Here is a portion of a lecture I gave about the short head in Tel Aviv university.
I tried to postpone it but I guess it is time to start talking mathematics and dive into the Bass diffusion model in order to understand why the short head economy is happening. Therefor this post requires you to be focused and concentrated.
As said before the Bass diffusion model is a mathematical model that describes the “Diffusion of innovations”.
This is the Bass model principal:
These are the variables of the equation:
And these are the parameters (coefficients):
Another way to look at it is this:
The graph of a(t) looks like this:
From the graph we can see the importance of the word of mouth influence (q). The flat blue line presents a case where there is no internal influence (meaning that the word of mouth doesn’t work at all)…
Let’s take a look at the Cumulative adopters graph (A):
As you can see, p (the external influence like advertising and PR) mostly affects the starting time of the adoption. q, the internal influence meaning the word of mouth) is the important parameter that influences the adoption and sales.
Here are another 2 examples:
are you still with us? that great! Get some coffee and let’s carry on…
How do we predict the future of the new product?
Well, it’s easy. After we have the real data of several time periods we can calculate the coefficients (p, q and m).
After we know the coefficients we can put them in the equation and predict the future adoption of the product.
Here is an example of how the model worked in the past:
Now let’s go back to the original equation:
On the left side of the equation is the portion of the potential market that adopts at time t (f(t)) given that they have not yet adopted (1-F(t)). It is known as a hazard rate. It also presents the probability that someone will adopt the innovation in this time period, given that he has not yet adopted it.
For example – let’s say that 10% of the potential market have bought the new product at time X, and till now (altogether including time X) 30% of the potential market have purchased the product, the result would be: 10%/70% = 1/7 = 0.14. That is also the probability that someone who has not yet purchased the product would do so in this time period.
If another 10% of the potential market bought the new product at time Y, and till now (altogether including time Y) 80% have already purchased the product, the result would be: 10%/20% = 0.5. Again, that is also the probability that someone who has not yet bought the product would do so in this time period – 50%. He can be one of the 10% that will buy the product (out of the 20% that still haven’t) or one of the 10% who would still not buy (out of the 20%). The chances are even in this case.
The right side of the equation is linear with respect to the number of previous adopters and the variables.
So the chances that someone would buy the product are influenced by the variables and the number of previous adopters.
The chances for adoption are higher when q, p and the number of previous adopters are higher.
all we have to do now is check if anything happened to these coefficients in the last several years.
to be continued…
For further reading - http://www.bassbasement.org/BassModel/BassMath.aspx
“This year marks the 100th birthday of the T-shirt. Maybe” – Here is a site that doesn’t take itself too seriously. That’s cool with me; it is T-shirt we are talking about, not rocket science.
However, they do say in the article that 100 years ago, in 1913, the U.S. Navy ordered a light undershirt for sailors to wear under their uniforms. That brought tees into public consciousness.
But we don’t really need the allegedly 100 year’s celebration to check on the short head of T-shirts, do we? I just couldn’t keep that unimportant piece of information to myself.
Let’s talk about online t-shirt stores.
Apparently it should be a Long tail classic: No need to keep stocks on the shelves; the retailer can just print the desired design on the desired t-shirt the minute an online order gets in; the buyers can express themselves and chose niche designs that fit them… classic long tail logic.
But does it really work that way?
My first guess was that it doesn’t but I had to check. After all, the short head theory is no rocket science but I do take it seriously.
So I asked 2 people who know something about Tees.
The first guy I asked was Jake Nickell, the founder and CEO of Threadless, my favorite T-shirt website. Threadless was founded back in 2000 after he won a t-shirt design contest. The site invites anyone in the world to submit their own T-shirt design. Then the Threadless community votes on the design and if it is chosen, it is offered for sale as t-shirts and other products on the site.
Jake told me that over the years Threadless received half a million designs for T-shirts!
Only 500 of them were actually printed.
99% of the designs that are submitted don’t feel the fabric of a T-shirt. They just get covered with dust in a back hard drive somewhere.
In other words, Threadless doesn’t even offer the long tail for sale!
That is not all – within the 5,000 designs they do print the distribution is like this:
1.33% of the Tees generate 20% of the sales.
8% of the Tees generate 50% of the sales.
30% of the Tees generate 80% of the sales.
