Revisiting the Long Tail Theory as Applied to Ebooks

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Marcello Vena

Marcello Vena

The myth of the Long Tail for ebooks may be fading away as the digital book market grows, and it is operated by few mega e-retailers.

By Marcello Vena, AllBrain

In a limitless world of digital goods, powerful search and recommendation engines, near-zero marginal cost of digital production, storage and distribution, niche products shall get much more market relevance. “Selling less of more” is part of what the “Long Tail” theory has been preaching.

Does it apply to the creative industries too? And how? Should digital book publishers reduce attention on blockbusters and increase focus on the Long Tail as the source of the most profitable growth? Is there a space for unlimited growth of niche ebooks? Who is going to consume a potentially unlimited supply of creative goods?

Long Tale Theory is a Decade Old

It is interesting to note that the Long Tail theory was first published — by Wired magazine editor Chris Anderson — 10 years ago (October 2004), a few years after the dot-com bubble, when Internet was still in its infancy (it was 11 years old then). Amazon had not yet launched the Kindle (that came at the end of 2007) and the ebook market was still waiting to ignite. The digital music scene was nascent, as Apple launched its iTunes Store only in April 2003, and that was the single most important booster to the digital music market in the years following. When the Long Tail theory was first popularized by Anders0n, detailed sales data regarding the digital music in USA was not available yet. It was not until 2005 that Nielsen Soundscan made first sales data available and only at end of that year did Billboard start to take into account paid downloads in the music charts in US. In fact, the first edition of the book (published in 2006) does present some examples of digital music sale, but it doesn’t address the digital market as a whole. No data from iTunes or the entire market (Nielsen Soundscan) was incorporated.

Historically, the Long Tail theory was born before the economy for digital creative goods exploded (digital music, digital books, digital movies, and so on). Of course there already was a relatively small and growing economy of digital creative goods, but it wasn’t comparable with the size and dynamics of today’s markets. The Internet offered at that time the first opportunity in history to distribute an “unlimited” inventory of physical goods. Unlimited inventory, of course, in term of virtual shelf space from a retailer’s perspective. It clearly was not meant as endless inventory from a production standpoint, as marginal production costs of physical goods are not zero and therefore the supply is limited by financial and economic constraints. But the Long Tail theory deserved merit for clearly identifying unprecedented opportunities at that time.

When Something Costs Nothing to Produce

Thus, an interesting question arises when the marginal production cost of digital creative goods virtually drops to zero. An “unlimited” supply of digital goods could potentially be unlocked. Is this really happening? And if it is happening right now, will it happen forever and ever, on into the future? Even if the supply were to exceed demand? That is not possible, of course. Eventually, some economic mechanisms will have to emerge to self-regulate any market of digital creative goods as well.

Actually, by increasing the variety of supply a larger number of niche opportunities can be addressed, Nobody contests that. We agree with the Long Tail theory. That is for sure. Nevertheless, these opportunities are not “unlimited” and might at very best exist only if supply does not approach or exceed demand. Excess of supply cannot be consumed.

Time is the Limited Resource, Not Money

However, there are other economic factors that heavily affect the book consumption. More than plain money, available reading time is single most relevant scarce resource that impacts book consumption. Even the wealthiest person of the world cannot consume all available books, even though he/she may own them all. It is simply a question of time, not money.

Book reading is not like music listening. When you read a book, you invest your time and forgo other activities. On the contrary, listening to music does not strictly require you to stop doing many things (you can drive, do housecleaning, dance, work, even read or write a book). Therefore, most individuals potentially have more time for music consumption than for book consumption.

It cannot be overstated that even if the supply of digital books could potentially be huge or “unlimited,” the demand is not, because it is constrained by key scarce resources such as time and, in fact, people. Even giving away all world’s books will not make the demand “unlimited.”

From a macroeconomic perspective, price matters less than number of interested readers and their available time for reading. In fact, the price can be adjusted for any given market; one’s available time to read cannot. On average, it takes the same time to read a book, no matter what the price is. We are in an attention economy; time matters the most as it is, and it will always be, a scarce and precious resource, no matter how far the digital progress goes on. To make time an abundant resource we should stop aging and dying. Maybe in the future, but not now.

It’s also important to clarify that the “unlimited” supply of creative goods, such as digital books, is meaningful only in the strict sense of unlimited copies of the same title, as marginal production, storage and distribution cost is near-zero. In fact, the cost of creation of any new title is, typically, nowhere near-zero. The variety of digital books (i.e. different titles and not different copies of the same title) come at cost. Such cost depends on many elements (competences, talent, forgone opportunities, expenses, etc.) that very often are fundamentally unrelated to the internet and digital technologies. Save, of course for the digital books “created” by artificial intelligence programs or mash-ups of previously created content. The marginal cost of creating a new title, in most cases, matters. Therefore, such “unlimited” supply of creative goods does not mean unlimited variety of digital books. For the sake of creating new content for a book, the author must still find a compelling reason and the proper resources. The Long Tail has never zeroed in the implication of creativity costs. It assumed the goods exists, as a starting point.

Why Long Tail is Popular Among Retailers

In fact the Long Tail is very popular among e-retailers and e-distributors, where few question the theory — since they will not typically bear in mind the creativity and publishing costs. Any ebook that sells anything more zero is welcome. It adds up to the overall contribution to the margins. Selling one million titles once in a year is as profitable as selling one title, one million times. With the difference that in the first case authors and publishers get very little in return, while in the latter scenario, they can make some profit.

