lot of misunderstandings about this and perhaps having been one once, I have some perspective on this. Most musicians don't make money from selling music. Most musicians, of course, don't make money at all, but those who do make money tend to make money from live shows, not from recorded music. So the notion of giving away your music for free online to market your live shows is a completely ordinary one. This is sort of almost the accepted model.
Look at the Grateful Dead touring model. The Grateful Dead would allow their fans to record the music and trade the tapes because they understood that they were in the performance business, not in the recording business. Even the Rolling Stones today make much more money from touring than they do from recording. This is sort of the normal model.
So the notion of giving away your music for free to market the thing that you cannot easily duplicate in an online experience is not only not a departure, it is the norm.
AL: You had an interesting anecdote in the book about Hollywood initially trying to charge large amounts for DVDs -- to make up for the amount of money they sort of thought that families might spend at the theater --because they were so concerned about the revenues. I was just wondering if there is a parallel with the music and movie industries' paranoia right now about piracy and file-sharing, because I have kind of felt like so far that pricing for legal movie downloading seems to give consumers a good reason to use the peer-to-peer sites.
CA: I agree, I agree. It is very easy to understand how this happens. You look at any business and you are saying, OK, so we have got this big existing business that is generating all of our revenue and there is this tiny new potential business that might generate a little bit of revenue but might also completely ruin the business we have already got. And so they tend to be very, very cautious about anything that might disrupt their existing revenue models. So this is why Hollywood did that with DVDs, this is why they are doing that with video downloading.
This is why the music industry has kept pricing high as well. Think of it; just look in terms of music. So they now realize that their current model, their usual model is you sell albums and that is on a plastic disc, for $15, $16, whatever. The new model is you sell singles at 99 cents. So their first thought is what if people only wanted one song from the album? We have just gone from $16 to $1, so that is not good. They were thinking, well, maybe we should charge more for the singles rather than 1/16th of the price of the album, maybe we should charge $5 for a single to make up for all the money we are losing and not selling the album.
You can totally understand how that thinking happens. The result, of course, is that consumers are like, "uh, however, there is this other thing called Kazaa where the price is zero." So you are not, from my consumer perspective, it is not 99 cents or $5 versus $16; it is free versus 99 cents or $5. So the problem with the music industry is they are very much looking in the rearview mirror at the business they have already got and they try to protect that rather than looking at the real competitive landscape and recognizing how many choices consumers really do have these days.
I should say that was kind of the thinking of five years ago. The music industry is now much more sophisticated. They have learned a lot from that disastrous period after Napster. They are probably going to move to dynamic pricing or flexible or variable pricing where some music might cost less than 99 cents and some cost more. And you know, Hollywood is not there yet because they haven't faced the same competition. You and I could probably download a movie from a peer-to-peer ... but the average consumer can't or won't, and so I don't think Hollywood is really going to be looking down the barrel of the gun yet.
On satellite radio
AL: That makes a lot of sense. Here's my next question: one of our co-workers has wondered how you feel about satellite radio, like XM Satellite Radio (NASDAQ:XMSR) and Sirius (NASDAQ:SIRI) on the Long Tail. He noticed that XM recently discontinued a niche channel and replaced it with some more mainstream fare and was wondering whether XM might start going for the head and ignoring the tail?
CA: Well you know, good luck. It is not like top-40 radio and broadcast is doing very well. I don't know if you have seen the numbers, but basically standard, hit-driven top 40 radio in America is the worst radio sector there is. The listenership has been declining for more than five years now. Last year one of them went out of business or changed format each week, so that model, the top 40 model, seems to be just sort of just broken. And mostly because there is so much competition; because those DJs they are now competing with are your [Apple (NASDAQ:AAPL)] iPod and your CD player and your cell phone, to say nothing of satellite.
So I think what was learned is that there is no top-40 playlist that suits enough people to really make the economics work. Satellite radio's advantage, of course, is that it doesn't have to settle for one size fits all. It has got enough stations that it can have many sizes. Now presumably one or two of them will be top 40 or top 100 or whatever. That makes perfect sense, but there is no reason to subscribe to satellite if they are just going to offer what Clear Channel (NYSE:CCU) is already offering for free over the air.
So my sense is that their competitive advantage is definitely in being more focused, more niche than broadcast or radio, although they will pick their niches and revise their niches depending on what is working and what isn't working. I can't imagine they are ever going to replicate the Clear Channel experience out there in the airwaves, because there is simply no need or no ... reason to do so.
On user-generated content
SB: What do you think the implications from a business perspective are for the Long Tail of information because of the emergence of Web 2.0 and user-generated content?
More specifically, now that content is moving from a producer to a consumer becoming the producer, how do you think that will affect the Long Tail and how companies can use that to make money?
CA: Yeah, well there is a whole chapter on that in the book; "The New Producers" is the name of the chapter. Obviously user-generated content pre-dated whatever we are calling Web 2.0, but it has clearly never been bigger than it is right now and I think it is the most exciting phenomena of our time, this notion of pure production and all that.