The last 70% of the Tees generate only 20% of the sales.
Classic short head!
This is what the graph would probably look like if they had printed all 500,000 different designs that were ever submitted.
The situation is quite similar at bustedtees.com, another online t-shirt store I like.
This is what Josh Abramson, the CEO of Bustedtees told me: “For t-shirts I think we’re probably still close to that 20% of the shirt produces 80% of the revenue…. I’ve been doing this stuff for 14 years since starting CollegeHumor in 1999 — both of our businesses are certainly driven by hits… That being said, we still have a nice benefit from having a big catalog to take advantage of the long tail as well… “.
So why doesn’t the long tail work here?
There are several reasons.
First of all, most of us, consumers, love popular stuff (as we can learn from the chart). We are not really that unique and special. We want Hits! This is one of the basic short head basics. We do however appreciate a site that offers us a nice variety and an option to browse.
Even if we are unique and feel like browsing for that something special, there is a limit to our ability to deal with too much information and variety. How much time do we want to spend on a T-shirt catalog searching for a…T-shirt? Or as Josh from Bustedtees suggested: “Hits have become more and more important in a world with so much noise online”.
As for the online store, dealing with thousands of designers requires a lot of resources. True, it doesn’t take much Database space, but it does requires resources and attention. You need to manage the monthly billing and payment to all of them, offer support, customer relations etc. it can be done but why bother if almost nobody wants to buy it?
The long tail is not economical as we once thought – the revenues that we can generate out of it don’t really worth it and it is much more efficient to focus on the hits!
So we have seen that the movie industry has set some incredible records in the last several years (read more here), and that the word of mouth, which is a fundamental reason for the short head, works overtime when it come to movies (read more here).
Now let’s fly a little higher and check some more macro aspects of the movie industry. For that purpose we shall take a look into the Theatrical Market Statistics 2012 that were published by the MPAA (motion picture association of America).
First of all it is good to know, especially for those in the movie industry, that the revenues are going up and that so is the number of digital screens and the price of an average movie ticket – the growth is bigger out side of the US but also domestic we see that the numbers go up.
But this is not what we are here for. We are here to check on the short head of the movies and see if and how the film makers react to it. The best way to learn about it is by checking the number of movies that were produced and released each year.
In 2012, 677 movies were released in domestic theaters. This is a boost of 11% from 2011 and 49% from 2003.
Is this the sound of a tail getting longer?
Let’s go deeper.
549 of The 677 movies that were released in 2012 are non-members movies. Only 128 movies were released by MPAA members. MPAA members are the big 6 studios (Walt Disney Studios Motion Pictures, Paramount Pictures Corporation, Sony Pictures Entertainment, Inc. Twentieth Century Fox Film Corporation, Universal City Studios LLC, and Warner Bros. Entertainment Inc.) and their subsidiaries.
If we look at the number of movies that the MPAA members released over the years the picture is different – their 128 movies that were released in 2012 are a huge decrease from 141 in 2011 (9%) and from 180 in 2003 (29%).
The big studios are making fewer movies year after year and in the meantime the small studios have doubled their releases in the last 10 years.
It seems like the big 6 studios fully understand and follow the rules of the short head scene while the small studios are still reading the book about the long tail.
But who says that the big studios are right? Maybe there is a long tail in the movies and they don’t know it?
Mmmm. Don’t think so.
The pareto of Hollywood
So I looked into box office mojo again and checked all the revenues of all the studios and all the movies that were playing in 2012.
According to BOM (box office mojo) the top 7 studios (the 6 MPAA members and Lionsgate which is the biggest independent studio) had 205 movies in 2012 (156 new and 49 that were released in 2011 and still running).
These 205 movies made all together almost 10 billion dollars in 2012. Bear in mind that not all of their movies were hits. They had some major flops but they still managed to get almost 10 billion dollars (domestic).
All 802 movies that were playing in 2012, according to BOM, made less than 11 billion dollars. That means that the big 7 studios were responsible for more than 90% of the revenues!
7.69% of the studios, who had movies that were playing in 2012, took almost 100% of the revenues.
The other 92.3% of the studios hardly made any revenues…
The top grossing 10 movies in 2012 were responsible for 30% of the revenues. That means that 1.5% of the movies that were playing in 2012 made 30% of the revenues.
