Long Tail theory Reading Notes: Chapter 8 long tail Economics

The first seven chapters of Long Tail theory:

Chapter 1 long tail market

Http://www.cnblogs.com/forfuture1978/archive/2010/02/12/1667878.html

Chapter 2 ups and downs

Http://www.cnblogs.com/forfuture1978/archive/2010/02/13/1668015.html

Chapter 3 brief introduction to long tail

Http://www.cnblogs.com/forfuture1978/archive/2010/02/13/1668085.html

Chapter 4 three powers of Long Tail

Http://www.cnblogs.com/forfuture1978/archive/2010/02/14/1668207.html

Chapter V new producer

Http://www.cnblogs.com/forfuture1978/archive/2010/02/15/1668623.html

Chapter 6 New Market

Http://www.cnblogs.com/forfuture1978/archive/2010/02/17/1668959.html

Chapter 7 new fashion leaders

Http://www.cnblogs.com/forfuture1978/archive/2010/02/18/1669209.html

 

As long as the consumer market exists, the power law curve will appear when the following three conditions are true:

• Diversity: there are many different types of things
• Inequality: the quality of some things is higher than that of others
• There is a network effect: it is not as good as the reputation or verbal communication effect, and these effects can easily multiply the quality difference.

A power law curve can lead to a "foreseeable imbalance" in the market, culture, and society: success brings more success.

If the vertical and horizontal axes use a logarithm scale to draw a power law curve, you should export a downward skewed line.

But this is not the case in the real world. When we observe the Hollywood box office, the front of the curve will be straight, followed by a thousand miles.

Is it because about 100 movies suddenly get worse? Is it true that Hollywood only shot 500 movies? Of course not.

The box office is poor for 100 movies because they do not have enough support for cinemas. The movie industry in the United States has only 100 movies each year, and movies must be called to earn money. When the cinema does not see the economic benefits, it will stop the film screening and simply cut off the curve. Fortunately, several films that can conquer audiences at the film festival may be selected by one or two of the university cities, that is, between 100 and 500.

The sharp decline in the curve is not a sharp drop in the demand for movies, but a product of the supply bottleneck. as long as people have unlimited options, it is easy to find these options, then the demand points will be extended to the small areas you don't think.

The 80/20 rule has not been correctly interpreted:

• The exact proportion is almost never 80/20
• The sum of the two is not 100, because it is the proportion of two different things, the former is sales, and the latter is the product. There is no standard for expressing the relationship between the two. For the same market, we can say 80/10 or 95/20.
• 80/20 is intended to be the relationship between products and earnings, but people will use this rule to explain completely different phenomena, such as products and profits.

The most important thing is that people regard the 80/20 rule as a guideline. In this case, they may wish to use only 20% of products to achieve most sales.

What long tail encourages is not to follow this rule, but to refuse to be ruled by this rule. Even if 20% of products can bring 80% of sales, we have no reason to give up the 80% products, especially when the cost is low.

The evolution of the 80/20 rule is as follows:

First, long-tail retailers store 10 times the inventory of traditional retailers. Therefore, 20% of popular retailers sell only 2% of the inventory of long-tail retailers.

Secondly, the income data of the second column reflects the results of power law distribution. 2% of products accounted for 50% of sales, and 8% of other products occupied 25%, the remaining 90% accounts for 25% of sales.

Finally, the profit of the third pillar, due to the extremely low inventory cost, the profit of non-popular products in the long tail market may far exceed the traditional brick and cement market.

For example, in the DVD market, the wholesale prices of the latest DVDs (distributors charge retailers) are usually high, while retailers are at a discount to attract customers to buy at this time, as a result, the sales profit of new DVDs in the entire industry is greatly reduced.

Smart retailers are encouraging people to shift from the popular world (high procurement costs) to the niche world (low procurement costs), with the ability to dramatically improve the economic efficiency of the retail industry.

The 80/20 rule has the following changes in the long tail market:

• You can provide more products than before.
• As it is easier to find these products (Recommendation Systems and filters) than before, sales are distributed evenly among popular and base products.
• Both niche products and popular products can make profits.

In the long tail market, there are three forces that can push demand from the head to the tail. The first force is the richness of varieties, so that customers can pick one of 1000 instead of one from 10. The second advantage is low search costs. The last strength is sample demonstration, such as music audition and book preview. Driven by these three forces, the demand curve is much smoother, and the dominance of popular products is much lower.

Does the long tail make the cake bigger or just change the distribution method of the cake? This is related to the industry because human attention and purchasing power are limited. For example, music is exclusive to attention, but words are exclusive. For example, TV is becoming non-exclusive, but if TV needs to be paid, it will immediately become exclusive. In short, human attention is more likely to spread than money. The main effect of long tail is to switch our products to non-mainstream products. As long as new discoveries make us more satisfied, we will not pay more for it.

There are many micro-structures in the long tail curve. The huge power curve of the entire music industry is formed by the superposition of many small power curves, each small power law curve represents a genre. Music is composed of thousands of micro-markets in small fields. Each niche market has its own long tail, which is combined into a general ranking to form a general long tail.

This means that filters are often the most important to a genre, rather than the entire market. This also explains a conflicting long tail puzzle: the steep decline in the power law curve is a powerful verbal effect that enlarges consumers' preferences and dislikes, and the network filter further expands this power, shouldn't the curve be steep? Because filters are most effective within a genre, but different genres are greatly compromised, popular music in a field can break through the midstream of the entire market, however, it is difficult to continue further competition with popular music of other genres.

There is also a long tail in time, and popular products will soon fall into the long tail over time. Although Google is not indifferent to time, its measurement criteria are mainly not new and old, but import links, under the guidance of search engines, the outdated speed of blogs and news will be much slower.

Long Tail is a phenomenon in the rich world. We have ample shelf space, circulation channels, and ample options. Two important scarcity functions in traditional economics, marginal production cost and marginal sales cost, are approaching zero. However, the abundance is put into consideration in the context of the economy, if the entire economic system is still subject to scarcity restrictions from other aspects, fengrao economics cannot change the status of orthodox economics, but can only promote lower prices and improve efficiency. After all, human attention, time and disposable income are limited.