[MUSIC] So, by now we probably all have a good idea of the basic concept behind the long tail. And so what I'd like to do is show it in action through a piece of very interesting research that was done by some colleagues at MIT. So let me explain what's going on here. the colleagues wanted to try and understand or disentangle the supply side effective the long tail, meaning there's a lot more variety available verses the demand side. Was explanation for the long tail, which is it's now easier for you to search and find things that you really like that match your tastes, those products in the orange part of the tail. So what the study authors did at MIT is they got sales data for a large retail company that was selling through two different channels. An internet channel and also through a catalog channel. And they wanted to see if both of those channels had the same mix of sales going through. Now the prices and the products were identical in both of those channels, but they wanted to ask the question, is there any difference in the way those channels are delivering the product and customers? Okay, so let me introduce now a diagram. It's actually a pretty cool idea and one that you may have come across before, but perhaps not in this context. What I"m showing you here is a diagram from which we can compute something called the gini coefficient, gini, that's what's written at the top of the slide. The gini coefficient is equal to that area A. Divided by the area A plus the area B. So let me explain what's going on in this diagram. It's often a diagram that's used to understand the equality or inequality of incomes within a country. But it can also be used to understand the equality or inequality of sales across various products sold by a particular firm. So to help us understand this, let's go down to point C there on the diagram. Point C is about half way between zero and 100% on the X axis. So what that's saying is, if we apply it to incomes within a country, if we take the people with the the lowest income, let's say,in the United States, all the way up to the people who get to the 50% level of income, and then we draw across from where that C hits the curve, the dashed line all the way over to the right-hand side, that looks to me like it's about a fifth of the way up the Y axis, or 20%. So the implication there would be, the bottom 50% of people in this particular country have about 20% of all of the income. So this is a country where the income is a little bit unevenly distributed. Now you can imagine if that Lorenz Curve came in even closer to the far right point of the diagram. That would be a country where all of the wealth was held by a very, very small number of people. Similarly, if you thought about products, if you pull that circle or semi circle in, that would be a company where almost all of the sales were just coming from one or two products, that's kind of the idea. So what they found, the author's of the study when they looked at this, is that the gini coefficient was less concentrated. More equal, more egalitarian, for the internet channel than it was for the catalog channel. So the internet channel looked more like a long tail sales distribution and the catalog channel looked a little bit more like the traditional 80 20. When the researchers looked at the data in more detail, what they found was, that the sales on the internet channel were more spread out, more niche products were being sold on the internet channel. Compared to the catalog channel. Now this is very, very interesting because if you recall, when I mentioned the study at the beginning, the types of products sold were identical on the two channels and also the prices were identical as well. So there was no supply side explanation in this case. So it was not the case that on the internet channel there was just more variety offered compared to the catalog channel, both of those two things were identical. So then the researchers scratched their head, and they thought about the other explanation which if you're following on, you will remember might be a demand side explanation. So perhaps when you're buying on the internet, it's easier for you to find those products that are more niche and less popular. And that's exactly what the authors of this study found. They found that on the internet channel, because there are a variety of tools like reviews and ability to search and so forth, that makes it easier for you to find stuff that you wouldn't necessarily come across otherwise. So isn't that very, very interesting? The long tail is a supply side story. I can offer more variety. But it's also a demand side story. I'm more able find things that exactly ma, match my tastes. And what's clever about this study, is the office controlled the supply side, and they found there was more long tail like sales on the internet compared to the catalog and the reason was this demand side explanation. So one final piece of our discussion of the long tail now, by now you probably have firmly in mind that diagram, X axis is products, Y axis is popularity, the head is red and the tail is orange. Now, maybe you can think of some other thing that you could put on the X axis, why does it just have to be product. So maybe you're thinking of something right now. Let me throw out one that I am particularly interested in, because I look a lot at internet sellers and how they do. You could also imagine that the X axis could be not products but locations. So maybe if I'm diapers.com, I'm selling most of my product in Los Angeles and New York City and San Francisco, those are the locations in the head. But you know what? I sell a few things out in some strange little town. I shouldn't say that. Because maybe somebody lives there. I sell a few things out in small towns. But collectively, all of those small towns throughout America add up to a lot. So the long tail is also a concept that can be applied to geography. And I'm just going to show a quick example of that from my own research. So here on the slide are some of the companies that we've been talking about as we've been going through. In this case, the research is based not on Diapers.com but on their friends over at Netgrocer.com. That's a retailer that ships to your house various grocery products that you might otherwise buy in a supermarket. So, to understand how the long tail works, what we need to do here is to think a little bit about the notion of similarity and differences between different locations in a large country, be it the United States or some other country that we may be looking at. Now, on the left hand side, we have a physical map of the United States, and we can compute on that map the distance between a place like Chicago and Los Angeles. It's about 2000 miles. We can also compute the distance between Chicago and Springfield. That distance is about 200 miles. So in terms of physical distance, Chicago and Los Angeles are quite far away but Chicago and Springfield are quite close. However we think about social distance, the type of people that live in Chicago might be more similar to the type of people that live in Los Angeles than to the type of people that live in a small town like Springfield. So if we were to look at the sales across the United States of a company like diapers.com or netgrosser.com, what might we find? So I did this, again with my colleague Jonghei and also another friend Sam Wui at, NYU, and what we found was very, very interesting. We found that the sales of an Internet retailer also spread out in a long tail fashion across geographies. In the beginning, the sales take off in very big markets, like New York, like Chicago, like Los Angeles and San Francisco. But over time, you start to pick up other locations in the tail that might be quite spread out from each other in terms of physical distance, but the customers in those markets share the same kind of characteristics. So, that's just one idea that I've found through my own research that I thought you might find interesting, because it relates back to this very, very key concept, of the long tail. So I'd just like to wrap up our discussion of the long tail with a couple of other things that I think are really interesting and also to give you a recommendation of a website that really illustrates this point. So two critiques of the long tail. like any good idea, there are often critiques out there, I've written there on the slide. First is this idea of the law of natural monopoly. Which says that light users like people who don't watch movies very often let's say, they tend to gravitate towards the head, so we're still going to need those products on the head, they're still going to be, in some markets, kind of a hit driven phenomenon or a hit driven culture. The second idea is this idea of double jeopardy, actually something that my friend Pete has done a bit of research on. Double jeopardy says. Things that are unfamiliar also tend to be less well-liked as well. So those two ideas run a little bit counter to the long tail, but I still think the long tail is a phenomenal concept. If you want to see the long tail in action, try this out. I've put a link there on the slide that I think you'll really kind of enjoy. So normally when you do a Google search like Google search, search for jeans. the most popular things come up first, or the links Google thinks are going to be most relevant to you. So most of the time, when you do searches on Google, you get exposed to, in terms of our language, really only the things that are in the head, not in the tail. Now, a couple of clever entrepreneurs, I believe from Canada, you can read about them in the link, came up with a different kind of search engine called Million Short. So then when you search for whatever it is you're looking for, you won't be shown results one to ten on the first page, you'll be shown the results from one million onwards, or one thousand onwards. You can choose on your own. So maybe try that out at home to see what kind of variety you get off of that. And then finally, I put in another link. If you'd like to learn more about the concept from the gentleman who really created it, Chris Anderson. There's a link there where you can go and listen to that. So again, thanks for being part of our discussion on the long tail. To me, this is one of the most interesting concepts in online, offline. And I think it's one that will be very useful to you guys. [MUSIC]