3.6% of the movies played in 2012 made more than 50% of the revenues.
Less than 15% of the movies made more than 90% of the revenues!
This is a nice short head but maybe it has always been this way?
So I turned back to BOM and checked the numbers of 2002.
Did the revenue split differently back then?
Apparently there was already a short head back then – here is a chart of the revenue share of the top grossing 100 movies in 2012 and in 2002:
The short head of 2012 seems only a bit bigger than the one in 2002.
But when we examine the market share (in revenues) as a function of the movies share (not the absolute 100 movies but the 15% of the movies that were published in the year) the picture is far more dramatic.
While in 2012 3.6% of the movies made 50% of the revenues, in 2002 it took almost 6% of the movies to reach 50% of the revenues.
While in 2012 14.3% of the movies made more than 90% of the revenues, in 2002 14.3% of the movies made less than 80%.
It appears that the movie industry has shifted towards the short head, leaving the long tail to the small and medium studios. These small studios are still making more and more movies, trying and sometime succeeding to make a hit, but their revenues as whole are almost meaningless (sounds like what is happening to the long tail musicians… they tour much more than the popular artists but make less revenues – read more here).
The big studios are making fewer films, investing more and more money in each of them; they know that at this era all they need is a small amount of huge hits.
“Taking notice of changing industry economics and shifting consumer tastes has been modifying that blueprint. His strategy involves making fewer but more ambitious movies”. that is The New York Times wrote in 2010 about Jeff Robinov, the former president of the Warner Brothers Pictures Group.
Steven Spielberg recently explained that in a panel at the University of Southern California that: “We can’t expand the week. We can’t expand the 24-hour cycle. So we’re stuck with so many choices. You’re at the point right now where a studio would rather invest $250 million in one film for a real shot at the brass ring, than make a whole bunch of really interesting, deeply personal — and even maybe historical — projects that may get lost in the shuffle because there’s only 24 hours”.
Spielberg, by the way, doesn’t think that this strategy will prevail: “There’s going to be an implosion where three or four or maybe even half a dozen of these mega-budgeted movies are going to go crashing into the ground and that’s going to change the paradigm again”.
But the short head isn’t a paradigm. It is a profound change in our economy – in the demand and supply. The consumers, or at least most of them, in this case the moviegoers, don’t really want a long tail. They want hits. On the other side we have the suppliers, in this case the studios, who are doing what is right for them – focus on a small amount of potential hits and meeting the demand.
If one or more studios would fall in the process it probably won’t really change a thing.
The death of Vilfredo Federico Damaso Pareto in August 1923 didn’t have much impact on the people of Cuero, a small town in Texas, USA.
They were busy getting ready for their annual “Turkeyfest“, a parade in which more than 30,000 people come to see 20,000 turkeys march together down the Main Street of their town, dancing and enjoying with big band music.
Another reason for not grieving over the death of Paretto was that they didn’t really know the guy who died more than 5,000 miles away in Switzerland.
What they also didn’t know was that a few blocks away from the Turkey parade route that was covered with feathers and crumbs of corn, and 3 years later, Frank Bass would be born.
Frank Bass grew up in Cuero, and after graduation he had to decide if he wants to be a cowboy or a professor. The decision was hard. “Cowboys dominate on the honesty dimension, but they are, perhaps, slightly more intelligent than professors. Alas, however, professors make a lot more money than cowboys” He said.
Luckily to the marketing profession he chose to be a professor.
Today he is known as the creator of the Bass diffusion model, which was first introduced in 1963.
Bass diffusion model is one of the solid bases and explanations of the short head theory.
The origins of the Bass diffusion model
In 1962, Professor Everett M. Rogers gave a lecture at Purdue University, where Professor Bass was teaching at that time.
It was a few months after Rogers, who was a professor of rural sociology, published his book “Diffusion of innovations“.
“Diffusion of innovations” tried to explain how innovations (new ideas, objects etc.) are being spread through the communication channels over time and among the members of a social system.
The “spreading” is done by word of mouth and the reason why it is so important is that “new” things are perceived as risky and uncertain. People try to lower the risk by seeking out others like themselves who have already adopted the innovation.
Therefore the diffusion process starts with the innovators, then the early adaptors, who adopt innovation and then spread the word further until the innovation gets to a critical mass.
