The Long Tail and the Structure of the Media Industry

Almost two years after his initial article on “The Long Tail” first appeared in Wired, Chris Anderson’s long-awaited book The Long Tail was officially released last week.  As a tribute to the power of the meme which he has diligently discussed and refined in his blog, Chris’s book has shot up to #1 at Amazon. The book about the long tail has made it up into the short head, big time.

Even for those who have been following The Long Tail blog, the book is a welcome contribution to our understanding of a fundamental force reshaping the media industry. At this point, virtually everyone has heard of the long tail but, just in case, here’s the capsule summary.  While more and more media businesses have become blockbuster-driven over the past century, three forces are working to increase the economic and cultural importance of the “long tail” – the growing abundance of products that individually sell in small numbers but that, in aggregate, account for substantial consumption.  These three forces are:

• Democratizing of the tools of production – especially affordable digital technology that makes it economically feasible to make products, even in small quantities.  In Chris’s words, this results in “more stuff, which lengthens the Tail”.

• Democratizing distribution – here Chris places particular emphasis on the role of a variety of Internet aggregators in creating “infinite shelf space” businesses where virtually every product in a category can be economically accessed.  Again, to quote Chris, this creates “more access to niches, which fattens the Tail”.

• Connecting supply and demand – Chris focuses here on the emergence of businesses and taste makers  that act as filters, helping to cost-effectively and flexibly connect people with available goods, no matter how narrow the interest or specialized the product. These filters can take a variety of forms, including search algorithms, sorting algorithms, editorial recommendations and customer reviews. Chris suggests that more efficient tools to connect supply and demand “drives business from hits to niches”.

Chris does a great job of exploring these three forces and their role in enhancing the economic attractiveness of long tail markets.  While he clearly believes that these forces are playing out in a growing range of product and service businesses, Chris spends the bulk of the book discussing examples from the media business, ranging from video to music to books.

Given the importance that he attaches to the long tail, it is a bit surprising that Chris does not pursue in more detail the implications for the structure of the media industry.  His perspective is certainly suggestive in terms of direction, but he never really steps back and spells out how the long tail might re-shape media businesses, with particular attention to the most basic question of all: who is going to create economic value and who will destroy economic value?  Perhaps it is prudent for Chris to avoid such speculation given all the uncertainties in how this might play out, but this is the question that all media executives are confronting.

At one point in his book, Chris appears to suggest that there really may not be profound changes to the existing power structure, that perhaps this is all additive:

This shift from the generic to the specific doesn’t mean the end of the existing power structure or a wholesale shift to an all-amateur, lap-top culture.  Instead, it’s simply a rebalancing of the equation, an evolution from an “Or” era of hits or niches (mainstream culture vs. sub-cultures) to an “And” era.  Today, our culture is increasingly a mix of head and tail, hits and niches, institutions and individuals, professionals and amateurs.  Mass culture will not fall, it will simply get less mass.  And niche culture will get less obscure.

But, is that all there is – a simple and smooth “rebalancing of the equation”? Let’s take a look at some of the questions raised by Chris’s perspective.  Chris spends a lot of time profiling the rise and role of aggregators like Amazon, Netflix, Rhapsody and iTunes.  Within specific media categories like books, videos and music, these aggregators have played an increasingly prominent role and have become quite concentrated in a short period of time.

In the early days of the Internet, “disintermediation” was the buzzword – all intermediaries were going to disappear and customers would connect directly with content creators.  The long tail perspective, with its emphasis on the economic role of aggregators, suggests just the opposite – intermediaries rule, albeit a different set of intermediaries than have prevailed in the traditional media business. From the early days of Net Gain and Net Worth I have advanced a similar view, highlighting the growing importance of intermediaries as options proliferate.

But let’s go one level deeper.  What kind of aggregators will prevail?  Today, we have an interesting phenomenon – highly specialized aggregators focusing on one media type: Netflix for DVDs,YouTube for videos, Rhapsody and iTunes for music, Flickr for photos, etc. In many respects, this is a perverse replication of traditional media boundaries in what was once conceived to be a multimedia business. Amazon stands out as the major exception, although its real depth is in the book category. MySpace is another interesting exception, even though it retains a deep spike in music, perhaps because it, more than most aggregators, represents a deeper blend of community and content.

Will these media ghettos persist?  Will new generations of aggregators emerge that more creatively mix and match media types?  What about the efforts of major portals and search engines like Google, Yahoo and MSN to carve out major long tail aggregation plays of their own, not to mention the budding efforts of wireless network portals to aggregate wireless content?

My own view is that the current generation of aggregator businesses represents an unstable transitional form that will unbundle into two very different kinds of businesses: infrastructure management businesses and customer relationship businesses. As I have argued elsewhere, these businesses require different skill sets and cultures and they have different economics, yet most aggregators keep these tightly bundled.  I don’t think that will last.  Both of these businesses can be very profitable and can lead to high levels of concentration and consolidation but, to sustain world-class performance, they need to be managed as focused businesses, not bundled together.

