The Long Tail (26 page)

This is yet another example of the sometimes surprising implications of the shift from scarcity to abundance in distribution; it’s also an example of how ingrained scarcity thinking is in our culture. The shift to broadband video and the severing of the link with fixed schedules will have the effect of making the average programming length shorter. Suddenly, it’s about what
we
want; not what the distribution channel wants.

By the same token, the rise of mobile video, starting with the video iPod and video-enabled mobile phones, will be accompanied by short-form content meant to be watched in moments snatched between other
things—on the bus, waiting for a friend, during a break from work. Sports, in particular, could be sliced into dozens of new lengths: full games, highlights, key quarters/innings, last two minutes, and so on.

I suspect that the thirty-minute show is the newspaper of television—a format born of distribution scarcity that is now past its prime. Demand will shift to shorter content for convenience and entertainment, and longer content for substance and satisfaction. But the arbitrary middle will not hold.

HOLLYWOOD @ HOME

The other form of video that will be transformed in a Long Tail world is movies. There, too, we’ve seen disruptive change before. One of the greatest shifts from mass to niche culture happened in the early 1980s with the introduction of the VCR and, more important, the video rental store. Before then, the selection of films available to a middle-class American on any given night was the three to four movies playing on broadcast TV, plus whatever local theaters happened to be featuring.

The advent of video rentals essentially placed thousands of movies on offer in every living room on every night. The result was a transition from
pushed
media (whether pushed onto the airwaves or into the local theaters) to
pulled
media. Consumers were suddenly empowered to summon movies with a degree of whim and freedom that, just a few decades before, Walt Disney himself couldn’t possibly have imagined.

This huge expansion in selection was accompanied by a major shift in movie access pricing. Where before the standard was one person, one ticket, now there was one small price for as many people as you could cram into your house. This transition was loathed and resisted long before it was grudgingly accepted and finally embraced by Hollywood interests. (Recall the early attempts to sell movies at retail for $70 to $80—a price that was calculated based on the amount of money a typical family would pay at the box office to see their favorite movie two to three times.)

Rob Reid, who founded the early digital music service Listen.com, describes the economic implications of this shift:

In the early 80’s, technology enabled the basic unit of consumption for a viewer-selected movie to shift from a night out to a night in—a situation that positively screamed for the “release” of a vast array of movie choices to saturate this new domain of demand. The Night In is a lower-budget affair, but boy are there a lot of them.

Initially, Hollywood was convinced that it was practically un-American for a family of five to pay less than $20 to see a movie of its choosing (as opposed to a movie of CBS’s choosing, which was of course free—if you assume that 30–40 minutes of commercials can be endured at no cost to the psyche). As a result, the studios believed (wrongly, as it happened) that pricing and margin at the micro-level should be analyzed by matching a given consumer to the price paid to access a given piece of media—rather than the raw amount of time and money the consumer devotes to your products in the aggregate.

In other words, the studios were horrified when they realized that a family of five (no, not four—remember, this was the eighties) that paid $20 to see
ET: The Extraterrestrial
in the theater would never drop $20 on
ET
rentals. What they missed was twofold: Most obviously, the aggregate amount of time and money that a given family would direct toward movies was primed to explode when the family could access any movie they wanted, rather than whatever was being marketed that month; less obviously, they neglected to consider that the total amount of money
ET
could draw might similarly explode as the film started reaching the unknown millions who would not pay $20 to see
ET
but might pay, say, $2.95.

What the VCR and the video rental store hinted at was the rise of the age of infinite choice. Those stores increased the available selection of movies on any given Saturday night a hundredfold. Cable TV also increased television choice a hundredfold. Today, Netflix increases it a thousandfold. The Internet will increase it a gazillionfold.

Every time a new technology enables more choice, whether it’s the VCR or the Internet, consumers clamor for it. Choice is simply what we want and, apparently, what we’ve always wanted.