It is a very strong driver of the Long Tail because it populates the Tail. If user-generated content is what makes the tail get longer, it just puts more stuff out there. Not only that, but you don't think of it this way, but user-generated content is also things like recommendations and improving the quality of search, because if my blog links to some user-generated content, then Google registers that as a vote of confidence in that content and so it comes up higher in search results. Likewise, if I put something on my playlist or if I rate something highly on Amazon (NASDAQ:AMZN), again, you don't think of my ratings and reviews as user-generated content, but they are and they definitely make the filters work better in the Long Tail, which drives them to head down the tail to that niche content.
On the Long Tail as a bottleneck
AL: We have a reader question, from Steve. He asks, "Is the Long Tail aggregation space a bottleneck of a few large aggregation companies? Do most of us use Amazon, eBay (NASDAQ:EBAY) and Netflix (NASDAQ:NFLX) most of the time?"
CA: Yeah, I get this question a lot. It is a very good question. It does appear to look that way. iTunes dominates its space, Amazon dominates its space, and Google (NASDAQ:GOOG) dominates its space. I think this is kind of an early, first-chapter problem. Let's look at search in particular. We think of search as being dominated by Google. In fact,... regular search is dominated by Google, but there are a lot of different kinds of search, what we call vertical search, image search and video search and music search and blog search. And actually when you look at it, Google doesn't dominate most of them. Map search is Map Quest. Video search is YouTube. Blog Search is Technorati, and so on.
I think if you are seeing a Long Tail of search of different specialized search companies and specialized search services where one size doesn't necessarily fit all. Sometimes you want regular search; sometimes you don't. So I think just as we have seen a Long Tail start to emerge in the search space with focused niche search, I suspect we will see the same in some of these other domains.
Maybe not all of them, but clearly in music. iTunes is a one-size-fits-all model. Its presentational form is built around pop music. The data you have is the band, the album, the track, the label, the release date. That is fine for rock. It is not what you want with classical. With classical you want conductor, composer, lead violin, soloist. For jazz, the individual performers may actually be more important than the band.
So I think there is going to be an opportunity for a classical music service and a jazz music service. And they are already starting to emerge and I suspect that some day in the not-too-distant future, we'll start to see a Long Tail of music services just as we do in search and likewise for some of the other aggregator spaces.
AL: Steve also pointed out that the Long Tail shifts consumer attention but doesn't add to it, like we don't have any more time than we used to have.
CA: I get that one a lot too. That is actually not entirely true. In some; in economics you talk about rivalrous and non-rivalrous markets. So a rivalrous market is where it is a fixed pie. One thing is in competition with the other; you can't do two things at the same time, but there are other things.... Video would be like that. You can only watch one screen at the same time now. Maybe some people can watch several, but usually you are watching one thing or another.
Music is an interesting example. Music, because of the iPod, a lot of us are taking music into the rest of our day and music in places that we weren't otherwise listening to music, you have now extended your listening hours considerably, so you can listen to music while you are doing something else. In a sense, music attention ... was a non-zero sum game. It was a kind of growing pie and it wasn't like the increase -- which we are seeing right now in music consumption -- has come at the cost of other things. In fact, you are finding essentially hours added to the day by being able to bring music into, outside of the home, etc.
So the question now is what other markets are non-rivalrous in that fact. Like take reading, for example. We can't necessarily read any faster, but we can read more efficiently, which is to say that if you are reading things that are coming to you through filters, through search, whatever, you are likely to be getting a higher hit rate. It is less random, less wasted time. You are really just focusing on the stuff that is just right for your interests.
So although you may be reading the same number of words, they may be of more value to you and you may be wanting to give them more of your attention in that sense. So that is another way of kind of compressing time.... Let's say you can get more value out of your reading without necessarily taking more time to do it.
On politics
AL: And just a real quick one from Brian, "Is there going to be a Long Tail in politics?" I thought that was kind of interesting.
CA: Yup, that is a very common question. I wish I had a better answer to it. Obviously two parties does not reflect the true diversity of views in this country or any other. A two-party system is very much a scarcity-driven system where because it is difficult to both inform voters and measure their opinions efficiently on an individual level, we go for a representative system and a representative system tends to have distortions where you have to make certain compromises to get elected and use the machine to its best effect.
We are starting to see more and more direct democracy. More and more -- certainly in California --we have things like ballot initiatives where voters are informed about individual issues and they vote not necessarily on party lines but they vote on the issue as they see fit.... Coincidentally or not, you now have these sort of semi-third party politicians coming out. Bloomberg and Schwarzenegger are officially affiliated with one party or another, but they really could be third-party candidates.
I suspect that as you get better-informed voters and more efficient ways of measuring voter sentiment, you might see a stronger case for third parties or at least independents going forward. Now is that a Long Tail? No. But I think the reader or listener is right to point out that the market is crying out for more variety.
SB: All right, great. Well, thank you so much for taking the time for this interview and congratulations on a successful book.
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Shruti owns shares of eBay. Alyce does not own shares of any company mentioned above. The Motley Fool's disclosure policy is a take worth reading.
