Harvard Business Review on the Long Tail
Anita Elberse of Harvard Business School has completed a new look at consumer data to write a piece entitled Should You Invest in the Long Tail? Her article seems to be written as a corrective to some of the hoopla around Chris Anderson’s book, The Long Tail. Her article is worth reading but mainly for the quality of her research. The analysis, however, struck me as often wrong-headed and fairly first level.
When looking at consumer research, what I find interesting are non-intuitive, actionable insights. Elberse’s discovery that, as she modestly states, “may be of intellectual interest to readers,” that there’s money to be made in blockbusters is neither. A record executive that states “if we just had more platinum records, we’d make more money,” would not be applauded for strategic vision. http://battellemedia.com/images/longtail.jpg
I found the tone of the piece somewhat arch as if Elberse felt it necessary to provide a necessary tonic to the success of Anderson’s book. There’s a hint of straw man building when she suggests “…that it would be imprudent for companies to upend traditional practice and focus on the demand for obscure products.” As if, a Blockbuster executive might put forward the shifting the product off the new release wall and replacing it with the French New Wave.
To look at the Rhapsody data and to come away with the insight that the music that is most popular to music consumers is also of most interest to Rhapsody customers is not that interesting.
That, as Anderson puts in his rather polite response, Rhapsody gets 68% of its demand from titles that are not available in traditional retail stores, is the type of insight could really upend the entertainment media value chain. Even limited just to the arena of producing more blockbusters, if companies can monetize inventory they had previously written off and find more ways make profits on titles that fail to appeal to a larger audience, they can afford to make more bets and increase their odds of having more blockbusters in their portfolio.
The notion that entertainment co’s might be able rethink their portfolio strategy seems much more useful than Elberse’s advice that “When producing niche goods for the tail end of the distribution, keep costs as low as possible.”
One of the key tenets of the Long Tail was that new modes of distribution were causing a regression towards zero in inventory carrying and transactional costs. This is why a company like Netflix (NFLX trades at 3x BBI) can have an inventory position vastly superior to a regular video store. Elberse’s advice that retailers need to “Strictly manage the costs of offering products that will rarely sell,” especially given to retailers who traditionally have operating margins close to 3% and are already very cost focused just doesn’t seem that useful.
In a final dig, noting the delicious irony that Anderson’s ideas were contained in a bestseller, she again (just as her Rhapsody and Quickflix data seem to reinforce Anderson’s thesis) states the obvious and inadvertently makes Anderson’s point. Publishers were willing to make a surprisingly large bet on a book with a few too many mentions of Power Laws to generally attract a large audience. In making a large bet, Hyperion signaled their awareness that bestsellers can make money and in Anderson’s case, maybe they took to heart that with new potential audiences for niche content, they had a hedge that allowed them to make the “jaw dropping” offer and subsequently win the bidding war and make a decent return.
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