Long Tail's Tribe

By Jeffrey Ressner / Los Angeles

In the Skirball Cultural Center in Los Angeles last February, some of the biggest hotshots in Hollywood sat in rapt attention. Legendary music producer Quincy Jones was there at the Entertainment Gathering, L.A.'s version of Davos, along with Peter Guber, producer of the original Batman movie; former Disney Imagineer Danny Hillis; and scores of other media minds. Who had them spellbound? Chris Anderson, an unassuming magazine editor, who was explaining a giant curve on an x-y chart, a theory that he calls "the long tail."

Coined in a 2004 article in Wired, his magazine, long tail is poised to become the next big catchphrase to change the world of business, with a book expanding the idea to be published next month. "I'm a disciple," says Guber.

Anderson's theory is that the Internet, because it so easily offers an unlimited choice of goods to billions of people, is transforming a consumer culture based on big hits and best sellers into one that supports more idiosyncratic, specialized niche products. "Hit-driven economics is a creation of an age without enough room to carry everything for everybody," Anderson wrote. "With online distribution and retail, we are entering a world of abundance. And the differences are profound."

His curve plots popularity against inventory. At one end are the singular hits (say, Batman); at the other end lies the vast, untapped backlist (say, every less popular comic-book-based movie ever made). The biggest companies in all industries usually aim for blockbusters, but slide down the curve, and there are huge opportunities in everything else--the long tail. If Anderson's thesis is correct, most media and technology companies will have to do no less than rethink the core of their business.

The long tail as a theory is most persuasive in explaining how companies selling more products with lower demand can easily compete with (or even surpass) those solely dependent on hits. Amazon.com founder Jeff Bezos was the first retailer to deploy that new business model online. Amazon's virtual inventory of 3.7 million books dwarfs the typical Barnes & Noble retail store, which carries about 100,000 titles. The vast majority of Amazon's books may sell only a few thousand copies, but the 3.6 million less popular books not carried by its rival account for 25% of Amazon's total book revenues--and that percentage is rising each year.

The leverage of the long tail can give even tiny companies a chance to compete against the biggest of behemoths. A healthy 40% of sales for the online music site Rhapsody, for example, comes from esoteric tunes not found in Wal-Mart's CD bins. In some cases, the long tail turns underdogs into giant killers. Anderson's case in point: the online video retailer Netflix, which overtook the neighborhood video-rental company Blockbuster. He found that 21% of Netflix's sales came from obscure or older movies, not the blockbusters that gave the once mighty chain its name. Blockbuster, meanwhile, is struggling to come up with an online rental concept of its own.

Anderson's premise, once you accept it, is like a song you can't get out of your head: you start seeing long tails everywhere. Microbrews become the long tail of beers, for example. Blogs are the long tail of journalism. Even porn has its version--the increasingly bizarre porn fetish sites that could be profitable only on the Web.

The long tail has its intellectual roots in economic ideas that date back a century. In 1906, Italian philosopher Vilfredo Pareto noted that 80% of the property in Italy is owned by 20% of the population, a formula that, much later, became known as the 80/20 rule. It has forever influenced brand management, customer service and even personnel development. Focus your attention and resources on that top 20%, which is where the best returns on investment can be found.

More recently, though, in a 2003 academic paper that Anderson says influenced his theory, three management professors looked at the 80/20 rule in reverse. They upended the belief that the Internet's main benefit to consumers would be lower prices. Instead, they suggested that greater value online came from consumers having access to a wider selection of products and services. The key for businesses hoping to capitalize on the long tail, says Carnegie Mellon's Michael D. Smith, one of the paper's authors, is to cater to "significant heterogeneity in taste." Even though a majority of us may like U2 on our MP3 players, for example, there are enough of us who enjoy string quartets or British ska to make it profitable for those who sell them all.

Most online entrepreneurs, particularly the smaller players, are living the long-tail way of life. "Savvy Web marketers already know the value and the power of the long tail," says Sharon Housley at NotePage, a Massachusetts-based firm that makes wireless-messaging software for hospitals, banks and the military. By using less popular, more focused search terms, for example, NotePage is targeting small businesses as well as FORTUNE 500 companies.

Large corporations are sliding down the tail. Television networks, for example, are having mixed success in making the long tail work in a business that revolves around discovering the next Seinfeld. They found a place for reruns of long-forgotten television shows, on cable channels like the Game Show Network and SoapNet. But they have not yet figured out whether they should consider YouTube, the massively popular online-video site, as their worst enemy or new best friend.

Not every big company is convinced, however, that the long tail is relevant for business. Microsoft, which relies on monster software hits like Office, "is clearly a short-tail development house," says the company's corporate standards director, Jason Matusow. He rejects the idea that the long tail--in this case, open-source software developers--poses a threat. "People say the long tail is the perfect way to look at open-source software and understand how it's going to save the world," Matusow says. "But with 400 million users, we're enabling the long tail."

Then again, the view from the long tail depends on which end of it your product resides. Take Stephen Downes, a senior officer of Canada's National Research Council, whose arcane, overlooked blog is a classic long-tail story. "I live in the long tail," Downes said at a blogging event in Vancouver last year. And not necessarily by choice. "[Bloggers] who are in the long tail would probably rather not be part of it," he said. "They simply want to be read." As an earlier catchphrase put it, if the tail were smarter, it would wag the dog.