In this chapter
I’ll look at five examples of the Long Tail at work outside of media and entertainment. They range from manufacturing to services, and extend the principles of the Long Tail to industries that make up most of the world’s economies.

EBAY

For a company that started less than ten years ago as little more than an experiment in whether the Internet could do a better job of selling old stuff than a garage sale, eBay is nothing less than a phenomenon. On any given day some of its 60 million active users are selling or buying more than 30 million items, making eBay one of the largest retailers in the world—brokering more than $100 million in transactions each day. But there’s a big difference between eBay and Wal-Mart, which sells a roughly equal volume of stuff. Most of the goods eBay is selling can’t be found on the shelves of big traditional retailers, and most of the people selling them aren’t traditional retailers.

Instead, eBay is both the Long Tail of products and the Long Tail of
merchants. It’s a classic user-created marketplace, with eBay itself simply the facilitator. It has brought nearly every Long Tail tactic to bear, extending variety to levels unimaginable before the Internet. Like Amazon’s Marketplace program, eBay is built around the notion of distributed inventory: All it provides is a Web site on which buyers and sellers meet and agree on a price (about half of the time via eBay’s original auction process, and the other half with a Buy It Now fixed price). So its inventory costs are zero. It’s not quite as easy as turning the computers on and watching the money roll in, but it’s not far off.

EBay is also a self-service model—sellers create their own product listings and handle their own packaging and mailing. So eBay has managed to build its huge business with remarkably few people on salary. It has about $5 million in revenue per employee, nearly thirty times that of Wal-Mart. Finally, it offers filters, mostly in the form of search and a multilevel category structure, to help buyers find what they’re looking for.

The range of products for which the eBay model has proven to work has exceeded anyone’s expectation. It now does far more than clear the nation’s attics. It’s also America’s largest used-car dealer and largest seller of automotive parts. It’s among the largest sports equipment sellers and is one of the largest computer dealers. With its purchases of Half.com (overstock items) and Shopping.com (an online superstore selling new goods), it now extends from head to tail, selling both the newest blockbuster products and the most narrow niche goods and one-offs.

More than 724,000 Americans report that eBay is their primary or secondary source of income, according to an ACNielsen study in 2005. In the UK, Nielsen found that more than 68,000 cottage industries, from CD shops to sculptors, depend on the site for at least a quarter of their income. On average, each eBay-based business employs nine staffers, and almost half of those businesses earn more than three-quarters of their income through the site. It’s the ultimate small-business aggregator.

But eBay is not the perfect Long Tail marketplace, for a reason that I and the team of Stanford Business School students who worked with me on an eBay case study discovered early in our research. One of the questions we asked is why eBay did not have Amazon-like recommendations, product reviews, ranking by price and ratings, and other
sophisticated filters. The answer is that eBay, surprisingly, often doesn’t know what’s being sold on its site.

It knows
who
is selling and who is buying, but because the product listings are created by the sellers themselves and each seller describes things differently, there is nothing like the standard “shelf-keeping unit,” or SKU, designation (a unique product number) that most retailers use to track their inventory. (There are exceptions in categories such as CDs and cars, where eBay has encouraged sellers to use standard categories and nomenclature in their listings.) Without this product-level information, eBay can’t offer many of the powerful filter technologies, such as recommendation engines, that drive demand so effectively at other Long Tail retailers. And because sellers can list their products in so many different ways, including misspelling them, it’s even hard for buyers to know if they have indeed found all the examples of what they’re looking for.

This represents a significant vulnerability in eBay’s otherwise remarkable marketplace. Most of eBay’s sales volume comes not from grannies selling old Beanie Babies, but from nearly 400,000 small-and medium-sized merchants worldwide who use eBay as a storefront. But most of them have their own Web sites, too, and Google’s Froogle, Yahoo! Shopping, and other aggregators are finding smarter and smarter ways to extract the necessary information from these hundreds of thousands of merchants and create a virtual marketplace that can offer product-comparison features eBay cannot. The challenge for eBay will be to do the same within its own service, keeping competitors at bay by providing better filters to help customers find what they want and buy with confidence, not just in the seller but in the product.