The book was one of the first attempts to understand how we adopt innovation, a subject that engaged Frank Bass as well.
After Professor Roger gave his speech at Purdue University, one of Frank’s students came to him and asked if there was a way to express the idea of imitators and innovators that Rogers talked about, mathematically.
Frank took a pen and started scratching an answer, a mathematical model that would describe the “Diffusion of innovations” – it didn’t take him long to come up with one.
It did, however, take him another 5 years to write a complete paper that provided empirical support for his model.
Two years later, in 1969, this paper was published as the Bass diffusion model.
Until today the Bass diffusion model is one of the most widely cited and tested models in marketing science.
It also explains why the short head is so huge and getting bigger and bigger!
How long did it take the radio to reach 50 million listeners? 38 years.
How long did it take TV to reach 50 million viewers? 13 years.
How long did it take the internet to reach 50 million users? 4 years.
How long did it take Facebook to reach 50 million users? 3.5 years.
How long did it take I-pad to sell 50 million pieces? 3 years.
How long did it take Google+ to reach 50 million users? 3 months.
How long did it take angry bird space to reach 50 downloads? 35 days.
How long did it take Suzan Boil to reach 50 million views on YouTube? 7 days.
How long did it take Justin Bieber’s “Baby” to reach 50 million views on YouTube?
Less than a day…
Everything seems to happen much faster these days.
Everyday records are being broken, in sales, popularity, downloads etc.
In August 2012 Fifty Shades of Grey has become the best-selling book in Britain since records began, surpassing Harry Potter and the Deathly Hallows with sales of 5.3 million copies.
Few days later Taylor Swift beats Lady Gaga’s record for fastest-selling iTunes number one with her “We Are Never Ever Getting Back Together” song that got to the top in less than an hour.
Few weeks later, on October 2012, One Direction top US singles chart with fastest-selling British release ever.
Few weeks later, in November 2012, PSY’s “Gangnam Style” passed Justin Bieber’s “Baby” to become YouTube’s most watched video at 805M views.
Few months later, on March 2013, Samsung Galaxy S4 Shattered Pre-Order Record Set by Galaxy S3, Most Popular Android Phone Ever.
Few days later, Justin Timberlake breaks US sales records with new album “The 20/20 Experience”.
A month later Moshi Monsters toys broke Easter sales records…
So, can it get any higher?
It sure can!
Welcome to the era of the Short Head – where few sell more than a lot!
“Industry has a lot to do with things… The industry is tough, especially for a band like us, a rock band right now. We’re not bitter about it or anything like, “Fuck the music industry”, that’s the last thing we’re thinking. We’re all continuing to do music”
After 10 years together as a band, Dave Strauchman of “Every Avenue”, explains their break up in Oct 2012 in an interview to The Gunz Show.
Every Avenue is a pop punk band from Marysville, Michigan. They have 228,000 likes on Facebook, millions of views on YouTube but most probably you haven’t heard of them and they are still referred to as the “long tail” of the music industry.
Before their break up in 2012, Every Avenue was also one of the fastest growing artists in touring. From 11 tour dates they had in 2007, to 140 in 2010.
According to a songkick.com report, long-tail artists tour more than the most popular artists, and Every Avenue is just an example.
Their report divided artists into quartiles based on their site internal popularity ranking, which is the number of users who are tracking that artist and want to see them live.
The result shown in the graph above is clear – not only that the long tail artists tour more than the popular ones, they also present a very big growth in their touring.
In their blog songkick also mention a research that was conducted by Julie Holland Mortimer, Chris Nosko and Alan Sorensen in 2010: “Supply Responses to Digital Distribution: Recorded Music and Live Performance”
“While file-sharing may have substantially displaced album sales, it also facilitated a broader distribution of music, which appears to have expanded awareness of smaller artists and increased demand for their live concert performances. Concert revenues for large artists, however, appear to have been largely unaffected by file-sharing. Music for large artists was likely widely available prior to file-sharing, and as a result it is not surprising that demand for those artists’ concerts would have been largely unaffected by file-sharing. Similarly, the decline in album sales is much more pronounced for large artists than for small artists. Again, for small artists, file-sharing may have increased awareness of their music and encouraged some additional album sales from a larger fan base even as it displaced album sales to others.”
