Book Analysis: The long tail. How endless choice is creating unlimited demand
In the past, economics’ was dominated by vendors that sold a large quantity of only one or two items. The Internet has changed the shape of product offerings. The new economic model, first made popular by Chris Anderson in an article published in Wired magazine, examines the new economic model. This model is based on each vendor selling a large number of unique items, but only small quantities of each. As a result, the vendor sells fewer of the more popular items in large quantities. Amazon and Netflix are two of the best examples of companies that are applying this new business model. Chris Anderson explains his concept in the book: The Long Tail: Why the Future of Business is Selling Less of More. Chris Anderson is the Editor-in-Chief of Wired Magazine. The long tail economy is his most famous work to date. This research will examine this new theoretical model and compare it to traditional theoretic economic models.
The Union of Communication and Economic Theory
Why the Need For a New Model?
The first thing that one might ask is why the need to develop a new theoretical model exists in the first place. The answer to that is simple, the effects of the Internet has created changes to the economy that did not exist when traditional models were developed. The Internet changed the marketplace in ways that were unpredictable. When the idea of the Internet was first conceived, only a select few thought it would become what it is today. The Long Tail represents a new business strategy that has been applied successfully in a number of business situations. The success of this strategy has led to the development of new ways to apply it in other sectors of the market.
The long tail allows businesses to reduce distribution and inventory costs. This allows them to realize a significant profit by selling small volumes of high demand, low supply items to a large customer base. Chris Anderson introduces the concept of “non-hit” items. This term simply refers to items that are not the most popular. For instance, Amazon.com is known primarily as a bookseller. Of course, best sellers represent the most popular items. However, Amazon sells thousands of items that may not be the most popular, or that target their primary market, but they sell so many of them that it results in significant profit. Amazon is the best example of the long tail strategy. The total volume of non-hit items is larger than the volume of popular best selling novels.
The concept of the long tail is due to its ability to be applied to differing sectors of the market in a number of situations. For instance, the long tail has been applied to research, experimentation, online business, mass media, and finance. It is also found its way into social networking and marketing. It is also been known in the insurance industry for many years and is finding new applications every day.
What is the Long Tail?
This long tail is based on a concept that springs from traditional economic models, the frequency distribution with the long tail. The long tail is the name for a feature that is seen in some types of frequency distributions. There also referred to as heavy tails, fat tails, Pareto tails or power tails. They first began to be studied in the late 1940s and 1950s (Van Borm). The long tail distribution requires either a high frequency or high amplitude population. This population is followed by a low frequency or low amplitude population that trails off asymmetrically. From a statistical standpoint, those events that are located at the end of the tail have little probability of actually occur in.
The long tail distribution in the traditional market model looks like this.
Source: Van Borm, Julien. The Long Tail, Copyright and Libraries
In the traditional market, the seller concentrates on selling a high number of units of only a few products. In this model, if one divides the chart into four equal sections, it becomes apparent that mass marketing techniques only focus on about 20% of the products offered by the company. In other words, they focus on only their most popular items and practically ignore the rest. These are generally considered to be high revenue events in terms of both volume and revenues generated. Their marketing efforts and sales techniques treat those products in the long tail portion of the distribution as insignificant add ons, rather than a primary source of revenues. As one can see from the chart, these high volume best represent less than 50% of the product offerings.
On the other hand, Chris Anderson’s long tailed approach to business operations concentrates on the remainder of the items in the long tail. Those located in the long tail of the frequency distribution represent low frequency, low amplitude (revenue) events. The volume in terms of chart area of the long tail events can be equal to or greater than the 20% of the events that traditional marketing chooses to concentrate on as a revenue source. Growing the tail longer can represent a larger volume than the traditional marketing model. This is essentially the core concept of the long tail model.
Let us take a look at Anderson’s version of the long tail from an operations standpoint. All of the products that a vendor offers require resources. They must be stored in a warehouse at some location, they must be shipped to that location from somewhere else, and finally when they are sold they must be shipped the final purchase point. This amounts to overhead where the item sells or not. The traditional supply and distribution approach results in many items that sit in the warehouse consuming resources. The costs of these items must be supported by the 20% of the items that are sold. Essentially, the 20% of the best-selling items must make up for the overhead generated by items that are doing little more than taking up space. This results in operational inefficiency and in the long-term, adds up to losses in retained income. Any loss in revenue results in a double loss under this model. Revenue is lost by a drop in sales, yet the costs of maintaining the entire inventoried remains steady. There is nowhere to make up the operational costs of maintaining the entire inventory offering.
Using Anderson’s long tail approach, as outlined in Anderson’s book, the entire stock of inventory helps to pay for the operational costs of the whole. The long tail approach allows the retailer to generate sales from obscure items that are not found anywhere else. Inventory that is not in the bestseller list may not generate as much revenue as a more popular items, but they generate a little revenue. In the big picture, the best-selling items no longer have to support their own weight and the weight of lower volume items in terms of operational costs. The smaller items now support their own operational costs and do not bite into the profits of higher volume items. As one can see, this approach to operations results in a sufficient system where there is little or no waste.
Let us further examine the long tail economic concepts brought forth by Anderson. The long tail concept can best be described by example. Random House Publishing was the example used by Anderson in the original Wired article. Therefore, it will be used to explain this concept in a way that allows for its practical application. Random House offers many obscure books that are either not available and brick and mortar stores, or that are out of print. The long tail represents a potential market that is untapped using traditional models. The Internet offers many distribution and sales channels that allow businesses to efficiently adopt the long tail model.
