What's different about Long Tail markets

Readers may have been confused by last week's back-and-forth about the extent to which the Netflix DVD demand curve differed from its bricks-and-mortar counterparts (perhaps because the WSJ reporter confused some of the definitions). These charts may help make it clear. In each case "Industry" refers to Nielsen statistic for the industry at large, which is about 85% bricks-and-mortar retailers such as Blockbuster. "Netflix" refers to a data set from the online service in mid-2005.

This first one shows the difference in the demand curve for the top 100 DVDs. What you can see is that the Netflix curve is much flatter, which is to say that it's less hit-centric.

This next one shows the market comparisons for the top 10,000 DVDs. Today Netflix actually has more than 60,000 titles, but I wanted to show a proper head-to-head comparison so I've only taken it as far as the offline data goes (that's why the Netflix data doesn't add up to 100%). This is another way to show how much more evenly the Netflix demand is spread between hits and niches. Of course, the hits--top decile--are still the majority of the demand (hits aren't going away!), but at Netflix that top decile represents only 64% of the business, versus 90% for the DVD industry (mostly offline) as a whole.

Comments

[John Dumbrille]

The curve, and Netflix's success, might suggest that the Long Tail of the market will mirror this pattern.

I use Netflix, and the thing is - DVD services like theirs are great, but you have to wait. So Chris, isnt Netflix a special case? As hits have an element of compulsion - got to have it NOW - do you think the long tail phenom would be amplified in distribution mechanisms like Netflix that don't immediately deliver on hit demand?
I guess I should read your book...

[joe o]

Netflix also makes it real hard to rent the newest movies. The "new movies" page and the recommendations never feature the newest movies. They always feature movies that have been out for a few months. This is a way for netflix to smooth out their demand and lower costs. Your graphs show that it is effective.

[swissmiss]

Even though I really enjoy Chris' book and with it the intellectual stimulation of thinking about a new 'business paradigm', I am not convinced that the long tail is here to stay in it's current form. If the Internet economy of the '90s and early 21st century has shown, there is always a lot of hype once we seem to have found a way to explain what's going on. The beauty of the long tail concept is that it is scaleable, e.g., the further we go down the tail, explanations of what the tail and/or the head is become mute (it's flexible, depending on the denominator). So,what's exciting, nevertheless, is the fact that anybody can jump in and instead of having a mass market culture(MI:3 anybody?) we have discovered that our our society is much broader/deeper than we thought. Hence, businesses can take advantage of it and cater to the niche markets. One of the most compelling thoughts that I haven't really seen addressed yet is the idea of how the long tail cuts across national borders and hence,globalization may have to be newly defined: If there is a Canadian ringtone popular in Japan, do we still have national cultures or are we humans living in cultural (mini) groups across the globe? How come,I as a Swiss, 40 year old, living in the US, can now talk with somebody in Brazil about my fav singer (Manni Matter) easier than with Swiss in their 20s who have never heard of Manni? Pretty amazing stuff.

[Greg]

One of the bottlenecks in Netflix market is the fact that they have turned off a huge segment of their potential market, first by putting high-volume customers on back order lists secretly, and then by writing it into their service agreement. I am not about to subscribe to a service that serves me more poorly the more I use it or the longer I'm with them. I'm in the animation industry and I tell all my friends whenever this subject comes up. I see Blockbuster is copying both Netflix internet distribution model and their horrible treatment of loyal customers. Clean up your act Netflix and Blockbuster! And stop telling the clerks at the desk to ask for my e-mail address!

[Tom]

Netflix may be artificially depressing demand for hits, but I'm not sure I mind. I have had to wait for a few new releases, but it didn't bother me. My queue is so full of things that I never would have had access to through traditional retail outlets. If you go to blockbuster, and all the hits are gone, chances are there's little else worth watching.