When Long Tails Go Wrong

At a recent speech at a stealth startup, I was asked a provocative question:

"Sure, I can see how the rise of efficient markets creates Long Tails of expanded variety in most categories. But are there categories where efficient markets could actually create less choice?"

    The example given was television sets. At first blush, that doesn't seem like a market that's begging for a huge amount of variety. The TV industry consists of a few different broad technologies (CRT, plasma, LCD, front and rear projection, HDTV, etc), a limited range of sizes, and some variation in quality.  Between these types, the average Best Buy carries somewhere between 30 and 50 different TVs, which are chosen to satisfy the most common needs. Is that enough? Does the world really want a zillion different kind of TVs?

    Well, the world may not want a huge variety of television types, but that's actually what it 's got. Amazon alone lists 3,200 different kinds of TV sets , which probably just represents a fraction of all the different models and brands actually sold. Why are there so many? After all, they're just screens of a few different sizes; who needs all that confusing choice?

    The answer to that question gets at one of the paradoxes of market economics. Sometimes inefficient distribution actually creates more variety, not less. And sometimes the act of making those markets more efficient, which is the core of the Long Tail, actually has the effect of reducing choice.

    Weird, huh? Here's how it works: The usual situation I describe is one in which distribution bottlenecks, such as the limited shelf space in most traditional retail stores, have capped the variety available. So as much as you might like that documentary DVD or blues CD, it just isn't on the shelf at Blockbuster or Wal-Mart. And every store you go to has the same limited supply of hits.

    But sometimes, as is the case with TVs, there's a twist: every store you go to has a few of the same hits and then a fair smattering of similar products that you've never heard of. So along with the Sony and Samsung as Wal-Mart, you'll also find cheap no-names such as iLo and Tatung, many of which also sell in other discount retailers, supermarkets and small electronics stores. As a result, there appears to be a huge number of products on the market.

    This situation crops in markets where the variety comes not from the fundamental nature of the products but in segmentation based on price, availability, and customer fear and confusion. The 26" Sony LCD TV may not be any better than the Syntax Olevia, but it costs nearly three times as much. Why? Because someone's willing to pay that to get the peace of mind that comes with the Sony name. Or they simply don't know better.

    As you've probably guessed, most of the TVs you can buy, regardless of what name they go under, use parts made in the same Chinese or Korean factories. As a result, with the exception of the highest-end technologies, such as really big LCDs or superbright projectors, TVs are more alike than they are different. The no-name brands recognize that TV technology at the low end has become a commodity, and they appeal to those consumers who no longer believe that big brands convey enough additional quality to be worth a substantial price premium.

    The cause of all this artificially inflated choice comes from the phenomena of  information asymmetry, the situation where sellers have more information than buyers. In those cases competition doesn't work as well as it might in killing off the weak products, from the old to the overpriced.  So you get islands of diversity, not because that's what buyers want but because the market is suppressing the head-to-head competition that would have otherwise quickly thinned the ranks of choice.

    Much of the apparent variety in the TV market today is really just an abundance of poor choices (older models, uncompetitive prices, bad reviews, missing features, etc). Why do such products exist? Because consumers are in the dark.   How do you know that the TV on the shelf is the latest model, and not last year's model that the retailer is trying to get rid of? The answer, all too often: you don't.

    But what if everyone bought TVs from a Long Tail retailer like Amazon instead? Well, initially you'd have the aforementioned overwhelming variety of choice. Amazon lists these products largely because they sell somewhere and are available from the distributors, not because they represent good value. But on Amazon customers can easily inform themselves well enough to avoid the dreck. Despite the apparently overwhelming variety, it's easy to see the main categories, choices and brands. And through the miracle of "rank by bestselling", "...by price" or "...by review", good choices rise to the top.

    Presumably, if everyone bought TVs from Amazon, the ones that represent poor value would simply stop selling and be taken off the market.  Consumers would be empowered by information to shop more wisely and the profusion of empty choices would reduce to a smaller number of real ones. And thus the same Long Tail retailer that's expanding variety in music, books and DVDs, would actually reduce variety in TVs.

    So there you have it: a weird wormhole in the Long Tail, where the usual effect of infinite shelf space is turned on its head. So much for my Grand Unified Theory.

    Unless, of course, it turns out that there really is demand for massive variety in TVs, just not the sort of choice we've been offered so far. What if, for instance, you could buy TVs that came in as many different styles as your clothes? What if you could personalize them with sports logos or rock band designs? What if you could buy them shaped like soccer balls or with sheep's feet? What if they came in as many shapes and sizes and finishes as furniture does? What, in short, if they were sold a little like this?

    Now that would be real choice. Maybe there's room for a Long Tail of TVs after all.

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