Chris Anderson, Editor-in-Chief of Wired magazine, published The Long Tail: Why the Future of Business is Selling Less of More in 2006 after writing an article in Wired of a similar title back in 2004. This is another “must read” book that provided me with a number of insights into the scalability of businesses on the internet. Using a few examples, like Amazon.com and Rhapsody, Anderson demonstrates how the value proposition in retail business shifts when retailers utilize the internet. Typically, stores stock the items most likely to turnover (sell) the fastest since physical shelf space is at a premium. The better your selection, the higher your gross revenues. Anderson shows that the long end of the traditional demand curve is longer than many realize. An example of contrasts is the demand for music downloads.
The largest music retailer in America is Wal-Mart. The average Wal-Mart stocks 4,500 unique CD’s. The top 200 albums account for 90% of Wal-Mart’s CD sales. Rhapsody has approximately 2 million tracks available. The top 25,000 tracks on Rhapsody are the equivalent of Wal-Mart’s 4,500 CD’s. Sales of the next 75,000 tracks (from 25,001 to 100,000) are nearly 25% of Rhapsody’s downloads and there are sales beyond that. From 100,000 to 800,000, the downloads are about 15% of Rhapsody’s totals. According to Anderson, every time Rhapsody adds a track, there’s at least one download a month indicating that someone in the world is interested in purchasing even the most esoteric track. Rhapsody doesn’t have to give up shelf space to add these tracks. Once they’re digitized and added to the virtual inventory, they’re available to the consumer.
Anderson concludes by saying that successful internet companies will adhere to two rules: 1) make everything available and 2) help me find it. I keep his book on the shelf nearest my desk and I subscribed to his blog’s RSS feed.