KITCHENAID

You might not think that there’s a Long Tail of kitchen mixers, but there is, and it’s all about color. KitchenAid is known for the quality of its high-end kitchen appliances, but even more so for the range of colors they come in. Indeed, KitchenAid is considered one of the world’s trend-setters in color variety.

If you go to a big-box retailer such as Target, you’ll typically find
three colors of KitchenAid mixers on display: white, black, and one other. That other one is typically an exclusive color, such as cobalt blue, that KitchenAid has negotiated with the retailer in exchange for the extra display space for not two mixer colors, but three. This tiny amount of variety not only distinguishes KitchenAid among the other mixers and increases its overall sales, but the company has found that adding a third color actually improves the sales of white. The reason, KitchenAid suspects, is that the colorful display attracts people to the KitchenAid shelves in the retailer’s housewares section, and the range of colors confers a brand distinctiveness that consumers value. Once pulled in by the bright variety, however, many customers, on reflection, realize that they have a renewed appreciation for classic, timeless white, and that’s what they eventually buy.

So far, so good. But what third color should each retailer pick? And which colors should KitchenAid offer? It has a staff of colorists and other experts to decide, but as with other “pre-filters,” there’s an element of guesswork involved. And once the decisions are made and the products put out on the shelves, it’s hard to know why they do or don’t sell, given the compounding variables such as display conditions and competitors’ products. Until recently, that was pretty much the end of it: KitchenAid could offer retailers any number of colors, but each year the only ones available to consumers were the six to seven that the retailers actually chose.

But between 2001 and 2003, KitchenAid built a system to offer
all
of its colors—typically more than fifty between its different models—online. If you shop for mixers on Amazon or KitchenAid.com, you can now pick any of those colors from a drop-down menu. These include the regular staples along with bolder colors that are Web-only: pistachio, tangerine, cranberry, grape, crystal blue, sienna, lemon, and others.

What’s interesting is that when customers are allowed to pick from all of the fifty KitchenAid colors, they don’t just stop at the half dozen available in traditional retail. Instead, a Long Tail emerges. Of course white and black remain the best-selling colors, along with most of the others available in regular stores. But all the others sell, too—every one. And each year, somewhere in the top ten, there is a color that nobody expected to be popular.

In 2005, that color happened to be tangerine. No bricks-and-mortar retailer had picked that color to carry, and, to be honest, KitchenAid is not quite sure
why
it is popular. Things that can affect color choice include items seen on the sets of popular TV shows, color used by influential trendsetters such as Martha Stewart, or just random seasonal variations. But until KitchenAid had an online channel that allowed customers to pick from its full range of products, it had no way of knowing that there was latent consumer demand that it hadn’t previously tapped.

LEGO

If you just know LEGO from kids’ birthday parties and the display shelves of a toy store, you’ve only seen half of the company. The other half is the LEGO that caters to enthusiasts, ranging from kids who want more than the stock kits to adults who have turned to bricks as the ultimate prototyper’s tool kit.

It all starts with LEGO’s mail-order business, which began as a traditional shop-at-home catalog and is now increasingly organized around the company’s Web site. In a typical toy store, LEGO may have a few dozen products. In its online store, it has nearly a thousand, ranging from bags of roof tiles to a $300 Deathstar. If you want to see how different the online market is from the traditional retail market for LEGO, check out their top-sellers list. Only a few of those products are even available in stores, such as a $140
Star Wars
sandcrawler and a big bag of minifigures for $43.