Using the long tailed approach, sales can be extended on certain items. The following is found in Amderson’s 2004 article in Wired. In 1988 a British Mountain climber wrote a book called Touching the Void. This book chronicled in near death experience by a mountain climber in the Peruvian Andes. It was written by a man named Joe Simpson. At its first release it only experienced moderate sales. As with many books that do not make the bestseller list, sales of this book soon faded to nearly nothing.
In 1998, nearly a decade later, another author, Jon Krakauer, wrote a similar book called Into Thin Air. This book was also about a mountain climbing tragedy and very similar to Simpson’s book. However, this book took the publishing world by storm and became an almost overnight sensation. It may not be that the book was better written, it may simply be that the author did a better job of marketing and promotion. For whatever reason is behind the sales results, the affect is the same.
This is where the long tail model comes into play. After the success of Into Thin Air, sales of Simpson’s 1988 book began to pick up as well. Suddenly Random House was faced with increasing sales of a book that was presently sitting in their warehouse taking up space in eating up operations costs. Now this book that had not been selling in the past was suddenly generating revenues and paying for its own operations cost. Random House quickly rushed out and printed to new edition to keep up with demand. They devised a promotion strategy where both books would be located next to each other on book shelves. Sales for both books continue to rise simultaneously. Their next move, according to Anderson’s article, was to issue a paperback edition. This, once a hardly noticed book now spent 40 weeks on the bestseller list. The plot was picked up by a film company and released. After this, sales of the first book, Touching the Void nearly doubled those of the second book, Into Thin Air by nearly 2 to 1.
In Anderson’s example, both books were promoted through traditional bookstores, but Amazon .com was the main selling channel. One of the key factors in this phenomenon was that the online bookseller used software that tracked people’s buying habits and suggested that people have liked Into Thin Air would also like Touching the Void. Readers took the hint and followed with excellent reviews. This generated more sales through algorithm-based recommendations, resulting in a positive feedback loop for the first book. This is an excellent example where the Internet and algorithm-based marketing techniques are the key to success using Anderson the long tailed economic approach.
If one were to graph if the long tailed approach, it would look like this. This chart represents the initial sales of the first release of Touching the Void.
The first release of touching the void never reached a high revenue volume. Let us extend out the long tail and add a line for the best-selling release of Into the Void.
Now it is easy to understand the concept of long tailed economics using the single product example. The general idea is that small volume product sales of multiple products lead to the generation of more small volume product sales. These have a summative affect, resulting in a greater volume than a single high volume product. In this case the sales of a best-selling high volume product initiated the long tailed affect of a smaller volume product. In this case, Random House saw the opportunity and acted upon it. Had Random House inot acted upon the opportunity to was presented and not released the second book and movie, it is likely that demand for Touching The Void would a fallen to almost nothing again when shoppers found that it was not available. In this case Random House saw the opportunity of a potential long tailed affect and seized the moment, thus allowing them to capture higher volume revenues on the additive affects of both products.
Now let us consider a model that involves numerous best selling products and numerous low volume products. The following chart represents an example of two sets of products, both of which generated high volume sales in the beginning of the marketing cycle. The product represented by the dashed line initially generated fewer sales than the one represented by the solid line. However, the one represented by the dashed line and lower initial sales generated a higher volume sales in the long run than the one that initially generated higher volume. Iin the following chart the X-axis is represents volume, even though the author of the chart did not include it.
Source: Van Borm, Julien. The Long Tail, Copyright and Libraries
This chart demonstrates the same effect as a single product example given earlier. The initially higher volume products fell sharply, but over the long-term, they generated interest in the previously lower volume products. This works particularly well when the products are related such as books. However, it also works in products such as electronics or add ons can be marketed with the primary product offering. One example of this is the iPhone. The iPhone is a high volume product. When people purchase an iPhone they will have the option to purchase carrying cases, skins, and thousands of apps. These add -ns are much lower price than the initial iPhone purchase, but they increase sales revenues significantly. The only difference between this example in the one presented by Anderson is that in this case the additional products depend on the iPhone purchase.
Without the initial iPhone purchase there would be no need for the smaller revenue items. However, the smaller revenue items have the potential to extend the tail longer because people would replace them more often than they would if they purchase a new iPhone. The best example of the sale of high volumes of small revenue items are apps. Essentially, the sale of apps serves to extend the long tail of iPhone purchases through purchases of small revenue items over a long period of time. Upselling extended service contracts is another way of extending the long tail of an initial purchase. Another example is purchasing software that has the option for purchasing a monthly add on subscription service.
Without these add on services to extend the long tail, the sales of the initial product would follow the standard bell curve. Extending the long tail of a single product or service through the purchase of a basket of high-volume, low revenue products means that developers do not have to reinvent the wheel after the initial release of a high revenue product. By introducing a next generation product into the long tail of the initial product and add ons, they can take advantage of the cycle again and again. However, it might be noted that in the case of technologies, the release of a second generation version can cut off the long tail of the first release. Many of these decisions depend on the entrance of competition. A company may have no choice if a competitor releases a similar product. This argument takes Anderson’s principle farther than he did in his book, but it demonstrates how it can be applied to market developments that are a result of technology and the Internet.