Where does that leave traditional media businesses?  Well, by and large, they represent a third kind of business today – product innovation and commercialization businesses. Here’s the problem – in the long tail world, this kind of business tends to fragment as creative talent tends to seek out smaller and more hospitable organizational homes.

So, what are the large media conglomerates to do? As I have suggested here and here, they can either unbundle or rapidly evolve into something else.  Because of their broad reach to high quality audiences, they have an opportunity to make the transition to customer relationship businesses, potentially even preempting today’s generation of online aggregators if they move smart enough and fast enough. The problem is that this is a huge transition for most media companies today – the product mindset dies hard.

Here are two tests.  Most media companies today are driven by product centric economics – they track in great detail what it costs to make a media product, how many units are sold or distributed and the revenue generated by product. How many of them effectively track the life time value of their audience members or customers – what it costs to acquire an audience member or customer, how long their relationship endures and how much revenue and profit is generated by audience member or customer?  These customer centric economics drive customer relationship businesses.

Second test – how ready are most media companies to point their audience members or customers to media products offered by their competitors? From my experience, very few. A customer relationship business acts as an agent on behalf of the customer, helping to connect them with whatever resources are most valuable or relevant to them, regardless of source.

Why is this transition from product business to customer relationship business so important?  I’ve mentioned one reason – scalability, which in a long tail world becomes harder and harder for product businesses and more and more feasible for customer relationship businesses.  But there’s another reason – brand.

Chris and I have debated this before – here, here, here and here.  Chris appears to believe that in a long tail world brand fractures and fragments as customers themselves, or at least the tastemakers and celebrities among us, develop reputations as trusted advisors to help others navigate through the long tail. I hold that, in a long tail world, customer relationship businesses have an opportunity to create very powerful and scalable brands based on the proposition that they know individual audience members or customers better than anyone else and can be trusted to use that knowledge to become ever more helpful to the audience member or customer.

I am also a bit more skeptical than Chris appears to be about advertising as a sustainable business model for many media companies over the longer term. It’s a topic for another blog posting, but the very efficiency of advertising aggregators like Google in making it possible to sell “tens of millions of unique ads” will over time just contribute to the growing clutter as more and more options compete for our limited attention. The increasing current focus on intention and transactions in online advertising, while understandable, distracts from the real opportunity: to build deep and sustaining relationships.

Bottom line, the dynamics of the long tail (combined with other factors) will lead to a profound restructuring of the media industry.  In contrast with many others who believe that the long tail will lead to fragmentation, I see the potential for concentration and consolidation of focused infrastructure management and customer relationship businesses. I also see an opportunity to build much more powerful brands in the media business.  While there are early leaders in this effort, we are still very much in the early innings with lots of opportunities for new players to emerge and create significant economic value.  Current leaders risk significant value destruction if they don't rapidly adapt to the changing rules of the game.

All of this is not meant to detract from Chris Anderson’s accomplishment.  He has crafted a compelling meme to capture a fundamental shift occurring in the media business and his book explores many of the dimensions of this shift with great insight.  It is a tribute to his book that it prompts an even broader and richer set of questions that media executives and, ultimately, all of us will need to wrestle with as we navigate through the long tail. Perhaps these questions will be the focus of his next book.

Comments

[Jean-Baptiste Rudelle]

Great analysis.
According to many user feedbacks I collected, the future challenge of Long Tail lies into personalized filtering. There is just too much to grasp in the tail, and without relevant filtering, users get often lost. Especially those who don’t have a clear idea of what they are looking for.

[buns and chou chou (two rabbits)]

Frankly, I don't know what all of this talk is about. The truth is, it's a fat tail mate. See this theory at http://www.rabbitbites.com

[steven e. streight aka vaspers the grate, on the edge of evening]

I see consumers sharing with consumers, consumers making or customizing products, and consumers using free products to make and disrtribute still more free stuff...

to infinity.

I don't know how it all plays out, but I acquire most things now without any money, without working for them, or using them to generate money necessarily.

Using freeware and free hosting to reach a global audience who is also making and sharing free items: it's all too much for me to see or say.

But know this: the New Super Blogger will be a multi-media, multi-functionality offering. Podcasts, music mp3s, video posts, etc. will enable users to experience you in a variety of formats.

[Alex Osterwalder]

I find the long tail a very fascinating evolution and 'theory'. Personally, I think the dynamics of the long tail will reward those media players most that are best in matching 'seekers' with niche-media-products that fit them. The race is open on how this can be achieved... either trough algorithms (e.g. Google style), through people/communities (e.g. Flickr style) or a mix of both (e.g. Amazon style).

Warm regards from my last days in Chiang Mai... Alex