How Theory of the Firm Can (or Can't) Maximize Profits, Why You Should Use Days Sales of Inventory – DSI. Netessine: I think Amazon is particularly good about it. I think at the time when Chris Anderson wrote his book, he was thinking about how information technologies are changing how we shop. A decade has passed since Chris Anderson wrote The Long Tail: Why the Future of Business is Selling More for Less, and his theory is being proven as … Chris Anderson (canderson@wiredmag.com) is Wired*'s editor in chief and writes the blog* The Long Tail. With a movie, that would be star power. They only recommend something that somebody else has already watched, so they’re not going to recommend to you niche movies all that much. [Also,] there is only a limited amount of time that we have in a given day to watch a movie. And variety actually has increased tremendously. People have looked at web pages, for example. When faced with this huge and increasing variety of choice in movies that people can watch, they tend to gravitate more and more towards what they know best, such as movies in which Tom Cruise appears. “We found that, if anything, you see more and more concentration of demand at the top.”. Knowledge@Wharton: People think DVD rentals are going out of style, but you see Redbox in every grocery store. Those movies are numerous, but nobody really wants to watch them, so people kind of gravitate towards hits. Topics magazine-12.10. What they find is, again, you get the reverse of long tail effect. Anderson has spoken to numerous management audiences about its implications. The book was widely read, and its title entered the management vernacular. This definition deals with the business strategy use of the term. The long tail concept considers less popular goods that are in lower demand. That’s why it is critical for online sellers to develop finely tuned searches for their customers. Do you mostly visit a few top web pages versus niche web pages? From the results of the research done on this topic and from what I can tell, people become even more complacent with more information technology and focus just on a few things that they know well or they know that people around them like. The theory for online music was that a … A product if able to mobilize the enthusiasm of most of the use of ordinary people , it can be a great success. In his ground-breaking work, The Long Tail, Chris Anderson says that there’s money to be made in the long tail of niche offerings. 232-The Long Tail-Chris Anderson-Business-2006 Barack 2019/08/13 2020/06/24 - hearts of the people who in the world , the business world is also true . Beginning in a series of speeches in early 2004 and culminating with the publication of a Wired magazine article in October 2004, Anderson described the effects of the … Knowledge@Wharton: You talk about recommendation systems and setting niche products apart by focusing on their attributes. My understanding is their physical stores really focus on the hits. 'In the past', manufacturers had to have 'hits'. Of course, many niche products will just never come up. Anderson argues that these goods could actually increase in profitability because consumers are navigating away from mainstream markets. The long tail of distribution represents a period in time when sales for less common products can return a profit due to reduced marketing and distribution costs. He said that with the internet and all these digital technologies coming in, people are going to increasingly shift towards niche products that are uniquely tailored to their tastes. The long tail also serves as a statistical property that states a larger share of population rests within the long tail of a probability distribution as opposed to the concentrated tail that represents a high level of hits from the traditional mainstream products highly stocked by mainstream retail stores. The new edition of Chris Anderson's well-publicised book The Long Tail has the subtitle Why the Future of Business is Selling Less of More. The days sales of inventory (DSI) gives investors an idea of how long it takes a company to turn its inventory into sales. If you haven't, you don't live on this planet (not that there's anything wrong with that). You can only focus on hits. Download it once and read it on your Kindle device, PC, phones or tablets. In October 2004, Chris Anderson, editor in chief of Wired magazine, published an article titled The Long Tail. According to Chris Anderson, there is a demand curve established in any sector: the most consumed products (hits) generate the highest demand and the least consumed cause the lowest demand. The head and long tail graph depicted by Anderson in his research represents this complete buying pattern. Not everyone has the proper bandwidth. Here comes the twist. Such is the power of the Long Tail. The long tail is a theory devised by Chris Anderson. Essentially, you supplement your brick-and-mortar channel with your digital channel. Use features like bookmarks, note taking and highlighting while reading The Long Tail: How Endless Choice is … Redbox is a great example. We found that when new movies appear, some of them become hits, some of them become niches, and product variety keeps increasing. Scrambled assortment is a strategy in which a company carries products outside of its primary line of business in order to attract more customers. But you found that is not the reason. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Chris Anderson
