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Wednesday, July 26, 2006

How Long & Large Is Long

Lee Gomes brings out in WSJ his arguments as to why the Long Tail phenomenon is not significant. As he finds the phenomenon presupposes that while traditional companies are limited by shelf space to offering only a relatively small number of "hits," on the Web, they can carry a vastly bigger number of slower-selling items. These "misses," which make up the "tail" of the title, can, he says, add up to a big number - maybe even bigger than sales of the hits.By Mr. Anderson's calculation, 25% of Amazon's sales are from its tail, as they involve books you can't find at a traditional retailer. But using another analysis of those numbers - an analysis that Mr. Anderson argues isn't meaningful - you can show that 2.7% of Amazon's titles produce a whopping 75% of its revenues and he sees this as not quite as impressive.

Anderson responds with a lot of reasoning and highlights that trying to define "head" and "tail" in percentage terms is meaningless in a market with unlimited inventory, because the denominator can grow infinitely large. Giving an example, he says that with 1,000 items and the top 100 (10%) account for 50% of the sales. Then you add another 99,000 items to the catalog, and the sales of that top 100 fall to just 25% of the total, while it takes another 900 items to make up the next 25%. Here the demand has shifted down the tail, because those top 100 items have dropped from half the market to just a quarter of it and the rest of the demand is spread over more items. But by Gomes' math, we've gone from a market where 10% of products make 50% of the revenues to one where 1% of the products make 50% of the revenues--in other words, it's become more hit-centric & he thinks(not without reason) this is simply a misunderstanding of basic statistics.

As I see it it is obvious that the internet has brought out the long tail effect – the differences stem on account of two things : is this growing (Anderson says yes, Gomes says No), is it all that significant (opinion is mixed here – we have to see which business entity is largely successful owing to the long tail . A recent Slate magazine article seems to suggest that it is more mixed – for now atleast for online magazines. – even the poster child of the long tail phenomenon –amazon.com is as seen by some - testing investor’s patience (though business success may depend on many other factors). In fact Amazon finds that the rush of companies online has made it harder for it to maintain customer loyalty or offer the best deal, as people grow accustomed to browsing the Internet for the lowest price (in a way this hypethesis questions the validity and usefulness of the long tail). Just as the oft repeated statement in the long term things would work out for Amazon, it appears even the long tail phenomenon may help business in the long run. The long tail phenomenon needs to have consistently outperforming business as its reference, till then it would appear to be not so clear to observers as to how large and long is long (both the tail and the time).

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
"All views expressed are my personal views are not related in any way to my employer"