How long can a tail get?

1

October

2021

No ratings yet.

One question that is for sure on the minds of CEOs, strategists, analysts and maybe comes up on everyone’s mind every so often, is what is the future of business? The longer you think about it, the more models come up in your head that would describe modern-day business models. These models are relatively new and there is no certainty that they will be successful in the future. One of those models, the long tail strategy, is one you see in all large-scale businesses nowadays. For example, Amazon will recommend you a book about mountain climbing that was published in 1988 (Touching the Void by Joe Simpson), just because it is similar to a book that’s trending right now (Into Thin Air by Jon Krakauer). This results in an increase in sales of Simpson’s book (Wired, 2004).

The mountain climbing book example shows the value of the long tail. Amazon can provide you with something that typical customers wouldn’t even get close to searching for, thus offering niche markets that still provide value. More companies embrace this strategy, Amazon is simply used as an example. Think about Netflix and Google, what if you had a weird knob on the very edge of your 4th little toe, the first thing you might do is ask your parents or lover to take a look at it, they have no clue what it might be. Going to the doctor for it might be not an option for you (shameful), so you Google it. And guess what, Google interprets your Google search and tries to find the most useful sites for you, resulting in an effective click rate that further leads you to ads.

The practicalities of the long tail are increasing, but where lies the end of an exponential curve, is it infinity or are we going to hit a wall in the future?

Reference: https://www.wired.com/2004/10/tail/

https://www.calltheone.com/en/consultants/the-long-tail-chris-anderson-explanation-examples

Please rate this

So…Are We All Hipsters Now? Thoughts on The Long Tail

4

October

2017

5/5 (5) Chris Anderson famously coined the term “The Long Tail” to depict what he envisioned as the “new marketplace”- a true shape of demand unfiltered by the economics of scarce, limited shelf space. In his book, The Long Tail: Why the future of Business is Selling Less of More, Anderson disrupts what he calls “hit-driven economics” (also known as the “blockbuster strategy” where retailers and distributors seek to maximize their returns by focusing their marketing resources on a small number of likely best sellers) – by predicting that with the advent of digital technology, we are increasingly shifting from a mass market into a “mass of niches”. In other words, in a culture unfiltered by economic scarcity, we will all be hipsters – individuals aware of and interested in new and unconventional music, books, movies, products, etc.

So…is this the end of “blockbusters” as we know it? Are we moving into an increasingly fragmented market where businesses should focus on niche markets? Or – as one Wharton professor pondered – “What’s going to happen to Tom Cruise?” More relevantly – is this the end of the reign of Queen Bey?

Before you start growing out your beards, buying everything flannel and raising your own kombucha, let’s consider these claims. While it is largely accepted that there is a long tail of demand, and research has proven that it can add up (Brynjolfsson, Hu, Smith 2006), is the demand for niche products really large enough to shift your focus away from creating bestsellers? Anita Elberse from Harvard Business School conducted her own research looking at Australian DVD rental service Quickflix.

In her research, Elberse finds evidence consistent with William McPhee’s theory of exposure which describes two types of distribution: “a natural monopoly” and a “double jeopardy”. In his theory, McPhee observes that light users of a product category are more largely interested in the popular products – creating a “natural monopoly” of popular products, or “hits”, On the other hand, a “double jeopardy” is another term for the double disadvantage niche products face in both being relatively unknown and – if known- are only recognized by people who “know better” or are experts in that product category. Elberse’s findings supported this theory revealing that customers who ventured further down the long tail into the relatively obscure movies were generally the heaviest users.

ac16d509fe2fdf81c052a21c7563aa3f

And when assessing the breakdown of their rentals based on decile of DVD popularity, Elberse found that even the users who rented the most from the lesser popular DVDs (left-most vertical column), still rented largely from the more popular movies with 34% of their rentals coming from the top 10% of rented DVDs (Elberse 2008). Research by Wharton professor Serguei Netessine on the more digital Netflix found similar results (Netessine & Tan 2009).

In her work, Elberse suggests that one explanation for the resilience of these popular titles is the social dynamic of it – people find value in listening to the same music or movies or subscribing to the same product type as their friends. Perhaps the strength of this social motivation may be what is keeping some hits so far ahead of the rest and is hindering the Long Tail from being “fatter”.

All in all, there is no question that a long tail exists. There is no question that the long tail is very long, and that with the product proliferation we are seeing now, it will no doubt continue to stay long. But Elberse and Netessine have a point – perhaps Anderson is being a little too quick to write off hits. Perhaps we are not all as hipster as he suggests we will be in this new “market of multitudes”. ­

So – what are your thoughts? Will the hits as we know it die out? Do you see a future post-digital disruption consisting of mass niches? Or are our tastes less hipster than Chris Anderson suggests?

 

Bibliography:

Andersen, C. (2006). The Long Tail. Hachette Book Group.

