1. The Long TailWhy the Future of Business Is Selling Less of More 1

2. Who? E. Brynjolfsson, Y. Hu, M.D. Smith. “Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers,” Management Science 49, no. 11 (November 2003): 1580-1596. 2 / 35

3. Who? Chris Anderson, Wired Editor, October 2004 The Long Tail: Why the future of business is selling less of more, June 2006 3 / 35

4. The Long Tail Market From Mass Market to Niche Markets 4

5. 80/20 Principle Vilfredo Pareto, Italian economist and sociologist, 1897 Data show 20% of products count for 80% of sales. 20% of customers count for 80% of profitability ……… Long tail 5 / 35

6. Why Hit Products? Before mass media invented, there were no hit products and “attention” was paid to everyone. Mass media + mass production producers have more chance to make great money and they have to. Pooling Attention economics is an approach to the management of information that treats human attention as a scarce commodity, and applies economic theory to solve various information management problems. Applications: Mass Customization, Prosumers, etc. 6 / 35

7. Hitland vs. Nicheland 7 / 35

8. Long Tail Market IT divides mass market into millions of niche markets Why are we limited with the lowest common denominator? Supply and demand mismatched – buyers do not know where the sellers are Distribution inefficient – transporting products may not be easy. 8 / 35

9. Long Tail Market Limits of Traditional Market Location: only serve local customers Time: off shelf if sales not good Inventory Cost: Physical constraint: 24 hours a day, certain bandwidth to transmit radio signals, etc. …… 9 / 35

11. Long Tail Market(cont.) But, if we continue 800 700 downloads 600 500 400 300 200 100 0 25 35 45 55 65 75 85 95 Ranking (in thousands) The area under the curve is the revenue, counting for 1/4 of Rhapsody's total revenue. 11 / 35

12. Long Tail Market(cont.) ……continue 140 120 100 downloads 80 60 40 20 0 100 Ranking (in thousands) 200 300 400 500 600 700 800 12 / 35

13. Long Tail Market(cont.) Hidden majority 13 / 35

14. New Type of Market Rhapsody Total Inventory： 1.5M songs Netflix Total Inventory： 55K DVD Amazon Total Inventory： 3.7M books 1,500,000 60,000 4,000,000 50,000 Border: Regular Inventory： 100K books Blockbuster Regular Inventory： 3,000 DVD 1,250,000 Wal-Mart Regular Inventory： 55,000 3,000,000 40,000 1,000,000 30,000 2,000,000 750,000 20,000 1,000,000 10,000 500,000 0 0 250,000 0 Total Sales Total Sales Total Sales Products not sold at Brick-and-Mortars 14 / 35

15. The Rise of Long Tail Market 15

16. 6 Pillars of Long Tail Market Niche products are more than hit products in all markets Costs to reach these niche products are significantly lower. Transaction cost, search cost… “Filters” help customers find niche products. 16 / 35

17. 6 Pillars of Long Tail Market Hence, demand curve is flattened. The difference between niche and hit products is less. Total sales of niche products can be more than those of hit products. This flattened demand curve is natural and it will not be distorted by lockstep culture due to distribution inefficiency, information scarcity, or inventory cost. 17 / 35

18. Drivers of Long Tail Market (cont.) Democratize production Business: toolmakers and producers Blog, digital photographing, Youtube, and Media Wiki, Liquidplanner, Google translator toolkit, microblog, Do we still need translator in the future? Data! AI Learning! 18 / 35

19. Drivers of Long Tail Market (cont.) Democratize distribution Business: aggregators Amazon.com, iTune, eBay, and Netflix, priceline.com, lulu.com, OhmyNews Connect consumers and producers Filters 19 / 35

20. Drivers of Long Tail Market Democratize production More products produced Extend the tail Democratize distribution Consumption cost is lower Enlarge the tail 20 / 35

21. Drivers of Long Tail Market (cont.) Connect consumers and producers Business from hit to niche 21 / 35

22. The New Producers Connect consumers and producers Business from hit to niche Consummerism to participative producerism The "consumer economy" is a producer-controlled system in which consumers are nothing more than energy sources that metabolize "content" into cash. This is the absolutely corrupted result of the absolute power held by producers over consumers since producers won the Industrial Revolution. ... 22 / 35

23. Power of Collective Wisdom Frog Design: We are leaving the Information Age and entering the Recommendation age. Today information is ridiculously easy to get…. Information gathering is no longer the issue – making smart decisions based on the information is now the trick... Recommendations serve as shortcuts through the thicket of information, just as my wine shop owner shortcuts me to obscure French wines to enjoy with pasta. 23 / 35

