If you follow this blog, it will not surprise you to read that data-driven conclusions make me very happy. Just such a project has been going on at Wharton, where the faculty have been studying the shape of the sales curve for movies rented from Netflix.
Their conclusion: Chris Anderson’s long-tail hypothesis may not be all that.
Well, actually, they conclude that market interpretations of the long tail may not be all that. In an operations management post at Wharton’s “Knowledge at Wharton” blog, Professor Sergui Netessine notes:
“There are entire companies based on the premise of the Long Tail effect that argue they will make money focusing on niche markets. Our findings show it’s very rare in business that everything is so black and white. In most situations, the answer is, ‘It depends.’ The presence of the Long Tail effect might be less universal than one may be led to believe.”
Three decades ago, Michael Porter showed how successful businesses choose from three types of strategy: cost leadership (typically through scale); differentiation (e.g., luxury brands); or focus. Thinking about strategy has evolved since then, but Porter’s generic strategy options held up pretty well.
While I like the data-driven nature of the Wharton study, it may not reveal as much about the long tail as it does about the danger of playing a weak hand as a primary strategy. Maybe the “focus” here is movies, not “a movie”, and the differentiation is “you can watch what your peers are watching without doing too much to make that happen.”
If so, Netflix competes in a market that would be better served through scale or meaningful differentiation, not focus. Maybe we’ll have to wait a little while longer for the true test of a focus strategy that capitalizes on the nature of the long tail.