[MUSIC] So, hi again everyone. Today, I'm very excited to present to you a concept that I think is really, really important for understanding how online and offline come together. it's called the long tail. The idea was developed by a fellow called Chris Anderson who actually wrote a book elaborating on the entire concept. I'm going to give you the key ideas from Chris's book. But this is something that you really want to keep in mind as you think about how the Internet is changing our behavior with respect to both selling and also shopping and buying. So just to get us going, I'll first of all show you how we're going to proceed. We're going to start out with a little bit of background on what things used to be like before the internet came along. Then I'm going to present The Long Tail Concept and a little bit of economics on it. Then I'm going to to introduce the research study by some colleagues at MIT, where they looked at Omni Channel and how the Long Tail played out there. And then finally a piece of my own research on something I'm calling, the spatial long tail. I'll become clear what that is as we go through our session. So, let's start at the start by looking at a picture of the so-called long tail. It'll be coming up a lot, so if you don't get the full thing right now, that's fine. I just want to give a brief overview. So the long tail has two axes, a y axis and an x axis. The Y axis is a measure of popularity which in many cases is going to be the sales of the product. It could also be the number of downloads, the number of people who follow somebody on Twitter, for example. Just some measure of popularity. On the X axis, all the products are lined up from the most popular product all the way down to the least popular product. So let's take a common example that I think we could all relate to. Let's think about all the books that are available for sale on amazon.com. And let's imagine there are perhaps five million books for sale. I'm not sure what the number is, but I know it's a huge number, and certainly way more than the number of books that could ever be sold in a physical retailer. And let's imagine that the top-selling book is Harry Potter and the Sorcerer's Stone. People seem to like Harry Potter. So let's imagine that's the top book. And way, way down the tail, at rank 3,900,000, there could be some other book that's a much more obscure book about, you know, gardening in Philadelphia or something of that sort. So the idea of the long tail is, that the products that are way out in the orange area to the right are so unpopular. Or so niche, and so slow to turn over that it just wouldn't make sense for you and I to have a physical book store to sell them. That's the idea. The products on the head, on the other hand, those are the ones that we would want to stock if we had a physical store, because those are the ones that are going to sell the most. That's the distinction between the head and the tail and the key idea of the long tail is that the internet makes it possible for us to have access to all of those products in the tail. And in fact, depending on what kind of seller you are, the total sales and profits coming from all those products in the tail, can really add up to be quite a lot. Ok, so that's a basic description. Let's continue on with a little bit of background and a little bit of history. So historically, pre-internet at least, we all lived in a world of so called hits. Blockbusters, Blockbuster movies, Blockbuster, Blockbuster music albums and so on. And most people ended up buying using consuming the things that were popular, and firms also were motivated to try and produce those Blockbusters However, because of the internet, economics of distribution have really been changed a lot. Now it's possible to offer much, much more variety than ever before. So, now I want to address the long tail from two different perspectives, both the supply side and the demand side. Both of these perspectives are important when we think about markets. So on the supply side, because of the Internet, it's now possible for sellers to just offer a lot more variety, whether it's variety of beer, diapers, flowers, movies, songs, you name it. It's possible to offer a lot more variety because the economics of distributing those products has changed dramatically. Secondly, there's also a demand side explanation for the long tail or a demand side story that goes along with it. So in the old days, how would I find out about sort of unusual products and services? Perhaps through friends and family, or people that I meet, acquaintances. But, essentially I may be locked out of understanding those products or coming across them because they wouldn't be carried by the retailers. Remember, the retailers or the stores would only really carry the products that were in the head, so to find products in the tail was very, very difficult. So, one implication of this is our tastes now are becoming more varied because, simply, we have access to more demand. Acc-, sorry, access to more variety of product than we ever had before. So now let me compare and contrast the economics of the long tail, that we're going to look at in a second, with the old economic ideas that are still pretty useful, but have been around for a long point in time. A long period of time. So, there was a fellow called Pareto who noticed many, many years ago, back in 1897, that about 80% of all the wealth of the residents and citizens of the UK was owned by only 20% of the people. more recently we've often discovered that 80% of the profits that we make are based on only 20% of the products that we sell, or 20% of the customers that we have. Hence the common 80/20 rule. Now the long tail kind of changes that rule a bit because its just its not necessarily 80/20 anymore we can have a huge tail of products a faster number that