Anderson, C. (2008, June 27). Debating the Long Tail. Harvard Business Review. Retrieved from https://hbr.org/2008/06/debating-the-long-tail

Elberse, A. (2008, July-August). Should You Invest in the Long Tail. Harvard Business Review, 86(7/8), pp. 88-96. Retrieved from https://hbr.org/2008/07/should-you-invest-in-the-long-tail

Elberse, A. (2008, July 02). The Long Tail Debate: A Response to Chris Anderson. Harvard Business Review. Retrieved from https://hbr.org/2008/07/the-long-tail-debate-a-response

Manjoo, F. (2008, July 14). Long Tails and Big Heads. Slate. Retrieved from http://www.slate.com/articles/technology/technology/2008/07/long_tails_and_big_heads.html

Netessine, S., & Tan, T. (2009, September 16). Rethinking the Long Tail Theory: How to Define ‘Hits’ and ‘Niches’. Knowledge @ Wharton. Retrieved from http://knowledge.wharton.upenn.edu/article/rethinking-the-long-tail-theory-how-to-define-hits-and-niches/

Schonfeld, E. (2008, July 2). Poking Holes In The Long Tail Theory. TechCrunch. Retrieved from http://techcrunch.com/2008/07/02/poking-holes-in-the-long-tail-theory

Please rate this

The rise of the Platform Economy

27

September

2016

5/5 (1) Technological enterprises and companies that started in the digital age, such as Google, Alibaba, and Amazon have understood the power of digital technologies. However, most of these companies’ disruptive innovations are not services or products, they are in fact the platforms that form the foundation for these products and service. This is called a platform-based business model and it changes the way how companies can do business. It results in a system that does much of the work to grow the company (quickly) by itself.

The three main reasons for the success of these platform-based business models are:

  1. Network effects: This exists when two user groups (in most cases, consumer, and producer) generate network value for each other, resulting in joint benefits that increase demand-side economies of scale. The network effects of these platforms, with increasing connected transactions and users, push value creation.
  2. Distribution power law: Platform business models enable a much larger scale. This is done by allowing third parties to sell products in the long tail, avoiding diminishing returns usually associated with these products. E.g. Amazon is able to offer books very specifically tailored for a niche market that would never be sold in regular book shops.
  3. Asymmetric growth: This is the principle of driving demand for their core market through complementary markets, by subsidizing these, or even offering them for free, to users. An example of this is Adobe offering their PDF readers for free to its users. Because of the resulting increased use of Adobe’s pdf reader, producers are willing to pay more to be able to distribute PDF files.

Accenture’s Technology Vision 2016 names platform economy as one of the key trends to watch. It mentions that every company will, eventually, need a platform strategy. They will need such a strategy not only for the growth of their business, but also to be able to fight off the platform-based competition.

 

Sources:

Technology Trends 2016 – Accenture Technology Vision. Retrieved September 26, 2016, from https://www.accenture.com/us-en/insight-technology-trends-2016

 

Please rate this

Technology Of The Week – Music (Streaming) Industry – Group 6

16

September

2016

No ratings yet. The music industry has been disrupted by IT advances. We used to listen to music on mp3-players and nowadays we stream music and listen to music everywhere we are. The music industry became a newly vulnerable market.  This market was newly easy to enter through technological changes, a drop in costs and through the ease of spreading music online. It was a cheap small step to streaming services. Furthermore, the industry was attractive to attack because of the high fixed costs the record companies had to cover. Record companies made it difficult to defend themselves, because the companies did not compete with the new online distribution strategies, which left them far behind in the market.

We analysed Deezer and Plugify to get a better understanding of the disruption in the music industry. Deezer is an independent online music streaming provider, has 6 million subscribers and is available in 180 countries. Deezer operates as a multi-sided platform business model. One segment finances the other segment. The user is looking for music, while the advertiser is looking for an audience to advertise their products. Deezer focuses on a long tail strategy. Because there are no stocking costs online, Deezer could provide an unlimited amount of songs, what means all niche tastes can be served. Also the lower costs of making music support the niche market. Plugify is an online platform to book live music. The customer searches for a desired artist and can book and pay online. The business model of Plugify consists of two key players, the customers and the artists.

When we look at the comparison between Deezer and Plugify, we see that Plugify has a first mover advantage in their field and that Deezer faces a lot of competitors who supply similar services to their customers. For Plugify the power of supply is high as they need as much artists as possible and they only operate in the Dutch market. The power of supply for Deezer is low. There are only a few artists who refuse to deliver their music. The power of buyers of Plugify is high as customers can easily find artist online. The power of buyers of Deezer is low, because Deezer has a large customer base also due to their partnerships with telecom companies. Besides, when a customer has to pay for their account, they often don’t want to leave. For Plugify there is a high threath of new entry in comparison to Deezer where this is low, because the market is already dominated. The revenue model of Plugify consists of a 8-12% commission per booking as Deezer focuses on subscription fees and advertisement income. The cost structure of Plugify and Deezer is quite the same.

In the future there will also be changes in the music industry.  Artists will earn money through performances instead of selling music. There will be more music experience through virtual reality, more music personalisation and sharing music through social media channels will become easier. And of course music streaming will become mainstream.

By:

373396 Florine Koot

365545 Christianne ‘t Hart

376005 Elisabeth Kuyf

376482 Emilia Mertens

References:

Retrieved 14 september 2016, from http://opim.wharton.upenn.edu/~clemons/files/JMIS-.Online_MusicV3_doc.pdf

Plugify (2016) Retrieved 14 september 2016, from http://www.emerce.nl/interviews/plugify-online-bands-boeken-fluitje-cent.

Please rate this