Initially, Anderson was the U.S. business editor of The Economist
In 2001, Anderson became the editor in chief of Wired Magazine
In 2004, Anderson wrote a blog on the Long Tail Theory
In 2006, Anderson’s blog … Netessine: Right. I think just like brick-and-mortar retail is not going away anytime soon, DVDs are not going to completely disappear. They sell everything. Now author Chris Anderson talks about some of the theory's less-obvious implications. The Long Tail is an online film distribution service such as Amazon. Now we have new levels. Netessine: That’s kind of the way to go. An edited transcript of the conversation follows. The term was first coined in 2004 by Chris Anderson, who argued that products in low demand or with low sales volume can collectively make up market share that rivals or exceeds the relatively few current bestsellers and blockbusters but only if the store or distribution channel is large enough. You can also look at music that you play. They will enjoy those products much more than your normal hits — like hit movies starring Tom Cruise, for example. Marketing refers to the activities of a company associated with buying, advertising, distributing, or selling a product or service. Netessine: Absolutely. The phrase The Long Tail, as a proper noun, was first coined by Chris Anderson. The concept drew in part from an influential essay by Clay Shirky, "Power Laws, Weblogs and Inequality" that noted that a relative handful of weblogs have many links going into them but "the long tail" of millions of weblogs may have only a handful of links going into them. Nevertheless, as a company they captured a big percentage of market share with only 300 or 400 titles. “When people search for what to watch in this increasing product variety, they tend to gravitate much more towards hits.”. Overall, long tail occurs when sales are made for goods not commonly sold. What can you do? The long tail is a business strategy that allows companies to realize significant profits by selling low volumes of hard-to-find items to many customers, instead of only selling large volumes of a reduced number of popular items. Does this paper have a cautionary tale for that company? The long tail theory, first postulated in 2004 by writer Chris Anderson, is based on the notion that as retailers use the internet to offer a greater number of products at less cost, they will no longer have to rely on big hits to prop up their sales. The long tail theory –chris anderson 1. If you look at an average Barnes & Noble store, they would have maybe 100,000 book titles while Amazon would have 4 million or 5 million. An Empirical Study of the Impact of Product Variety on Demand Concentration, https://mackinstitute.wharton.upenn.edu/wp-content/uploads/2018/02/20171030-MackTalk-Netissine.mp3, Navigating Digital Disruption: How to Thrive Through Innovation Management. These goods can return a profit through reduced marketing and distribution costs. Netessine: You have plenty of room for hits, plenty of room for Tom Cruise. The eponymous book was published in 2006. There are various contexts you can look at with long tail theory. Some of their original programming has become extremely popular. Meanwhile, if there is demand, then Amazon is still getting its transaction. There are lots of titles that Barnes & Noble will offer you online, many more than what you can buy in the store. Serguei Netessine: Yes. The Long Tail theory was developed in 2004 by Chris Anderson, editor-in-chief of Wired magazine. The book became a New York Times bestseller and won the Gerald Loeb Award for Best Business Book of the Year, simply titled The Long Tail. My daughter is the example of the average consumer: She always stops because she knows all the movies she wants, which are the hits, will be there. Soon after The Long Tail was published, BusinessWeek declared that Chris Anderson’s theory was the biggest idea of the year. This theory is supported by the growing number of online marketplaces that alleviate the competition for shelf space and allow an unmeasurable number of products to be sold, specifically through the Internet. Netflix is now relying on original programming, which is very much niche focused. This limit does not apply on … Anderson’s long tail is a theoretical rationale for the explosive growth in numbers of niche apparel brands across all retail sectors. A team at Wharton did some Long Tail analysis on the Netflix ratings data the company released for its Netflix Prize. But so far from what I’ve seen, if anything, we will be living in a world of hits more and more. If you look at their strategy for offering niche products, they don’t initially offer those products themselves. That’s a safe way to offer niche products without committing too much to them. In other words, the demand curve moves away from the head and flattens toward the tail. We looked at movies, partially because movies, Netflix and DVDs were the prominent examples in a book by Chris Anderson that looked at the long tail effect. Chris Anderson himself says it best in The Long Tail: “The theory of the Long Tail can be boiled down to this: Our culture and economy are increasingly shifting away from a focus on a relatively small number of hits (mainstream products and markets) at the head of the demand curve, and moving toward a huge number of niches in the tail.” Of course, people search differently on mobile and use mobile interfaces. When you looked at hits versus niche films in this case, what did you find? Netessine: There are various directions. “If you are trying to bet on this strategy of offering a huge variety of products, you have to work double hard on recommendation algorithms.”