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Rethinking the Long Tail Theory: How to Define 'hits' and 'niches'


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The Long Tail theory suggests that the Internet drives demand away from popular products with mass appeal and directs it to more obscure niche offerings as it eases distribution and uses cutting-edge recommendation systems, but this theory is being challenged by new Wharton School research.

A paper by Wharton professor Serguei Netessine and doctoral student Tom F. Tan details their use of data from the Netflix movie rental company to investigate consumer demand for blockbusters and lesser-known films. The researchers have determined that, contrary to the Long Tail effect, mass appeal products retain their high rankings when expanding product variety and consumer demand is factored in. "There are entire companies based on the premise of the Long Tail effect that argue they will make money focusing on niche markets," Netessine says. "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."

The number of rated film titles at Netflix climbed from 4,470 to 17,768 between 2000 and 2005, and if this diversity is factored in so that product popularity is estimated relative to the total product variety, Wharton researchers do not uncover any proof of the Long Tail effect. Netessine says a relative analysis yields more meaning when applying the Long Tail theory to companies because it accounts for costs involved in maintaining a supply chain to meet demand for many niche products.

From Knowledge@Wharton
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