This explanation presents a fairly detailed view of the concept of long tailed economics and how the model introduced by Anderson can be extended and applied to a variety of situations. Thus far, it would seem as if Anderson’s principles are the road map to a new economic model. Several examples of been explored by large corporations that employed these techniques to increase overall revenues. From the understanding gained by these examples, it would appear as if the long tailed approach forces the company to take a holistic approach to business development.
The older economic model that relies on high volume sales of best selling items to carry the entire operational costs of the company would now appear to be a shortsighted approach to doing business. This would make the long tailed approach appear to be sustainable and focused on long-term growth. The long tailed approach would also be the most cost effective from an operational cost perspective as well. Using the long tailed approach every product must carry its own weight in terms of covering its own expensive.
The long tailed approach also makes more sense from a risk management perspective as well. The traditional economic model that depends on a small basket of high selling items to carry the operational costs of the entire company is risky. A failure to generate revenues from any one of these products has a significant impact on the ability to cover operational costs for the rest of the company. Under this model, when an item fails to sell or a significant drop in demand occurs, businesses often have to make difficult decisions such as eliminating the product lines that are costly but that don’t generate significant revenue. Using a long tailed approach the risk is spread over the entire basket of products. If demand drops for one of the items its affect will be insignificant and other items will not have to suffer. The long tail approach could be viewed as a form of diversification and a risk management technique too.
If one considers the example of Amazon, their operations are a perfect example of the long tailed approach. The key to their success is the algorithm that matches customer interests and achieves the up sell using statistics. Many online merchandisers are using similar tactics to increase their entire sales volume. EBay uses it as well by collecting information and building a customer profile that they use to present items that might be of interest when a customer first visits per page. They also send out e-mail that suggests items of interest to individual customers. These techniques represent individualized, personal marketing techniques that would not be possible without the Internet.
This explanation the long tailed approach would make it seem the perfect solution in the online emarketing community. Its holistic approach to operational cost management and risk management would make it seem like an excellent strategy to achieve long-term sustainability in the marketplace. However, despite its success in the digital world, and it’s use by major corporations as a key to success, the long tailed strategy has its critics. In order to understand Anderson’s model more thoroughly, we will now compare it to other contemporary models.
McQuail’s Cross and McQuail’s Pyramid
Let us examine some of the other theories of communication and how they relate to Anderson’s work. The first book can be examined was written by Denis McQuail. In Mass Communication Theory McQuail examines the significance of mass media and how it affects individuals and society. To gain better insight into Anderson’s long tailed theory, the effect of mass communication must be considered. McQuail’s work intended to update and account for recent theory and research. It intended to expand the field and provide better clarity as new theories continue to evolve. The focus of McQuail’s book is on the future of mass communication in the concern that it must be developed in a socially responsible manner in order to be effective. Now let us examine some of McQuail’s theories and how they apply to Anderson’s work.
McQuail’s work focused on the relationship between media and society. One of the most essential considerations is the role of freedom and control of the media. Different forms of media claim freedom differently. For instance, newspapers claim freedom of the press and exercise the right to spread political opinions and financial information unhindered. The television uses political influence and control based on public opinion and general public interest. In this way it can be said that the newspaper can affect social and political opinion, whereas television is a reflection of it. With television the market controls the content and therefore replaces political power. These have been the dominating forms of mass media until very recently.
The Internet represents a new playing field for mass media and new roles as well. Rather than mass distribution, the Internet allows for individual distribution of information. On this point, McQuail and Anderson agree. Although Anderson did not express it explicitly, his examples given of the algorithm used by Amazon and other major Internet retail sites that provide individualized emarketing based on an algorithm of shopping habits is a prime example of the individual distribution of information that McQuail addresses. McQuail suggests that this new form of media needs regulation so that a monopoly of power cannot be established by single entities.
In the first several chapters of the book McQuail defines mass media and its roll in public and society. McQuail defines mass media as a means of large scale communication that involves almost everyone in a society. McQuail sees mass communication as a necessary element of the democratic process. Mass communication serves as a means for politicians and candidates to distribute their ideals and information to the general public. It serves as a forum for debate and for the definition of social reality. Mass media represents a shared identity as a society. Mass media is a source for leisure time entertainment, and as such, it serves as a shared cultural environment for members of society.
After this introduction, McQuail then goes on to define various categories of mass communication theory. McQuail divides theories into four basic categories. This is known as McQuail’s cross. It looks like this.
McQuail’s categories are media-centric, society-centric, culturalist, and materialist (p. 12-14). These four types of theory are important in understanding Anderson’s argument from this standpoint that the Internet is both a form of mass communication and a marketing tool. The use of the Internet as a selling platform blends both mass communication theory and economic theory into a single component.
McQuail defines the culturalist perspective as giving attention to content and the reception of media messages by the immediate personal environment. Using Anderson’s Long Tail theory, this concept is best exemplified by the use of individual messages sent to buyers through the use of tracking algorithms. The material is approach emphasizes the structural and technological aspects of the communication media. This could apply to the technology itself, such as the PC, the backbone of the Internet, and the technology behind the tracking algorithms. Society centric perspective emphasizes the social elements involved in media reception and production. The best examples of these are social networks and viral marketing. When a product receives good or bad reviews by peers it sets the social tone surrounding the product. People tend to look to others to see if they should make purchases of a particular item.