Actually, the Long Tail titles are more profitable for retailers as they are unlikely to spend on online advertising or promotion or to pursue aggressive pricing strategies on low-selling such titles. On the contrary, on bestsellers the online advertising and/or pricing battles can burn a lot of cash. So be wary of what any interested party from the e-retailing or e-distribution industry has to say when it takes stance to defend the Long Tail theory. They might just make up stories and arguments to self-serve their stakes. No doubt that the Long Tail works for them.

Incidentally, because of the near-zero marginal cost of storage and distribution, the variety of digital books available in the market is bound to grow. In fact, once a digital book gets published, it can potentially stay forever in the market, as the marginal costs of staying “published” are virtually zero. Over time, new releases of digital books might encounter more competition from the growing catalogue of previously published books. This is something new in the book publishing industry, as most books used to stay on the market until demand was high enough to make it worthwhile keeping it available.

Basically digital creative goods, such as books or songs, never die. All digital books are bound to outlive their authors, publishers and initial readers. Which is good of course for the single title, at microeconomic level. However, at an industry level, if all digital books are going to exist forever, sooner or later, we can expect to hit an oversupply problem. Especially since the number of readers, the attention time and economic resources are limited.

Sophisticated marketing strategies and tactics can very much help any single ebook to stand out of the crowded Long Tail at a microeconomic level. However, they can’t help very much at industry or macroeconomic level. Mainly because readers’ attention, time and economic resources are limited. Marketing — it doesn’t matter how smart — does not increase the time and the money available to the readers and very often does not increase the overall number of readers at macroeconomic level. (Of course marketing is very effective at microeconomic or book level, which is why every publisher or self-published authors has an incentive to do it.)

Game Theory Applied to Books?

From a game theory perspective, any marketing activity is effective as long as it is better than what your competitors do. If everyone were to pursue the very same strategy, the overall outcome would not necessarily be very exciting. The effects would certainly cancel one another out, at least partially. Therefore, anyone who claims to have an affordable Long Tail marketing solution should be viewed with suspicion. It might work as long as there are a relatively limited number of titles that exploit it.

But never forget that we are in the attention economy, with a limited number of readers and economic resources. Even the best marketing cannot solve a serious oversupply of content in the future. To put it simply, there is no way to sell one million burgers in a year, if your market consists of just 100 customers, who can also eat other types of food. No marketing, no technology, no genius can create such a miracle. Be prepared for the Long Tail oversupply challenge. It might not be today or tomorrow, but it will be some day (maybe it is already hitting the market in some country).

The Internet is Growing Up

One decade after the Long Tail theory was originally conceived, the world wide web has left its infancy and has entered its adulthood. It is 21 years old now. It is about time to do a reality check and challenge that sound, fascinating and very popular theory that has not yet been proven true when looked at from a scientific and statistical standpoint (at least in the digital book business). Even if a theory makes sense and there is some empirical evidence to confirm it, it does not mean it holds true. We also once believed—for thousands of years—that the Earth was flat and the Sun gravitated around the Earth — sound theories that passed many tests of evidence over several centuries until they were proven wrong.

Italy as a Case Study

In the white paper, The Lost Tail (published this past summer), we demonstrated how we applied a novel econometric methodology – devised on purpose – to start tackling this challenge. The preliminary results, based on actual sales in Italy of several thousands of titles over the past four years, show that the Tail is getting less relevant (not more) as the digital market grows. The head has been growing quicker than the tail, even though both head and tail have been growing significantly.

As demonstrated in the paper, our findings are very consistent with those of Harvard University Professor Anita Elberse, published in October 2013 in her book Blockbuster: Hit-making, risk-taking and the big business of entertainment. It is worthwhile noting that Elberse points out that less than 1% of the digital songs in US account for more than 80% of sales. This seems to exclude the current observability and relevance of Long Tail theory in the market of the digital songs.

Interestingly, our findings also are highly correlated with the growing concentration of the e-retail market. As the market share of the global e-retailers grows, the sales impact of small and independent retailers diminishes dramatically. A highly concentrated e-retail market appears to be less capable of fostering and growing a long tail of digital books than a not concentrated e-retail market. In fact, the overall ebook market has been growing very significantly, but the bestsellers have been taking a growing lion’s share. Of course, correlation does not mean causation. One cannot easily jump to the conclusion that the e-retail market concentration affects the the Long Tail. This could be, though, an opportunity for future research.

There are no final answers, yet. This paper is more a methodology study to advance our fact-based knowledge. Any publisher or distributor with a large number of titles can easily replicate the proposed methodology with its own data and get some insight. Of course, not all markets, nor all publishers are the same. There might very well be different, even opposite, results.

One final remark: a theory that sometimes works and sometimes does not, might need either a narrower scope or to be fixed/updated… You will be able to judge if there are reasons to be skeptical about this long-standing and very popular theory, at least as regards as digital creative goods, such as ebooks or digital songs.

“Science must begin with myths, and with the criticism of myths.” –Karl Popper

Marcello Vena is the founder and managing partner of All Brain, the world’s first on-demand leadership service for senior executives across the entire value chain of the media industry. Its single focus is on exploring, inventing, delivering and rolling out successful businesses, with a view to forging the future of all interested stakeholders: key media and publishing groups, as well as leading retailers, authors and agents. Previously Marcello Vena founded from scratch and managed the entire digital trade book business of the RCS Mediagroup. His is member of the Digital Book World 2015 Conference Council.

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