Search and the New Economy Long Tail Prof. Panos Ipeirotis

Today’s Objectives The “Long Tail” and User Generated Content What is the Long Tail Forces that drive the Long Tail Mini-case discussion: Hotels

Question What percentage of the top 10,000 titles in any online media store (Netflix, iTunes, Amazon, or any other) will rent or sell at least once a month?

The Long Tail Hits Typical Store Capacity

The Long Tail

Market of Niches!

The world of niches increases! Economically viable to sell relatively unpopular products

How IT changes Markets

The Three Forces of Long Tail Digital Production Lowers Costs of Production: Music, Movies, Blogs, Web Pages,… inexpensive, easy-to-use production tools exist

The Three Forces of Long Tail The Internet Lowers Costs of Consumption: Easier to Find Products

The Three Forces of Long Tail Google, Amazon Recommendations etc: Connect Customers to Niches Reduce Information Asymmetries and Create New Markets!

So, what markets have a Long Tail?

Long Tail = Power-law Distribution This is just a conceptual example of the real-world data sets that we see so commonly in Long Tail research. The problem is that they all look the same. So we plot them another way….

Long Tail = Power-law Distribution …like this, log-log. Powerlaws are all straight lines on a log-log scale. Some have steeper slope, and some are shallower, but all are a straight line….

Hmmm…, the Movie Industry Distr. ….unless they’re not. This is US domestic Box Office revenues for a three-year period: 2002-2005. What happens at rank 300, where the revenues fall off a cliff? Do the movies get worse? Do they switch into Spanish? Kevin Costner? The answer is none of those. What happens is that they run out of screens. The carrying capacity of the US megaplex network is about 100 films a year. By contrast, each year there are about 13,000 films shown in film festivals each year. Only a tiny fraction of them are picked up for commercial distribution, and only a tiny fraction of those make it into the megaplex. So there is an ample supply of films and, if we believe that the powerlaw describes the “natural shape” of the market, plenty of demand. What’s getting in the way is simply a bottleneck in distribution, a scarcity effect that’s distorting the marketplace.

The Missing Market Presumably if you had an infinite number of screens on which to show films, the demand would follow the powerlaw shape. I call the pink part above the “dark matter of the marketplace”—it’s the latent demand for products that’s suppressed by inefficiencies in distribution. Remove the bottlenecks and you can tap that demand—that, in a nutshell, is the theory of the Long Tail.

Source: Morris Rosenthal The Missing Market for Books Here’s an example, using book sales on Amazon. The chart comes from Morris Rosenthal of Foner Books (http://www.fonerbooks.com/surfing.htm). The dotted line reflects 2005 sales; the red line is 2006. What you can see, aside from the fact that it’s becoming more niche-centric (lower-ranked books are selling better than before, compared to the hits), is that in both cases the lines falls off the straight-line trajectory around rank 200,000 or 300,000. What might be causing this? Source: Morris Rosenthal

The Long Tail of Hotel Reservations Plane reservations are almost completely online Can access them through the big-three GDS: Amadeus, Travelport (Galileo, Worldspan), Sabre There are 200 major, and 1,500 minor airlines (easy to integrate) Going beyond the Hilton’s, Marriott’s, Sheraton’s of the world… 80,000 hotels in Greece alone Significant activity in the “long tail”…which is NOT searchable today Questions: Bottlenecks for reaching the long tail? Benefits when reaching the long tail? Problems to overcome? Opportunities? Touch issues of: Hotel connectivity Need for hierarchical solutions Desire of the GDS to reach for the long tail Alternatives to GDS Quality control of the Long tail of hotels (travel agents do that now) Need for hotel reviews Need for personalization of hotel reviews (how to accomplish?)