Obviously, this works in a positive fashion for high-volume items. However, this concept can also be leveraged to increase the sales of items in the long tail of the curve. The materialist perspective sees media content as a reflection of the political, economic, and social characteristics of society. In this case one can see sales in demand in the long tail as a reflection of societal change. In this way the long tail could be used as a measurement tool for the trends in this social and political atmosphere of the consumer base. Movement away from work for the particular product could indicate changes in society and politics. It is easy to see how the theories of mass communication and long tail economics converge when the Internet is used as the media for both communication and commerce.
Now, we have an understanding of how McQuail’s cross relates to the work of Anderson and the Long Tail. Let us now see how Anserson’s Long Tail approach fits into another of McQuail’s illustrations. McQuail also used a pyramid to explain different levels of the communication process. It looks like this.
McQuail’s pyramid explores various levels at which communication occurs according to different levels of social organization, both inside and outside of a corporation. McQuail’s pyramid defines communication as a result of communication processes that take place over the entire society. As one movies down the pyramid, more separation of entities occurs. At the bottom of the pyramid, communication can be described as fragmented at best. The Intergroup of association level refers to organizations that are regional or community based, such as churchs or schools to which people belong. Anderson’s long tailed approach to economics depends on the ability to leverage intrapersonal communication through the Internet and other personalized marketing and then to move it up through the levels of McQuail’s pyramid by creating “Buzz and getting people talking about when they have seen and experienced personally.
This is the exact opposite approach of beginning at the top of the pyramid with mass media and hoping that that information filters downward to the individual level, where purchases will be made. The most important point about McQuail’s pyramid in relation to long tail economics is that it requires a different communication approach than traditional economic models in order to be successful. Some internet companies, such as Amazon, do use a mass media approach as part of their marketing mix, but this is not the only approach utilized. Amazon has commercials on television, but these do not target specific products or brands. Their purpose is to drive people to the site where they can then engage in more intrapersonal marketing and employ the bottom level of McQuail’s pyramid. Understanding and leveraging McQuali’s pyramid is the key to achieving success using Anderson’s long tailed approach to economic sustainability.
McQuail spends a considerable amount of time defining various theories and definitions in the area of mass communication. McQuail addresses the various forms of communication that exist and the new media forms that are used. McQuail’s work is general in scope, providing an overview of mass communication theory as it applies to today’s new technologies. His arguments are based on a solid theoretical foundation that applies to both traditional and new forms of media.
The purpose of McQuail’s book it is to provide a textbook for communication students. Therefore, the book spends considerable time presenting general knowledge of interest to this target audience. Much of it is a general overview of information within the mass communication area. The section of McQuail’s book that applies most significantly to Anderson’swork is McQuail’s section entitled, “New media — new theory?” This section of the book will be explored to the greatest extent in relation to Anderson’s Long Tail theory.
McQuail argues that’ new media’ is hard to define in technical terms. Rather than attempt to define these new forms of media, McQuail chose to examine how new media as a collective enter the sphere of mass communication. McQuail defines new media as broadcasting applications, online news, advertising, forums, discussion boards, the World Wide Web, information searches, online communities, private e-mail, game playing, and some of the less premium services provided by the Internet. Anderson’s work focuses on emarketing and online sales as a form of distribution network. Anderson does address the effect of ‘new media’ on the ability to capture the long tail intake advantage of it.
McQuail feels that a lack of regulation in new media forms could result in unwanted consequences (p. 136). McQuail distinguished between personal media and mass media using the argument presented by Marika Luders (2008). Personal meeting is a relatively new concept that came as result of new technologies. In the past, personal letters would also be considered a form of personal media. However, in the 21st century mass media was considered the primary form of communication. Luders considers personal media to be defined is that which is used by individuals to share personal expressions using technological devices. Prior to the digital age the mass media was considered to be a provider of information that was generally accessible to everyone and on an equal basis. Luders feels that this description is no longer accurate. Then a new definition must be devised for distinguishing personal and mass media. Luders argues that the distinction between mass media and personal media are no longer clearly defined. There are some forms of media that are used for both purposes at once.
Anderson’s example of Amazon is one such form of media. Amazon uses its site as a form of mass communication through the presentation of its products in a manner that is generally accessible to everyone who has access to the Internet. Amazon uses its mass communication channels to market to both to traditional and long tail portions of the curve. Its mass communication techniques promote its high volume best-selling items and also allows for those who are looking for a particular item and use their search engine define it as well. Once a buyer makes a purchase, Amazon then uses personal media to try to find other product matches based on an algorithm and their personal profile. In the past, what McQuail refers to as old media forms do not have the ability to serve both as mass media and personal media at the same time. This is a key difference between older forms of mass communication and the Internet.
To take this argument further, prior to the ability of advertisers to use personal media for directed target marketing campaigns to an individual, advertisers simply had to take an average of public responses and intend to get the largest sales volume possible. They will limited in the number of items that they could advertise. This forced them to select a few best items that they expected to be top sellers and to launch a mass media campaign that focused on those select products. Prior to the development of personal media and personal marketing techniques through this media, companies had little choice but to rely on the few targeted items in the 80th percentile of the distribution. There simply was not enough air time, space, or funds available to market each and every one of their items, regardless of the sales volume.
