Sunday, October 29, 2006

*** The Long Tail by Chris Anderson

Anderson presents an interesting thesis of how the internet can change the way we distribute and sell content, removing economic obstacles that have become so pervasive that we can hardly imagine a world without them. A good book for the internet savvy in Silicon Valley to read and understand.

The good old days
Most of the top 50 best selling albums of all time were recorded in 70s and 80s, and none were made in past 5 years (2000-2005). P2

The 98% solution
What percentage of 10,000 digital albums available on Ecast sold at least 1 track per quarter?... The normal answer would 20% because of the 80/20 rule… But being in the digital business, I though I’d go way out on a limb and say 50%... That’s absurdly high. Half of the top 10,000 CDs at Walmart don’t sell once a qtr – WalMart doesn’t even carry half of the top 10,000. It’s hard to think of any market where such a high fraction of such a large inventory sells… Needless to say, I was way off. The answer is 98%... In a world of almost zero packaging cost and instant access to almost all content, consumers exhibit consistent behavior: they look at almost everything. P7

Every foot has its shoe and every shoe has its foot.
Not only is every one of Rhapsody’s top 60,000 tracks streamed at least once a month, but the same is true for the top 100,000, top 200,000 and top 400,000 – even its top 600,000, top 900,000 and beyond. As fast as Rhapsody adds tracks to a library, those songs find an audience, even if it is just a handful of people every month, somewhere in the world. This is the long tail. P22

There’s lots of room at the bottom-RP Feynman
25% of Amazon’s book sales come from outside its top 100,000 titles… If the statistics are right, the market for books that are not even sold in the average bookstore is already 1/3 the size of the existing market and growing quickly. P23

Today online shopping has passed catalog shopping, accounting for 5% of retail spending. It’s still growing at a whopping 25% per year, and is well on track to reach 15% of total retail spending. P49

A long tail distribution is just culture unfiltered by economic scarcity. P53

Force Business Example
Democratize Toolmakers, Blogging Tools, Desktop Music,
Production Producers Digital video cameras, etc.

Democratize Aggregators Amazon, eBay, Netflix, iTunes

Connect Supply Filters Google, Rhapsody, blogs,
& Demand Recommendations, best sellers

Once you think of the curve as being populated with creators with different incentives, it’s easy to extend that to their intellectual property interests as well… Each of these perspectives changes how the creators feel about copyright. At the top of the curve (head), the studios, major labels, and publishers defend their copyright fiercely. In the middle, the domain of independent labels and academic presses, it’s a gray area. Farther down the tail, in the non-commercial zone, an increasing number of content creators are choosing explicitly to give up some of their copyright protections. P75

Want to be millionaire writer? Then start with $1 million before you write anything.
In 2004, 950,000 out of 1.2M sold fewer than 99 copies. Another 200,000 sold fewer than 1,000 copies. Only 25,000 sold more than 5,000 copies. 98% of books are noncommercial, whether they were intended that way or not. P76

For a generation used to doing their buying research via search engine, a company’s brand is not what the company says it is, but what Google says it is. P99

KYOU: 100 million radio stations and growing
Yahoo Music is able to record 100s of millions of likes and dislikes each year, measuring the taste of its listeners with remarkable precision. This tells it something not only about each of its users, but also about the music itself… It is, in a sense, constantly taking the pulse of the culture, learning how artists fit into it through the clicks of millions of music fans. P100

Yahoo’s software makes custom playlists for each listener, occasionally sprinkling in new artists and tracks to see if they resonate. Radio stations do this too, but only with artists with a good track record, and even then only after much pretesting and label marketing. The difference is that Yahoo has millions of radio stations, each one customized to a user… So it can try to break more new artists and albums, almost all of which get no airplay on traditional radio. P101

Recommend this blog!
We are leaving the Information Age, and entering the Recommendation Age. Today information is ridiculously easy to get; you practically trip over it on the street. Information gathering is no longer the issue – making smart decisions based upon the information is now trick. Recommendations serve as shortcuts through the thicket of information. P107

People who blog, who tag content, or create links to content they like, may not think of themselves as offering recommendations or guidance at all. They’re just doing what they do for their own reasons. But every day there is more and more software watching their actions, and drawing conclusions from them. P108

What do Sabre, the Yellow Pages, TV Guide and Google have in common?
Filters (like search engines) make up the ‘navigation layer’ of the internet’s long tail. It’s not unique to internet… For many years American Airlines made more money from its Sabre reservation system (essentially the travel industry’s navigation layer for the bewildering world of routes and airfares in the 70s and 80s) than the entire airline industry made collectively from charging people to ride on planes! Certain Baby Bells made more in profits from the yellow pages – essentially the navigation layer of local business – than from their phone systems. At its peak TV Guide rivaled the networks in profitability. P109