24. Power of Collective Wisdom Attention Economy In a world where selections are unlimited and customers’ attention is a scarce good, CONTEXT, not content, reigns. Data + Filter Google! Filter, recommendation and index 24 / 35

25. Filter, Index, and Recommendation Will discuss at “Web 2.0.” 25 / 35

26. High Quality/Satisfaction Dynamic Range Low Quality Spectrum of Long Tail Market Quality 26 / 35

27. Quality Spectrum of Long Tail Market Long Tail: wide dynamic range Niche markets are either hit high-quality products, or high quality products at the tail. Traditional: narrow dynamic range 27 / 35

28. Filters and Signal/Noise Function Requirement of Filters Signal/Noise Ratio How many swans we need to sample to find out a black swan? – Black Swan Problem. 28 / 35

29. Pre-Filters and Post-Filters Pre-filters Filter before products entering markets Post-filters Filter current products. Post filters are used in Web 2.0 era. CONTEXT Reign! Data Reign! 29 / 35

30. Long Tail Economics The End of Scarcity, Abundance, and 8/20 Principle 30

31. Power Low According to Zipf's law given some corpus of natural language utterances, the frequency of any word is inversely proportional to its rank in the frequency table. Thus the most frequent word will occur approximately twice as often as the second most frequent word, which occurs twice as often as the fourth most frequent word, etc. 31 / 35

32. Power Low According to Zipf's law For example, in the Brown Corpus "the" is the most frequently occurring word, and by itself accounts for nearly 7% of all word occurrences (69,971 out of slightly over 1 million). The second-place word "of" accounts for slightly over 3.5% of words (36,411 occurrences), followed by "and" (28,852). 32 / 35

33. Power Law So, the 1024th popular movie’s sales should be 1/210th of the best seller. But it is not true. 33 / 35

34. Truncated Demand Curve 2005Hollywood Box Office $ 1,000,000,000 $ 100,000,000 $ 1,000,000 Potential Demand $ 1,000,000 Actual Sales $ 100,000 Box office sales $ 10,000 $ 1,000 $ 100 $ 10 $ 1 1 10 100 1000 Movie ranking Predicted Sales 34 / 35

35. Truncated Demand Curve(cont.) 10 100 1000 1 Film companies only produce 100 movies a year? Box office sales Movies after 100th will not be scheduled at theaters! Movie ranking 35 / 35

36. End of 80/20 The bottom 1.2M books count for only 1.7% sales of BN Brick-and-Mortar But 10% of bn.com Myth: we should focus on the top 20% products because they count for 80% sales. 36 / 35

37. End of 80/20(cont.) Brick and mortar Long tail retailers 33% 80% 20% 25% 90% Profit Profit Products Revenue Revenue Products 100% 80% 25% Internet only inventory 33% 50% 33% 20% 2% 8% 37 / 35

38. A Tail inside another Tail 38 / 35

39. A Tail inside another Tail 39 / 35

40. Taisho Tripitaka大智度論 有菩薩肉眼見小千世界， 有菩薩肉眼見中千世界， 有菩薩肉眼見三千大千世界 40

41. Implications of the Micro-Structure of the Long Tail Filters work better in the same category. They make hits in each category. The better is getting better, and the worse is getting worse. 41 / 35

42. Long Tail of Time Time is the fourth dimension of the Long Tail. Filters (e.g., Google) make time irrelevant to the popularity Lift the red lines in the next diagram. 42 / 35

43. Long Tail of Time Blue line head: Hitland Blue line tail: Nicheland 43 / 35

44. Examples of Long Tail Business Google AdSense eBay Amazon.com Lego (long tail + prosumer) … Will explain in the following lectures 44 / 35

45. Implications of Long Tail Pre-Internet: The Long Tail of Metropolitans – The Rise of the Creative Class by Richard Florida Post-Internet: The Long Tail of Travel Word of mouth on SNS Online travel information Online travel agencies 45 / 35

46. Long Tail of Travel Travel from UK 46 / 35

47. Long Tail Web 2.0 Business Model Innovation 47 / 35

48. Let’s Watch 48 / 35

49. Let’s Watch Head tracking for desktop VR 49 / 35

50. Let’s Watch Low-cost multi-touch whiteboard 50 / 35

51. Let’s Watch BMW Gina 51 / 35