The only exception to this might have been catalogs, but these had several disadvantages, at least when compared to the personal algorithm-based marketing of today. Catalogs were expensive to print and if a mistake was made, there usually was a second chance to correct it. Although catalogs listed every item, they still tended to focus on promoting those items that they felt would generate the highest volume of revenue. The key disadvantage to catalogs was that they were only printed once a year. Retailers do not have the ability to adjust their inventory to account for rapid changes in the marketplace. The inability to adapt to the marketplace resulted in inefficient forecasting. However, prior to the Internet, the market did not change as rapidly.
Personal media solves many of the problems of the old media forms. The Internet use retailers this ability to put their entire catalog online. They can advertise both the 80th percentile frequency distribution items and their long tail items as well. The Internet is an efficient way to reach both markets into take full advantage of long tail volume items. McQuail talks about the convergence a media forms in that whether it is mass communication or personal communication, everything gets reduced to binary code. It is in the same form whether it applies to public life or personal life. According to McQuail, the mass media considered digitization to be simply an addition to the existing forms of old media. However, as one explores the usages of digitized media and takes into account Anderson’s perspective, it becomes apparent that it is much more than that.
McQuail considers old media to be a form of “push” technology (p. 139). A message is pushed into the general public whether they requested it or not. They have no choice in the messages that they receive or there content. They have no control over the political views or social message that it conveys. Mass media communication is only one way. The message is delivered to the audience and they have no control over its method, contents, length or in any other aspect of it. New technology, on the other hand, is both “push” and “pull.” Messages can be sent and received both ways. A corporation can push out a message to their intended target audience and the audience can respond to this message in several ways. The audience can post comments to the message. They can ask questions about the content, or they can make purchases as result of the message. Message it can also be received using “pull” technology. A customer may conduct a website to make a purchase without any action by the company other than simply being present on the website. The communication can be initiated by the audience using new media theory.
When Anderson explained the example of the two books about mountain disasters, they used both push and pull communication technology. When they released the first book, they used push technology. When they released the second book they used push technology. However, they responded using pull technology with the decision two we release the first book in response to sales. As one can see, McQuail’s communication theories are closely tied to Anderson’s economic theories. New media is quickly changing the relationship between the media in the audience. Lines are becoming blurred as to which role each side is playing. In a way, the consumer also represents a new form of media. They broadcast a message through companies to their purchases and feedback that they provide. Media is no longer a one way street and represents true communication in the ability of both the sender and receiver to provide each other with the message.
Both McQuail and Anderson agree on one key point. The new media and the Internet represent tremendous potential for social and economic change. Old media had the power to serve as an instrument of change by pushing this message to society. Society could accept or reject the message or they could not respond to it at all. Anderson examined the potential for economic change that exists in the Internet and its ability to create greater operational efficiency and give consumers a greater choice. New media represents a shift in power from the corporation to the consumers and the audience. New media removes many of the constraints, limitations, and barriers that hindered old media.
McQuail summarizes the theoretical benefits of the Internet for democratic politics as follows:
â€¢ scope for interactivity as well as one way flow
â€¢ copresenece of vertical and horizontal communication promoting equally
â€¢ a reduced role for journalism to mediate the relationship between the citizens and politics
â€¢ low cost for senders and receivers
â€¢ immediacy of contact on both sides
â€¢ absence of boundaries and limits to contacts (McQuail, p. 152).
The same benefits for communication also apply to Anderson’s economic perspective on the Internet. These benefits to communication also helped fuel long tail economics. Communications and economics have always been intimately interconnected through marketing. However, the Internet has strengthened this connection to the message as it now can be both received in sent by consumers quickly and efficiently. The Internet represents a new way of seeing communication, consumers, and economics.
The Perfect Union
A close examination of Anderson’s theory highlights the importance of the Internet in the development of economic theories that represent reductions in operational costs in improved efficiency in organizations. The Internet is simply a new form of communication and as a form of communication it is also a form of media. One cannot consider the economics of the Internet without framing it in the context of communication theory. The purpose of McQuail’s work was to present an overview of mass communication for the general communications student. He presented his argument with a focus on new media forms and their affect on changing communication theory. However another author presents a more historical perspective on communication theory that may help to understand social changes that are to come.
In Media and Communication, Paddy Scannell reiterates 100 years of communication theory. In this work the author tracks the development of social changes that were the result of changes a communication strategy and media. McQuail’s work provides a better framework in which to integrate Anderson’s theories. McQuail’s work provides more general overview of communication theory. Therefore, it is easier to find a place for Anderson’s theories to sit comfortably within it. In addition, McQuail specifically addresses the role of the Internet and the changes that it meant for the media in consumer relationship. On the Internet the media-consumer relationship is intimately linked with advertising and purchasing patterns.
Scannell’s work is more in depth and addresses specific topics in a comparative fashion. Scannell’s work is a little more focused, using comparison and contrast in communications between the U.S., Germany, and the UK. Scanell uses a chronological format, making a comparison for each decade. Scannell ends his work in the 1990s in Germany.
The most relevant information in Scannell’s work are the underpinnings of social change within the framework of mass communication strategies. Scanell presented a theory by Riesman that argued that a structural transformation of the American soul was taking a place during the 1940s (p. 262). Riesman postulated that this transition was that of an inwardly-directed individual to an other-directed individual. This restructuring of American Society did not have internal origins. It was the result of historical forces that were working in American society. The production of industrial goods and manufacturing was feeding a transition from an economy of scarcity to an economy of abundance. Riesman claims that this did have an affect on everyone’s personal image and the way they defined themselves. They had more time for leisure activities. They had more economic choice and freedom to choose how they spent their time. Scanell sees this time as one of the most important transitions during the 21st century (p. 293). These changes brought about changes in politics. Scanell found that at the same time the circumstance also brought about a cultural change in England.