It’s worth pausing here and considering the Long Tail implications of this. At least 90 percent of LEGO’s products are not available in traditional retail outlets. They’re only available in the catalogs and online, where the economics of inventory and distribution are far friendlier to niche products. Overall, those non-retail parts of the business represent 10 to 15 percent of LEGO’s annual $1.1 billion in sales. But the margins on these products are higher than on the kits sold through Toys “R” Us, thanks to not having to share the revenues with the retailer. And because the virtual store can carry products for
all
LEGO
fans, from kids to adult enthusiasts (not just the sweet spot of nine-year-old boys), the range of prices can be far greater online, from $1 bricks to the aforementioned $300
Star Wars
kit.

The next level of LEGO obsession is joining its Brickmaster club for $40 a year. This brings a bigger magazine with a lot of DIY projects, five exclusive kits that show up at your door, and a ticket to LEGOland. This is LEGO’s way of segmenting its customers, ranging from casual to fanatic, and finding ways to move beyond the one-size-fits-all market of the retail shelf.

After that, it’s time to start getting serious about your own creations. LEGO has a long history of offering tools online to encourage model trading and other collaborative peer production. In 2000, its “My Own Creation” project led to a contest for the best user-created model. The winner was a blacksmith shop that LEGO licensed from its creator and offered for a while as a commercial kit. Later, it offered LEGO Mosaic, which let users upload images that were then converted into 2D LEGO brick patterns, downloadable by all.

In 2005, LEGO launched its most ambitious peer-production effort to date, LEGO Factory. This virtual fab lets you download software to design your own models, then upload them to the LEGO site. A week or so later, you get a kit with all your specified bricks and other parts delivered in a box with an image of your creation on the front. What’s especially cool is that others can buy your kit, too, and there’s a nice selection of user-created models available for purchase. More than 100,000 models have been designed this way, and some of the best of them get released as official LEGO products. LEGO even pays the creators a small royalty.

However, all is not what it could be in Factory land. Mass customization is cool, but when you have 7,000 possible parts in seventy-five possible colors (that’s more than a half million possibilities), the fulfillment challenge of offering users full freedom quickly becomes overwhelming. So LEGO limits choice in two ways. First, each model can be built only from a single brick palette, such as “car parts.” Second, those parts come in prepackaged bags of a fixed number of bricks, so
you’ll likely get more than you need. If you’re not careful, a simple vehicle that might cost less than $10 in a retail store can turn out to cost nearly $100 in LEGO Factory simply because it uses those bags of parts inefficiently.

Fortunately, there’s a work-around. LEGO enthusiasts compiled a database of what bags are in each palette and also created software to help builders use those bags more efficiently, sparing them the curse of an expensive bag of parts for a single brick. And to its credit, LEGO has encouraged this. But that’s still too hard and limiting for most people (including me), so LEGO is now considering how to improve the experience, starting with easier-to-use design software.

I asked Michael McNally, LEGO’s senior brand-relations manager, whether LEGO saw parallels in any other company’s approach to catering to niche markets and encouraging peer production. Interestingly, he gave Apple’s iTunes as an analogy. ITunes lets you download individual songs, not just albums. You can also make your own playlists and share them with other users, which is a bit like a custom LEGO creation from standard parts. “What iTunes does for music, LEGO Factory is doing for people who like to build,” McNally said. Welcome to the Long Tail of plastic bricks.

SALESFORCE.COM

As 2005 opened, Mark Benioff found himself in a tricky position. His company, Salesforce.com, had brought an innovative approach to the otherwise pretty boring world of selling software for salespeople. Rather than offer his contact management package as a set of discs to be installed on a company’s computers as other companies did, he ran the software on his own servers and offered customers access to it through a standard Web browser for a subscription fee. Effectively he’d turned software into a service, something that particularly appealed to small-and medium-sized businesses that didn’t want the hassle of maintaining their own software. This worked all too well: By 2005 Salesforce.com
had grown so quickly that it had attracted the attention of the big corporate software vendors, such as Oracle and SAP, which were setting out to match his offerings and destroy him.