. as examples of businesses applying this strategy. Netessine: That’s right. Anderson’s research shows the demand overall for these less popular goods as a comprehensive whole could rival the demand for mainstream goods. The strategy theorizes that consumers are shifting from mass-market buying to more niche or artisan buying. It’s a big, big challenge to make a nice, searchable interface on mobile. But I think you are right — it’s probably much more towards the niche movies nowadays. The theory of the firm is the microeconomic concept that states that the nature of companies and their existence is to maximize profits. Let’s face it, we probably don’t watch any more movies than we used to — maybe a little bit more because they’re available on mobile devices now, but not like five, 10, 100 times more. We attribute it to the fact that, first, it’s hard to search this huge product variety. If you look at how many movies are available on Netflix, over time this number has been increasing and increasing. Chris Anderson, then the editor of Wired, explores the four key stages of any viable technology: setting the right price, gaining market share, displacing an established technology and, finally, becoming ubiquitous. Knowledge@Wharton: I wasn’t too worried about Tom Cruise after reading this research. The long tail has quickly become a cocktail-party meme. We have mobile. He was mostly thinking about comparing internet with brick and mortar. That’s a pretty well-established and well-known theory proposed by Chris Anderson, who was editor-in-chief of Wired magazine. So, the demand for all movies goes down. These goods have low distribution and production costs, yet are readily available for sale. Two years later, he publishes the eponymous book, where he elaborates his theory… In comparison, long tail goods have remained in the market over long periods of time and are still sold through off-market channels. So you have to be very careful about designing those algorithms and making sure that whatever niche products you add, they’re well-classified and actually show up in searches, and they’re not completely downplayed just because people buy them very, very rarely. If there is no demand for those products, then the sellers are going to die naturally. Knowledge@Wharton: Amazon has relied heavily on offering tremendous variety. The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of “hits” (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. Long Tail theory in a wider interpretation is the Wired editor Chris Anderson’s brainchild: „The Long Tail, Why the future of Business is Selling less of More” states that the items that individually have low demand, if accumulated can draw in significantly more demand and therefore can imply multiple times more income than popular products that sell in huge volume. The Long Tail wasn’t just a pet theory; as Anderson sketched it, the phenomenon arose out of actual innovations in commerce. Knowledge@Wharton: Even Amazon seems to have caught onto this. This article also appears on the Knowledge@Wharton website. I think if you are trying to bet on this strategy of offering a huge variety of products, you have to work double hard on recommendation algorithms and making sure that people find what they’re looking for. In early 2004, Chris Anderson, editor of Wired magazine, was asked to estimate how many of the 10,000 albums accessible via a Web-connected digital jukebox had at least one track played at least once per quarter. In December 2012, KISSmetrics … Long-tail may also refer to a type of liability in the insurance industry or to tail risk found in investment portfolios. We don’t have the latest data, so I don’t know what proportion of revenue Netflix gets from top hits versus niches. In other words, the demand curve moves away from the head and flattens toward the tail. Everyone has heard about Chris Anderson's article, book, and blog, The Long Tail. That is not what we found. But when people search for what to watch in this increasing product variety, they tend to gravitate much more towards hits. In 2006, Anderson also wrote a book titled “The Long Tail: Why the Future of Business Is Selling Less of More.”. Chris Anderson is a British-American writer and editor most notably known for his work at Wired Magazine. Anderson is also author of The Long Tail: Why the Future of Business Is Selling Less of More. For example, my co-author on this paper, Tom Tan, has been looking into what happens with product variety when you go from an internet channel to a mobile channel. Netessine: The big message is we didn’t really find any evidence of the long tail effect, and that goes contrary to the theory and contrary to a few studies that were done before us. for Rhapsody’s more obscure tunes (charted in red) makes up the so-called Long Tail. Meanwhile, even as consumers flock to mainstream books, music, and films (bottom), there is real demand for niche fare found only online. An Empirical Study of the Impact of Product Variety on Demand Concentration,” coauthored with Tom Tan of Southern Methodist University and Wharton’s Lorin Hitt, was published in Information Systems Research. Its time has come. 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