ISSUE 9 - Winter 2007    The Virtual Strategist

Book Review  

It's a Niche World After All

Laraine Spector

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Hits, those block-buster best sellers, don’t seem as significant to Americans as they once did.  Equally important, the mainstream media is increasingly losing its loyal audience to niche publications, cable channels, downloads from iTunes, and a host of other places too numerous to list.  In fact, our hit-obsessed, mass--market culture is in transition, being transformed by the Internet and the seemingly unlimited cultural and content choices it has bestowed on consumers.  Or so argues Chris Anderson, editor-in-chief of Wired magazine, in The Long Tail:  Why the Future of Business is Selling Less of More.  In it, Anderson offers a carefully-researched and well-documented analysis of what he describes as the new economic and cultural landscape -- that is, distinguished by the shattering of the mainstream into an infinite number of niche markets, mini-markets, and micro-stars.  His focus is on the impact and implications of the waning of hit-driven economics and the rise of a new era dominated by a multitude of niches. 

     It’s not that the existence of niches is anything new.  Anderson admits they have always existed.  However, they were not always visible or easily found.  What’s new, he asserts, is the cost of reaching these niches  today:  as that cost falls “consumers finding niche products, and niche products finding consumers—it’s suddenly becoming a cultural and economic force to be reckoned with.” 

     Originally, Anderson explored this topic in an article that appeared in Wired.  For the book, he expanded his purview and drew upon the contributions of academics from MIT’s Sloan School of Management, the Stanford and Harvard Business schools, among others.  They provided him with ways to quantify—offering data from specific companies-- and frame his thesis regarding the Long Tail.  Finally, Anderson is an economist, so be prepared to wade through an ample, though useful, supply of charts and graphs. 

     Anderson doesn’t so much develop an argument as he does state a point of view--often.  Using examples drawn from the world of mass media and the entertainment industry, he contends that physical resource constraints, inefficient distribution, and inappropriate supply-and-demand matching not only forced us to submit to the “tyranny of the lowest-common denominator” but also, for efficiency’s sake, resulted in markets dominated by, and fixated on, hits and blockbusters.  What we believed reflected popular taste, Anderson tells us, actually was a logical response to the constraints of the physical world -- in particular, the costs and limitations of broadcast distribution.  Hmm…. But all that is changing—quickly.  Why?  The Internet, of course.

     Anderson is hardly unique in his expression of awe for the enormous power of the Internet, which he describes as absorbing "each industry it touches, becoming store, theatre, and broadcaster at a fraction of the traditional cost.” Carefully building on the experiences and research produced by such companies as Amazon, Netflix, iTunes, Ebay, Rhapsody, among others, he delights in illustrating -- repeatedly and with great gusto -- the Internet’s role in enabling companies to overcome the “curse” of retail, i.e., the traditional limitations of geography and scale (i.e., shelf-space limitations); and hails the creation of a totally new, Internet-based economic model.  

     To prove his point, he cites the online book-selling phenomenon and, in particular, Amazon.  When Jon Krakauer’s Into Thin Air was published in 1998, Anderson notes, an earlier book on a similar subject (Joe Simpson’s Touching the Void) also, unexpectedly, started to sell again.  Why?  “Online word of mouth,” he suggests, hailing the debut of a significant trend.  When reviews on Amazon.com that praised the earlier book appeared together with reviews of the [later] Krakauer book, additional shoppers read those reviews and began adding the older book to their shopping lists.  With online booksellers soon developing software that traced buying behavior, it didn’t take much time for them to begin recommending the two books in tandem.  People accepted the suggestion, agreed wholeheartedly, and wrote more rhapsodic reviews -- a cycle that brought “more sales, more algorithm-fueled recommendations,... a positive feedback loop kicked in.” 

     Like a number of other recent books—Gladwell’s The Tipping Point and Levitt and Dubner’s “Freakonomics” come to mind-- Anderson is first-rate at recognizing key consumer trends and assembling them into a broader economic and cultural framework.  Though at times he overextends his generalizations, on the whole, his vision is incisive.  Lamenting what he calls “hit-driven economics,” which he argues epitomized the 20^th century, he heralds the promise of the emergent “economics of abundance,”  which he asserts will characterize the 21^st century.  “Hit-driven economics is a creation of an age in which there just wasn’t enough room to carry everything for everybody:  not enough shelf space for all the CDs, DVDs, and video games produced; not enough screens to show all the available movies; not enough channels to broadcast all the TV programs….”   But the world of scarcity is waning while the world of abundance is rising.  And that’s where the Long Tail fits in.  

     So what is the long tail?  In statistics, long-tailed distributions are those in which the tail of the demand curve is very long compared to the head.  While most statistical discussions focus on the head—in Anderson’s terminology, they represent the locus of the “hits”—Anderson turns his focus to the tail.  At first glance, of course, the tail seems flat—as if there’s no demand.  But, when examined more closely—and adjusted for scale—the situation changes, i.e., there really is demand on the right side of the curve. 

     Reviewing sales of online music retailer Rhapsody, Anderson shows there is significant demand beyond that of the top-selling tracks.  “Down here in the weeds, where we’d always assumed there was essentially no meaningful demand, the songs are still being downloaded an average of 250 times a month.  And because there are so many of these non-hits, their sales, while individually small, quickly add up.”   What’s so extraordinary about the long tail,  Anderson concludes, is its sheer size.  If enough non-hits are combined, a market rivaling that of the hits results.

     That’s why, writes Anderson, the future of business is clear:  it’s heading toward selling less of more, catering to the demands of the myriad niches.  The Long Tail rules!