As great as music recommendations are, they aren’t perfect. They tend to run out of suggestions pretty quickly as you dig deeper into a niche, where there are fewer people whose tastes and preferences can be measured. Another problem is that even where a service can provide good suggestions and encourage you to explore a new genre, the advice often stays the same over time. Come back a month later, and all of the recommendations are pretty much the same. P111

80% of the people get the 80/20 rule right only 20% of the time
The 80/20 rule is chronically misunderstood. First, it’s never exactly 80/20. Most large inventory markets are 80/10 (10% of the products account for 80% of the sales). The second confusing thing is that the 80/10 doesn’t add up to 100%. That’s because they are percentages of different things, and thus don’t need to add up to 100. One is the percentage of products, the other the percentage of sales. P131

Don’t call hit NetHits!
By encouraging people to venture from the hits (which cost Netflix considerably more) to the niche world (which are relatively cheap), Netflix underbuys new releases – despite the fact that such unavailability and delay annoys some customers and increases churn – but it allows it to maintain its margins. P134

In bricks and mortar retailers, the top 1000 albums make up nearly 80% of the total market. By contrast, online that same top 1000 accounts for less than 33% of the market. A full 50% of the online market is made up of albums beyond the top 5000. p137

Once you combine the scarcity of disposable income with the scarcity of time, some non-rivalrous media may become rivalrous… [If you must pay $.99 for each experiment you make on iTunes, you’re less likely to experiment dozens of times per month.] This highlights the advantage of all you can eat subscription services, which offer risk free exploration down the tail. You’re likely to consume more if it doesn’t cost you more to do so. P138

Recommendation systems work most strongly at the niche level, within a genre or sub-genre. But between genres their effect is more muted… Thus the popular ‘ambient dub’ artist [what the heck is that?] can hugely outsell the others in that category [by virtue of the recommendations within that niche], but that doesn’t mean that artist will snowball and tear up the charts. P141

Welcome to the United States of WalMart
138 million Americans shop at Wal-Mart each week, making it perhaps the single most unifying cultural force in the country. P155

Paradox of Choice Solved
The benefits that stem from choice come not from the options themselves, but rather the process of choosing. By allowing choosers to perceive themselves as volitional agents having successfully constructed their preference and ultimate selection outcomes during the during choosing task, the importance of choice is reinstated. Offer consumers abundant choice, but also help them search. P172 [This is from the same authors of the Paradox of Choice. They seem to be countermanding their previous thesis that too much choice makes us upset. Now they’re saying that too much choice w/o the ability to easily choose is what makes us upset. If it is easy to choose amongst an infinity of variety then you should be happiest.] see

That’s not impressive?
Apple has sold 42M iPods and 1B tracks as of 2006, for an avg of 24 tracks per iPod over the nearly 4 years that iTunes has been in business. That’s not impressive. P175

WKRP acid test
Most of the TV networks are content renters, not content owners. This means that the archives are often not theirs to capitalize on… The distribution rights are a total hairball, even made more complicated by exclusive regional distribution deals – which conflict with internets global nature. Want to know why you can’t watch WKRP in Cincinnati on DVD – much less online? Because the sitcom was based in a radio station, and had loads of classic rock playing in the background. It’s too expensive and difficult to license the music that was used on the show. It’s the legal standard against which all other clearance challenges are considered. P196

Is eBay a dinosaur?
eBay is the largest used-car dealer and largest seller of automotive parts. It has about $5M in revenue per employee, nearly 30 times that of WalMart… Most of its sales volume comes from 400,000 small and medium merchants who use eBay as a storefront. But most of these have their own websites as well, and other aggregators like Froogle, Yahoo Shopping are finding smarter and smarter ways to extract the necessary information from these merchants that can offer product comparisons that eBay can’t. [Doesn’t look too good for eBay in the long run.] P202

The avg Netflix customer rents 7 DVD’s a month, 3 times the bricks and mortar faithful. The cultural benefit is much more diversity reversing the blanding effects of a century of distribution scarcity and ending the tyranny of the hit. P218

Less is more
Rhapsody has prove that cutting track prices in half roughly triples the sales… Retailers should charge more for the most popular items and less for the less popular. Why hasn’t this happened? Because the labels charge a fixed wholesale price to avoid channel conflict with CDs, which still produce the bulk of their revenues. Someday they will see the light and pricing will become more fluid, allowing retailers to draw customers down the tail with lower prices. P221

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