By the way, one famous artist who had it all figured it out already in 2002 said back then: “Music itself is going to become like running water or electricity… You’d better be prepared for doing a lot of touring because that’s really the only unique situation that’s going to be left. It’s terribly exciting. But on the other hand it doesn’t matter if you think it’s exciting or not; it’s what’s going to happen.”
The artist is David Bowie and we will be getting more meaningful and wise quotes from him in later posts.
These 2 reports teach us that the less popular long-tail artists tour a lot and that there is more demand for their concerts. That is supposed to be encouraging for the long tail musicians, right?
If that was the case, why would Every Avenue, who toured all over the place, break up after 10 years and complained about the “industry”?
If you have read my previous posts you probably already know the answer.
the short head of live music
Again, it is all because of the short head.
It seems that although the indie and less popular artists travel a lot and perform more than before, the short head rules in the live music arena in terms of money.
“The music industry is a microcosm of what is happening in the U.S. economy at large. We are increasingly becoming a “winner-take-all economy,” a phenomenon that the music industry has long experienced. Over recent decades, technological change, globalization and an erosion of the institutions and practices that support shared prosperity in the U.S. have put the middle class under increasing stress. The lucky and the talented – and it is often hard to tell the difference – have been doing better and better, while the vast majority has struggled to keep up.
These same forces are affecting the music industry. Indeed, the music industry is an extreme example of a “super star economy,” in which a small number of artists take home the lion’s share of income.”
These words were said by the Chairman of White House Council of Economic Advisers, Prof. Alan Krueger, at the Rock and Roll Hall of Fame on June 2013, The theme of his talk was: “Land of Hope and Dreams: Rock and Roll, Economics, and Rebuilding the Middle Class”.
Prof. Krueger, who also teaches Economics and Public Affairs at Princeton University, likes to explain economics using examples of the rock ‘n roll industry.
In 2004 he published “The Economics of Real Superstars: The Market for Rock Concerts in the Material World“.
He found out that 1% of the performing artists in 2003 took 56% of all concert tickets revenues in that year! The top 5% of all artists took almost 90% of the revenues! The remaining 95% took only 10%.
The short head of live music concerts is significant.
His research also showed the change throughout the years since 1982. In that year the short head of the artists, meaning the 1%, took only 26% of the revenues of all concert tickets. The top 5% took 60% and the remaining 95% took 40%.
The bigger got bigger and the smaller got smaller.
The superstar economy beats the long tail economy
So what has happened since 2003?
According to Prof. Krueger it hasn’t changed much. The “long tail” economy didn’t affect the the live concert industry, or as the wired magazine article well said: “We Listen to Indie Bands Online, But Pay to See Madonna”.
Krueger told Ryan Tate of Wired that based on his latest research update, from February through June of 2013, the top 1% of artists garnered 56.3% of total concert revenue and that “These numbers bounce around from year to year, but I see no evidence that it has become less of a superstar economy since I last published on it”.
We will discuss the reason why in future posts.
“Amazon had over the last few years either lowered discounts on scholarly books or, in the case of older or slow-selling titles, completely eliminated them” said Bruce Joshua Miller, president of Miller Trade Book Marketing, a Chicago firm representing university and independent presses, to DAVID STREITFELD of the new York times (July 4th 2013).
The article claims that As Competition Wanes, Amazon Cuts Back Discounts – They still offer a lot of discounts on bestsellers, where they have competition, but reduce the discounts on niche titles that can’t really be found in other stores.
Some small publishers are disappointed at Amazon that once was their savior and stood after its slogan about ‘leveling the playing field for small publishers’ but now turned on them.the story reminds me of this cartoon from 2005.
STREITFELD suggests a reason for Amazon’s new discount policy: “In its 16 years as a public company, Amazon has received unique permission from Wall Street to concentrate on expanding its infrastructure, increasing revenue at the expense of profit. Stockholders have pushed Amazon shares up to a record level, even though the company makes only pocket change. Profits were always promised tomorrow. Small publishers wonder if tomorrow is finally here, and they are the ones who will pay for it.”
Amazon is the model of the “long tail theory” – If the things said in the article are true, then this might be a proof that the long tail is not really profitable. Not even for retailers.
Read the full article here.