The theory of the firm is the microeconomic concept that states that the nature of companies and their existence is to maximize profits. You can also look at music that you play. Now we have new levels. “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.”. Netessine: I think Amazon is particularly good about it. But you found that is not the reason. They will enjoy those products much more than your normal hits — like hit movies starring Tom Cruise, for example. The head and long tail graph depicted by Anderson in his research represents this complete buying pattern. We found that when new movies appear, some of them become hits, some of them become niches, and product variety keeps increasing. In 2006, Anderson also wrote a book titled “The Long Tail: Why the Future of Business Is Selling Less of More.”. Over time, Amazon might monitor those sales and say, “Hey, this product, which used to be unknown to us, seems to be selling well. The long tail was popularized by Chris Anderson in an October 2004 Wired magazine article, in which he mentioned Amazon.com, Apple and Yahoo! The long tail concept considers less popular goods that are in lower demand. It’s a big, big challenge to make a nice, searchable interface on mobile. This article also appears on the Knowledge@Wharton website. Knowledge@Wharton: An omni-channel strategy for a retailer might be offering their hits at the store but having their niche products online. A team at Wharton did some Long Tail analysis on the Netflix ratings data the company released for its Netflix Prize. In other words, the demand curve moves away from the head and flattens toward the tail. And variety actually has increased tremendously. 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. Anderson is also author of The Long Tail: Why the Future of Business Is Selling Less of More. There are lots of titles that Barnes & Noble will offer you online, many more than what you can buy in the store. Overall, long tail occurs when sales are made for goods not commonly sold. Netessine: You have plenty of room for hits, plenty of room for Tom Cruise. Only products that run well get a place in this. It’s even harder to search on a mobile device. 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. But when people search for what to watch in this increasing product variety, they tend to gravitate much more towards hits. 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 term was first coined in 2004 by researcher Chris Anderson. [Also,] there is only a limited amount of time that we have in a given day to watch a movie. 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 (email@example.com) is Wired*'s editor in chief and writes the blog* The Long Tail. But so far from what I’ve seen, if anything, we will be living in a world of hits more and more. Long-tail may also refer to a type of liability in the insurance industry or to tail risk found in investment portfolios. The long tail has quickly become a cocktail-party meme. This limit does not apply on … 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. Knowledge@Wharton: People think DVD rentals are going out of style, but you see Redbox in every grocery store. Does this paper have a cautionary tale for that company? 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. Knowledge@Wharton: There’s still plenty of room for hits. With a movie, that would be star power. “We found that, if anything, you see more and more concentration of demand at the top.”. The strategy theorizes that consumers are shifting from mass-market buying to more niche or artisan buying. 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 … Netflix is now relying on original programming, which is very much niche focused. 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. 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. 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. So, the demand for all movies goes down. 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. Netessine: There are various directions. Chris Anderson is a British-American writer and editor most notably known for his work at Wired Magazine. Here comes the twist. Netessine: That’s right. When you looked at hits versus niche films in this case, what did you find? KISSmetrics Received 142,149 Visitors From Long-Tail Keywords. The Film Industry 3. The Long Tail wasn’t just a pet theory; as Anderson sketched it, the phenomenon arose out of actual innovations in commerce. Knowledge@Wharton: What’s next for this research? We don’t have the latest data, so I don’t know what proportion of revenue Netflix gets from top hits versus niches. 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. 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…. Movie watching increasingly is shifting towards online streaming, but not everyone likes it. This definition deals with the business strategy use of the term. 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. 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. That is not what we found. Topics magazine-12.10. Of course, people search differently on mobile and use mobile interfaces. Knowledge@Wharton: One assumption out there is that maybe people go towards the hits because there are a lot of low-quality niche films. It’s harder to display search results. Its time has come. For example- The head is a high street retailer such as HMV. 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. 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. But I think you are right — it’s probably much more towards the niche movies nowadays. 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. Take Anderson’s signal example of … Meanwhile, even as consumers ﬂock to mainstream books, music, and ﬁlms (bottom), there is real demand for niche fare found only online. In comparison, long tail goods have remained in the market over long periods of time and are still sold through off-market channels. Knowledge@Wharton: You talk about recommendation systems and setting niche products apart by focusing on their attributes. These goods have low distribution and production costs, yet are readily available for sale. Second, even if you rely on some kind of a recommendation system, which every company uses now, recommendation systems are pretty basic. Chris Anderson is a British-American writer and editor most notably known for his work at Wired Magazine. They allow third-party sellers to come on their platform and sell those products. 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. Essentially, you supplement your brick-and-mortar channel with your digital channel. The long Tail Theory –Chris Anderson 2. A product if able to mobilize the enthusiasm of most of the use of ordinary people , it can be a great success. The key difference between the opinion of the book and the study by Wharton researchers is how they define “hits” and “niches.” Redbox is a great example. If you look at their strategy for offering niche products, they don’t initially offer those products themselves. I think at the time when Chris Anderson wrote his book, he was thinking about how information technologies are changing how we shop. 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. 'In the past', manufacturers had to have 'hits'. Anderson argues that these goods could actually increase in profitability because consumers are navigating away from mainstream markets. He was mostly thinking about comparing internet with brick and mortar. 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. Those products can then be shipped to the store, correct? You can only focus on hits. That’s a pretty well-established and well-known theory proposed by Chris Anderson, who was editor-in-chief of Wired magazine. The Long Tail: How Endless Choice is Creating Unlimited Demand - Kindle edition by Anderson, Chris. 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. offerings which are in less demand compared to the actual popular product For example, because a store only has limited shelf space. 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 . 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. 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 eponymous book was published in 2006. 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. Do you mostly visit a few top web pages versus niche web pages? Download it once and read it on your Kindle device, PC, phones or tablets. 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. If you haven't, you don't live on this planet (not that there's anything wrong with that). That’s why it is critical for online sellers to develop finely tuned searches for their customers. Now author Chris Anderson talks about some of the theory's less-obvious implications. We have mobile. Netessine: Right. The book was widely read, and its title entered the management vernacular. Contemporary recommendation algorithms are quite simple. 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. They only recommend something that somebody else has already watched, so they’re not going to recommend to you niche movies all that much. Some of their original programming has become extremely popular. Netessine: Yes, absolutely. While the hits are the head of the curve, the niche products, with lower demand, represent the long tail, the tail of the curve. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Soon after The Long Tail was published, BusinessWeek declared that Chris Anderson’s theory was the biggest idea of the year. 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. People have looked at web pages, for example. In other words, the demand curve moves away from the head and flattens toward the tail. Now we can think about whether we want to bring it in and sell it ourselves.”. The long tail theory can be applied to the film industry in terms of how films are distributed. 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? 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. 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. In October 2004, Chris Anderson, editor in chief of Wired magazine, published an article titled The Long Tail. Of course, many niche products will just never come up. The theory for online music was that a … Everyone has heard about Chris Anderson's article, book, and blog, The Long Tail. 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. 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: Amazon has relied heavily on offering tremendous variety. 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’s research shows the demand overall for these less popular goods as a comprehensive whole could rival the demand for mainstream goods. Netessine: That’s an excellent point. Knowledge@Wharton: This research looks at movie rental data from about 2001 to 2005. 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