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.