The most relevant point to Anderson’s work is that with the social changes came the power of the mass media to influence individuals and society. Scannell’s best example of this was when the H.G. Wells classic, The War of the Worlds created mass pandemonium and panic in individuals. The ability of the radio to expose the vulnerabilities of the society and the power to have an immediate impact was demonstrated by the incident. Merkon ( 2004) studied the subject of mass persuasion through a study of audience responses to Kate Smith’s radio broadcast promoting the purchase of war bonds. The impact on the masses amounted to $40 million worth of war bonds purchased in a single day. Scanell relies heavily on case studies such as this to support theories on the ability of mass communication to affect the actions of society.
Scannell’s perspective is largely one sided and takes the position that mass media had an impact on society, rather than serving as a reflection of society as some theories claim. The historical examples cited by Scanell support this position and there is little dispute from the evidence presented that mass communication has the ability to create mass societal change. One my remember that McQuail supported the position that old mass media was a push system and the audience had little means to produce feedback. McQuail argues the point that the mass media could push out a message, but they had no way to determine how the public received a message. The studies in Scannell’s work support the position that if the right message was sent using the right media, then the response could be measured and resulted in measurable societal change. If Scannell’s work accomplished nothing else, it demonstrated that mass communication could create dramatic and instantaneous societal change.
One of the key limitations of Scannell’s work is that it only considers old media forms. It stops at the 1990s and does not pay considerable attention to the effects the Internet would have on society. Scanell only presents a historical perspective and does not enter into speculation about how new media forms that now shape society. McQuail dares to predict the future and suggest that without governmental controls this new media will result in societal change without direction or a cohesive goal. Others claim that this is the way it should be and that the new communication is a media of the people as well as corporations.
Anderson’s work supports that of Scanell from the perspective that it demonstrates that new media has an even greater ability to influence and shape society. When corporations push a message out to the public, the public responds either by purchases or commentary. The new media still has the ability to shape society from a push perspective. One difference in the model presented by Anderson that Scanell could not address, because it did not yet exist, is that the ability to exert influence was no longer only one way.
In the examples examined by Scanell, the public had the ability to exert pull by increasing or decreasing sales of the product contained in a mass communication. However, there was usually a lag between the message and the purchase. This made their direct effect of mass communication on the public difficult to measure. It was considered speculative at best. For instance, corporations had to wait until January to find out if their sales campaign in October had an effect on Christmas sales. The difference between those times and modern times is that results are now instantaneous. Corporations can instantaneously see the results of their campaigns. They can also see the immediate results of public response to their message push. This can be either positive or negative. It can result in a flood of negative commentary through the e-mail or it can result in an instantaneous increase in sales. New media decreases or eliminates the lag in metrics that existed when the old media was the only choice.
In order to thoroughly understand Anderson’s position on the long tail and is potential to increase revenues and offset operational costs, it is important to understand how theories on mass communication and media are at work in this new economic arena. McQuail and Scanell were examined in this research for their role in understanding mass communication theory. Anderson’s Long Tail theory depends on media as a key driver. This research found that changes in communication media resulted in changes in society. It further found that the media had the ability to control and shape society. The ability to shape society was highlighted by the inequality in power structure that exists between the communication form and the receiver of the message.
The most important finding in a comparison between the three authors examined is that the dynamics of mass communication are changing. McQuail focused more on changes in politics as a result of mass communication. Scanell focused on psychological changes and behavior changes in society as a result of mass communication. Anderson focused on economic changes as result of changes in mass communication media and style. The most important contribution of Anderson’s work is that it highlights the need to reexamine traditional economic theories and market structure.
Anderson developed as theory by examining major corporations whose majority of sales are on the Internet. Older theories of economics focused on the sale of a small quantity of products that were high volume, high revenue products. This basic model had been the standard since the 1950s and worked to explain many successes and failures. However, the model failed to explain the success of large Internet companies that seem to offer an endless choice to their customers. This failure to explain the success of sellers such as Amazon, Netflix, and Ebay led to Anderson’s reexamination of traditional models of demand-side economics. Anderson found the answer he was looking for in the long tail of the demand-side distribution. Anderson found that the ability to communicate increased the ability to capitalize on low volume products to drive consumer demand, resulting in overall higher volume in revenues than their best selling products.
Communication technology was the driver that allowed them to do this. They could concentrate on a large variety of small niche markets, while continuing to focus on their primary product line. Instantaneous communication between the company and the customer allowed them to adjust their inventoried offerings to changes in the market. Anderson’s position represents a new way of looking at economic theory. This change in paradigm was made necessary by the failings of traditional economic models to explain successes and failures in the age of the Internet. In order to understand the relationship between communication and economics, one needs to narrow their discussion of communications to the advertising and marketing field such as with the work of Scanell. However, as we found, it is also possible to fit Anderson’s theories neatly within general communications theory as presented by McQuail. Anderson’s theories represent a new way of thinking about the role of communication in economics.
