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Arguing about the Head and the Tail

Anita Elberse has created a great discussion in the Harvard Business Review this week about the Long Tail, the theory expounded by Chris Anderson, editor of Wired Magazine. 

The theory goes that you can make as much money as an online retailer from the 80% of specialised products that sell occasionally, the tail, as retail merchants make from focusing upon the limited best-sellers in the head of the sales line.

Anita states:

"In 2006 just 20% of Grand Central’s (book publisher) titles accounted for roughly 80% of its
sales and an even larger share of its profits."

She also goes on to look at Rhapsody, the online music store, and finds:

"The top 10% of titles accounted for 78% of all plays, and the top 1% of titles
for 32% of all plays."

As a result, she concludes that:

"For Chris Anderson, the strategic implications of the digital environment seem
clear. ‘The companies that will prosper,’ he declares, ‘will be those that
switch out of lowest-common-denominator mode and figure out how to address
niches.’ But my research indicates otherwise."

Chris Anderson has already posted a response on his blog:

"She finds the top 10% of titles (out of more than a million in that data
sample) accounted for 78% of all plays, and the top 1% account for 32% of all
plays. That sounds pretty concentrated around the head, until you reflect, as
she notes, that ‘one percent of a million is still 10,000–[…]equal to the
entire music inventory of a typical Wal-Mart store.’ 

"This is a good moment to remind everyone of the normal definition of ‘head’
and ‘tail’ in entertainment markets such as music. ‘Head’ is the selection
available in the largest bricks-and-mortar retailer in the market (that would be
Wal-Mart in this case). ‘Tail’ is everything else, most of which is only
available online, where there is unlimited shelf space. 

"So in the data she cites, the head of the online music market represents 32%
of the all plays, and the tail represents 68%.  That’s certainly no challenge to
the Long Tail theory; indeed, it’s even more tail-heavy than the data I cited in
my book (probably because I used a more generous estimate of 50,000 tracks for
Wal-Mart’s inventory)."

Nothing like a good argument is there?

Why am I bothered?

First, because the Long Tail is an important theory about modern retailing.

Second, because it plays to the heart of online channels and why we virally network socially through blogs and virals in a networked world.

Third, and most important for readers in banks, is that there is a Long Tail in banking that’s emerging through prepaid cards and mobile telephones.  Take note of the views of both Anita and Chris, as they are crticial discussions in how to make money in these markets.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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