actually account for individually very very little profit. But collectively account for a lot. So let's continue on and see how that works out. Another law thats kind of an interesting one is named after a fellow called George Zipf, Zipf's Law. And what he found is if you take a manuscript or a book the word that's the second most popular word in the book, or most used word is about half as frequent as the most popular. And the third most commonly used word is about one third of the occurrences as the most popular one. This law also applies to other things like the distribution of populations and so forth within a country. So here's two key principles on the slide that really underly this idea of the long tail, and also come up again when we talk about preference isolation. So let's start with the first one, what I put on this slide is this idea of tyranny of locality. What does that mean? That means that the things that are available to you locally are dictated by whatever the local sellers decide to offer you. And they may be different from your own taste, so now what I like to do before we get into more detail on the long tail, is to ask you all out there two questions. One related to supply and the other related to demand. So I'd like you to think about a product that you use or a product that you like, that you can't find available locally, because it's just not popular among your local neighbors. So imagine you like to sunbathe and go to the beach, and you like to use a special kind of lotion that you can't find, because most of the pharmacies in the area only offer very high SPF products, and that's not what you want. So try and think of a product that you can't find locally. That's going to be a demand-side explanation for the long tail, where all of that variety is going to be available on the internet. Secondly, I'd like you to think about if you were a seller on the supply side, and you had a sort of unusual product and where were you, would want to sell that product. So the product that was mentioned in Chris's book and I'll just mention here again There's actually a very good movie called Once Upon a Time in India. Now, if I wanted to show that on physical screens in the United States, I'd probably have to go to large cities like Los Angeles and New York where there's a high concentration, perhaps of people from India, or who have an affinity with Indian culture, And I would show it there. It wouldn't have been possible for me to show it to the two and three people all over the country in different markets who actually would be interested. But now through the internet, what I can do, is I could make it available for download, and with two people watching here, and three here, four here and five here, that would add up to a lot of demand. So hopefully you can see through those two examples, and the one that you've thought about, that the long tail addresses both demand for product. You can get that variety now. And also it affects the way product is being supplied. So let's go back to our diagram. Just going to to make two more points on the diagram. And there are two questions on the bottom that I'm going to lead us through. So here is the head in the red, and the tail in the orange again. And the first question I'd like to pose to you and then I'll release my answer for it, is how satisfied would you be with a random product that you drew from either the head or the tail? Might be one of those fantastic movies from that great little country that's south of the equator, what's it called? Not Australia, the other one, the one to the, to the right, New Zealand, called Lord of the Rings. So, that's a pretty popular movie, and if you just randomly sort, odds are you'd be quite happy with it. You might like it eight out of ten. If on the other hand I sampled a really obscure, odd movie. That was not that popular, a niche movie from the tail. And I showed you that, odds are you probably wouldn't like it very much. So in general, as you go from he head to the tail, the average level of satisfaction declines. But that's just the average, as you've learned from Pete, [INAUDIBLE] and variance is also very important. Now, there may however be a product in the tail that most other people don't like, but for you is a ten out of ten movie, or song, or book, or whatever it is else that you're looking for. So if there were an efficient way for you to filter and get into the long tail, you could find stuff that you really, really love. That's the idea. So on average as you go from the left to the right Your satisfaction would be coming down if you were shown a random product, but your satisfaction could be really high if you were able to go into the right and find the things you exactly wanted. So let's continue with those ideas. What are the main characteristics of the long tail that we have here on the slide? So, first of all the ratio of niche product sales to big hit sales is changing. Now there's more demand coming from all of those niche products. Being added together. The distribution efficiency is also changing. You can now get access particularily to content-type products on tablets, and also mobile phones. In terms of being able to find your way into the long tail, that's where consumer reviews and so on come in, and we're going to be talking more about reviews in a subsequent discussion. So, the long tail, as I put here on the slide, is just culturally unfiltered by scarcity. So in the old days, the owner of the store, again our friend Chris who's doing the video here, the owner of the store he would decide what as going to be offered on a local market. He would decide what movies he would show on the screen. He would decide what beer was going to be available in his liquor store. But now, through the long tail, all of those things can be made available through the Internet. [MUSIC]