Supporters and Critics
Thus far, we examined the need for the development of Anderson’s long tailed theory and presented it in relation to popular communication theorists. At present, Anderson’s theories are becoming popular in many industries and applications. Anderson’s theory forces entities to examine their entire business process as a whole. They can no longer only pay attention to the products that are most prevalent, they must also consider minor products and use them to reduce operational costs and to drive revenues for the whole. It is now widely accepted that the small changes, when taken in aggregate, can have a greater additive affect than what is considered the core of the business.
Chris Anderson’s essay has become one of the most influential works in recent times. It is contemporary and examines the new economy created by the Internet. Anderson’s theory dares to explore where we have been and where we are going in the future. However, just as with any other new theory, it has both supporters and critics. It is gaining support in the number of applications and case studies that are appearing on the Internet, but that theory still has its critics. Now let us examine supporters and critics and their reasoning for doing so.
The long tail economy is based on the reduced distribution and production costs of Internet-based markets. The concept makes small niche markets feasible due to these lower costs. This creates unlimited variety and choice for the consumer. Anderson mentions one point that may hinder the ability to maintain a momentum in the niche market. It is possible for the consumer to see too many choices and to suffer from choice overload. Kjell (2009) felt that the problem of choice overload was more challenging than Anderson suggested. Anderson considered choice overload to be a possibility. Kjell considered it to be a major hindrance to the sustainability of the long tail. Kjell suggests that the solution to the problem may be to stick to promoting brand hits, but to employ good search engines and catalogues to reverse or reduce choice overload.
Kjell’s argument brings up a common misunderstanding about Anderson’s work, perhaps because the focus of his work was on the long tail and he hardly mentions what he calls the “head” of the distribution. Many people get the idea that Anderson is saying you should focus only on the tail of the distribution and low volumes items. However, this is not what Anderson suggested. Traditional brick and mortar economics focus on promotion of the tail, and have for approximately the past 70-80 years. The tail was hardly mentioned in literature until Anderson pointed out its potential.
Anderson did not suggest that companies that have a substantial head in primary products drop them in lieu of the tail products. He was simply saying that through search engine technology they can maximize profitability, rather than losing money through the tail and operations cost associated was storing them. He also suggested that there was potential for new businesses to develop solely based on tail products, rather than competing with companies that offered large scale head products. His primary example using Random House demonstrates how the head and tail products can be used together to maximize profits in both the head and tail products. They do not suggest the company’s drop head products and promote only tail products. Kjell makes a good point, but he also based his conclusion on a common misunderstanding when reading Anderson’s work. This misunderstanding occurs because Anderson did not explicitly state his position about the head in his work.
One complication of the long tail is that it has consequences that were not addressed in the original work. It was not Anderson’s purpose to examine all of the consequences of his theory. Anderson took a purely economic perspective on the potential of the long tail. It was not until others began to debate and discuss it that all of its implications and complications began to arise. One of the complications that arose from debate is its consequences on copyright law. Infinite supply is necessary to extend the long tail. However, profit in industry such as publishing and music depend on keeping the copyrights to these products for as long as possible. Many publishers and labels are now flooding the government with extensions of copyrights on their work. This is happening throughout the U.S.A., Europe, and in Germany (Van Borm, p. 122). This was an unforeseen consequence of the long tail.
Evidence of support for the long tail is seen in the many different applications to which it has been applied. From this respect, Anderson’s long tail has developed into a philosophy as much as an economic formula. It is a way of looking at your business that takes a holistic approach on how to extend resources. It is also a philosophy of eliminating waste and reducing operations costs through improved efficiency that can be applied to various situations (Genomi, p. 1). Libraries are now employing the long tail philosophy and using it to improve search engines that allow their customers to access a little known or out-of-print sources (Dempsey, 2006; Storey, 2005).
The long tail has also been applied to media giants such as BBC programming. The more popular shows are watched by millions, whereas other shows are considered to be further down the tail end, only available through that satellite television and cable. If the show’s only draw tens of thousands of viewers and BBC programmers are now discovering ways to take advantage of their long tail programs (Montgomerie). The airline industry has also applied the long tail by trying to capitalize on less popular destinations and flights to increase overall travel (Anderson, 2009). This change has a part of operational efficiency improvements to help struggling airlines remain in business. According to Anderson, it worked and airlines were able to improve overall operational efficiency, thus increasing revenues and reducing costs associated with less popular “tail” destinations and flights. Where to draw the line in terms of the long tail in the software industry iss difficult to define, as it is with many industries. Smaller businesses were considered to be the long tail in the software development industry (Chong and Carraro). One can find a long tail in almost any industry that can be used to increase profitability.
The long tail has been applied to the search engine optimization of keywords. This means building traffic based on less popular, less searched keyword variations, but using them in aggregate to drive greater search volume (Wordstream). The educational industry has used the long tail to leverage less popular class offerings to students (Brown and Adler). Evidence for support of Anderson’s Long Tail theory stems from its wide application and demonstrated success in a variety of applications and business situations. Despite its marked success, critics still exist for the theory and its application.
One of these key criticisms is the confidence with which Anderson states that there is a market for everything. If the products offered are not originals, but just copies of the same thing over and over they will not result in increased sales of low volume items. The items have to be unique in order to realize the volume increases promise by Anderson’s long tailed theory (Hunt). Other critics feel that Anderson focused on a few success stories, but that the successes are statistically rare when one considers the number of businesses on the net Internet, there are only a few that are big successes (Ehrenbergp. 22). This may be true, but not every business intends to be big and many of them could still improve their operations by applying Long Tail theory. Ehrenbergp made a general statement but did not go into the specifics of as criticism, other than to provide information about outliers and other statistical information. Ehrenbergp only loosely connected the statistics to Anderson’s long tailed theory.
