What is the profitability of the long tail?
By Tom Foremski - July 26, 2006
Nicholas Carr over at his blog Rough Type points to a discussion about Chris Anderson's Long Tail theory:
In his column in the Wall Street Journal today, Lee Gomes tries to debunk Chris Anderson's Long Tail theory, and on his Long Tail blog today, Anderson tries to debunk Gomes's debunking.
One point of contention is Mr Anderson's assertion that sales in the long tail could be as much as 25 percent of sales in the head of the tail, thus sales of "misses" can be substantial when compared to sales of "hits." (A music sales example is used in this case.)
IMHO, the focus on sales of a product misses the point of the viability of the long tail. When talking about the *business* of the long tail you have to use profits as the metric and not sales.
The long tail could do double duty in describing the rapidly declining profit margins in selling to niche markets. In fact, margins in the tail most likely fall at a steeper rate than the long tail describes because of proportionately higher marketing costs.
- - -
I went to Mr Anderson's book launch last Thursday and had a quick chat and picked up a copy of the book but haven't read it yet. I told Mr Anderson I was encouraged by the brevity of the book at some 200 pages. I said that many of us probably have about 150 pages we could write on a topic and stretching it to 200 pages instead of 400 to 500 pages was an encouragement to all.
Mr Anderson smiled and said that the magic number of words was 78,000!
The event was fun and the local in-crowd turned up for drinks and food at the hot (temperature) Varnish Gallery south of Market. Six Apart was the sponsor and Anil Dash VP at Six Apart introduced the event.
However, the microphone failed during his rendition of a long anecdote. Ignoring the divine intervention in the proceedings, Mr Dash decided to continue on, using his natural vocal abilities :-)
« Google shines light on click fraud, decison on settlement due this week | Main | Thoughtleader: lunch with IBM's top strategist Irving Wladawsky-Berger »
July 26, 2006 | Permalink | Comment | Category: Mediasphere | Subscribe to SVW
- Top Stories:
- Tech Awards For Benefiting Humanity
- The Death Of The Search Algorithm? Techmeme Has Six Editors
- TEDxSF - Little TED Just Like The Big TED
- SNCR Research: Social Media IS Influencing Business Decisions
- What's Next? Beyond Real-Time...
- PearlTrees: A Novel Approach To Human Mapping Of The Internet
- MediaWatch Analysis Part II: Google Has More To Lose Than Murdoch
- MediaWatch Analysis: Murdoch Will Negotiate Payment For Access To Basket Of Content With GOOG et al
- WeekendWatcher: The Sheer Number Of Things Will Devalue Them
- ChipWatch - Where Will The Next Generation Of Engineers Come From?
- Public Healthcare Could Cut Startup Costs And Help Spur Innovation
- Is GOOG's $750m AdMob Buy Strategic Or Dumb? An alternate view...
Comments (8)
Tom, I enjoyed your article on the long tail. I wonder how many millions of bloggers are hoping that their long tale tail of comments will some day make lots of money... but for whom?
1,000,000,000 pages that get one reader only per month may make 1 cent for the writer through google ads or similar monetization.. so "millions can be made" is true, but in reality millions would make cents and not even get a payout (since most monetizing engines only pay out when $10, 20 etc. totals are reached)....
What do you think?
Imran
http://imran.tv
PS If you get rich off THIS one page, don't forget my 35% commission. :-)
Posted: July 27, 2006 11:03 AM
Imran, you are spot on the money, the current monetisation of online content, as represented by Google AdSense is pathetic. We need a better way determining the value of content, GOOG just pays pennies. The long tail is great for Google because the more millions of pages are created the more it can sell advertising around them. The value of each page falls as more supply is created which is not good for the content creators/owners; and that is the other aspect of the long tail that is not recognised, it is deflationary.
Posted: July 29, 2006 2:09 AM
Thanks, Tom. You add even more valid concerns to the "reality" issues I raise about monetization. I actually call the current form of monetization engines "NOnetization", because, despite having, what at least I think is ;-) , a good blog, I barely have made enough money off the ads to cover one month of my own web hosting.
Yet, when I was running a much less content carrying web site, with my own work, I had paid banner ads from AT&T, and many other companies, paying me, an individual web site, $1000-1500 per month.... we are talking 1996 or so.
So, I have FAR more content, FAR better content, FAR more diverse range of offerings than before, at http://imran.com (almost ALL of which is popular with people who visit), yet by "outsourcing" my monetization I have dropped to maybe $30-100 per month.
Sure, that money comes in while I sit at home... but I did not have to pound the pavements to get the banner ads in the past. Some work, but not a full time job.
So, if monetization engines do not improve for "valuable" content creators and revenues don't increase for creative/entrepreneur types like me, more of us are likely going to start going back to the marketplace pitching ourselves. THAT will muddle the marketplace even more....
I have some thoughts on that but trying to see if I can productize the monetizing solutions I have in mind...
Comments welcome.
Imran
Posted: July 29, 2006 8:20 AM
Tom,
That's a great point! "When talking about the *business* of the long tail you have to use profits as the metric and not sales." Or at least you need to measure the potential value to the customer minus the costs. Does the book address this?
If not that may be because "MOST" people like to read about an exotic new economic model and an easy formula for success. In that way the book about the long tail "may" be aimed toward the head.
Posted: July 31, 2006 9:27 AM
Depending on Adsense as a primary business model is digital sharecropping.
Posted: August 1, 2006 3:02 PM
Tim: You are dead right, Adsense is a terrible way to capture the value of content.
Imran: a better mousetrap will be found, I guarantee it, be patient! 1996 will be back...
Laurence: I haven't read the book yet, a colleague borrowed it.
Posted: August 2, 2006 8:53 AM
Don't wish to get into a "who said it first" discussion.
But, Bernado A Huberman MUST be credited for early expositions of what has become the so-called Long Tail Theory.
His 1998 paper, which was also published in Science mag (280:95) has a clear exposition of Zipf theory as it applies to the, then, early internet.
His paper also appears in a more popularised version in "Laws of the web: Patterns in the ecology of information" published by MIT Press in 2001.
Highly recommended, and deserving of credit in the current rush to "Long-Tailism".
Michael Zerman
Posted: August 2, 2006 11:36 PM
Michael, thank you for pointing to the work of Bernado Huberman. His work is well worth studying and I once had the pleasure of meeting him.
Posted: August 4, 2006 1:22 PM