Long Tail: Too Much is Never Enough

Joseph Laszlo | July 26, 2006, 04:52 PM

David Card beat me to the Gomes piece in the Journal--I agree that it's well reasoned, and the data in it are very interesting; just yesterday someone briefing me told me that every single Rhapsody song got played every month...it was one of those moments where I let the conversation go on, but mentally made a black mark in my book of "hype versus reality."

Nice to see some data to back that intuition up.

Anyway, wanted to comment on the numerical example in Anderson's refutation.

Anderson suggests:

Let's say you have 1,000 items and the top 100 (10%) account for 50% of the sales. Then you add another 99,000 items to the catalog, and the sales of that top 100 fall to just 25% of the total, while it takes another 900 items to make up the next 25%. I would say that demand has shifted down the tail, because those top 100 items have dropped from half the market to just a quarter of it and the rest of the demand is spread over more items.

Anderson also points out that this could be viewed (incorrectly, according to him) as though the business has gotten more hit driven, not less, because in the second scenario the top 1% (not top 10%) of items make up 50% of sales.

First off, economically speaking, I don't think demand has shifted; rather demand has increased because of increased choice. But maybe that's pedantic.

Second, though, let's add some hypothetical revenue numbers.

Let's say the total revenue in scenario 1, across the 1000 items, is (for ease of math) $1000. Then the top 100 items are responsible for $500 in revenue.

In scenario 2, let's assume demand for the top 100 items doesn't change. Then the top 100 items still make $500, the top 1000 items make $1000, and the business as a whole, with 100,000 items, makes $2000.

Now, okay, Anderson's just making up numbers, to illustrate a point. But as I look at this example, what's happened is inventory has gone up 100x, driving a 2x increase in revenues.

And of course, the unanswerable question is, is that good for the business, or bad? It comes entirely down to costs of storing, managing, inventorying, and delivering the hugely larger library. But it's indisputably a huge imbalance in item increase versus revenue increase.