There is one caveat in being a small business that leverages their success based on the long tail. Once they attract too much attention, they are likely to be bought out, or similar products picked up by giants like Amazon or Wal-Mart (Rampell). These giants have understood the long tail long befor Anderson defined it and have greater resources to leverage it.
The list of supporters and critics could go on for a very long time at this point. In general, the critics could find very little to criticize in the theory itself and many of their arguments were related to the consequences of long tailed theory and its overall effect. At this point, based on numbers, there appears to be more supporters of Anderson’s theory than critics. Anderson’s theory has gone from a simple economic principle to become a standard part of today’s business jargon (Pearlstein). It now represents a concept that includes a leveraging all of the company’s resources, rather than concentrating on only the “biggies.”
The concept of the long tail is found throughout logs, wikis, and forums throughout the internet. Almost everyone can find the long tail somewhere in their business plan (Brzozowski and Yardi). Several technologies make capitalizing on the long tail possible. These is cheap computer hardware that make storing the information possible, cheap broadband that cuts the cost of distribution, and the development of elaborate search engine folders that helps to match supply with demand (Cassidy).
The concepts presented by Anderson are not new. Over 200 years ago, Adam Smith observed many of the same principles and used them to leverage products that were not currently popular (Brynjolfsson, pp. 67-71). Operations managers have traditionally been advised to take into careful consideration all of their products and services, along with the costs associated with them. Anderson understood this concept and applied it to the emerging Internet markets. Anderson gave these concepts a new face and a new name.
At the end of the day, the bottom line is that there is a lot of money to be had in the long tail of demand. The long tail at tail no longer represents the end of the road for products, but the beginning for those who know how to leverage it. Anderson’s concepts are now being widely applied to many different areas in fields of interest. Throughout this research many examples were found where the long tail was used to improve operations and to increase operational efficiency, thus having an impact on profitability.
Ailing industries are now using the long tail to turn their businesses around. Perhaps the best example of this is the airline industry. When businesses are failing, they begin looking at every area of their business. Inevitably, it will lead them to long tail products. When long tail products and big sellers are defined, the traditional model advises that one has to focus on the big sellers (head) products first. This is usually the first strategy to generate revenue in the recovery process. They must also make a decision about what to do with their low volume (tail) products. There are two choices available, one is to start marketing them and try to turn them into head products. This may or may not lead to success depending on the products and the market conditions. The other choice is to drop them from inventory, so that at least they do not eat up the operational costs that must be made up by the “real” product line.
The choices concerning tail products in a business recovery plan are limited, but they can have a major impact on the business. It is true that eliminating tail products is one way to reduce operational costs, which theoretically has a positive impact on retained income. However, this can also have a negative impact on consumer perceptions of the business. Today’s consumers are wise and when a business starts offering fewer products, it gets noticed. This may give consumers the perception that the business is no longer what it used to be. They may begin searching for other sources of “tail” products to which they have become accustomed. If they find other sources, they may also find other sources for head products as well. If these products are at a cheaper price, it is likely that they will adopt the new supplier.
Anderson does not suggest that the older, traditional business models be entirely abandoned. There is still a place for companies that focus on a few key head products as the core of their business. Many of the critics that were found in this literature review misunderstood Anderson on this point. Anderson simply suggests that the long tail presents untapped potential for those who know how to leverage it. It gives businesses another option aside from discarding their long tail products to decrease operational costs.
Until Anderson’s Long Tail theory, economists knew that dramatic changes were occurring in the marketplace due to the entrance of large Internet retailers. The value of the long tail was understood intrinsically by businesses that offered a large selection of merchandise such as Amazon, and eBay, Netflix, and iTunes. However, it was difficult to explain their success using the traditional models that applied to brick-and-mortar structures. The brick-and-mortar structure has a different set of overhead costs and space availability than the online retailer.
Business models such as Amazon means that they can have a primary distribution warehouse where they have the costs associated with stocking thousands of items. However, they also realized that there was potential in the distribution side of the equation and that they no longer needed a centrally located distribution channel. Items can be shipped from the millions of houses of users that choose to sell items, minus the percentage, on Amazon an eBay. The Internet revolutionized the traditional supply and demand models. This was the key factor that led to the need for the development of new economic models to explain a new way of doing business on the Internet.
Anderson’s model came just at the right time and place, and offered an explanation for otherwise obscure concepts that were beginning to develop. Perhaps, the most important aspect of the review of Anderson’s theory is its connection to major communication theories as well. The most important concept found during this examination of Anderson’s theory is that the ability to capitalize on the long tail is not possible without communication. Communication theory has also revolved as a result of the new media.
Perhaps, the most important concept that was gained through this examination of Long Tail theory and mass communication theory is how intimately the two are intertwined. This story began in the 1940s with the development of major mass communication theory and the refinement of traditional business models. The most important factors that led to these changes were developments in technology that facilitated them. Once again, we are seeing history repeat itself where technological advances have led to the need to revise and upgrade the communication and economic theories that we use to describe social changes currently taking place. Anderson’s work continues to be pivotal in helping to define the new society that is emerging in cyberspace.
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