Monday, October 16, 2006

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THE SECOND LIFE OF CHRIS ANDERSON

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Last Friday, Wired magazine editor-in-chief Chris Anderson appeared in avatar form to sit down with me and an audience of Residents to discuss his groundbreaking book, The Long Tail: The New Economics of Culture and Commerce, and autograph copies of the virtual edition.   After the break, a lightly-edited transcript of our conversation with Chris (known in SL as "LongtailChris Anderson"), touching on numerous related topics, including Google's recent purchase of YouTube, Second Life and 3D printing, and the Long Tail's impact on social fragmentation, media distribution, corporate profit, developing nations, independent artists, the metaverse-- and beer.

Chris Anderson's appearance sponsored by Wired Magazine and Millions of Us.

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Introducing_chris_anderson

Reuben Millionsofus: Well, thank you to everyone for coming to join us here. Our guest today is not only the editor of Wired (whose office in SL we'll be unveiling in the next couple days) but also the author of The Long Tail, a book that grew out of a blog about the odd effects that digital distribution is having on the way in which we view economics of content. It's a huge honor to have him here today and with that, I'll turn the stage over to Chris Anderson and the famous Hamlet Au.

Chris Anderson: Thanks, nice to be here. It's an odd keyboard, so my typing is going to suck.

Hamlet Au: Thanks for coming all, let me start with my own introduction.

If "The Wisdom Crowds" was the cocktail buzzword of the last few years, then "The Long Tail" is the term for today. When Chris Anderson coined it, he was describing an Internet-driven economic phenomenon, but since then it's been applied to various pursuits, from foreign policy to education. Sign of a book here to stay.

Unsurprisingly, The Long Tail was a New York Times bestseller on its July release, and still maintains a very healthy position on Amazon's chart. (The long tail of The Long Tail right there.)

His book on the aggregation and acquisition of stuff via the Net is particularly apt to discuss here. Because if there's one thing Second Life has, it's stuff. Terabytes of user-created content from more than 3 years of this world's existence, sitting in thousands of Residents' inventory. So hopefully he's able to help us understand the Long Tail of the metaverse, too.

Chris_anderson_and_hamlet_au

Formerly an editor at The Economist, Chris Anderson has been editor-in-chief of Wired Magazine for the last five years. He stewarded it through the post-dot com crash to maintain and grow the magazine's relevance. And not just as the standard-bearer of digital culture, but as an indispensable resource for understanding the post-9/11 era, too.

Last year, to no one's shock, Wired won a National Magazine Award for general excellence.

And this month, I'm happy to say, they finally featured Second Life on the cover.

So it's a double pleasure to welcome Chris to SL, to speak about The Long Tail and related topics, and if we're lucky, to autograph some books, too. And with that, ladies and gentlemen and aliens, mythical creatures, and furries of indeterminate gender, please join me in welcoming Chris Anderson's avatar!

[audience applauds]

Thanks again for coming, Chris.

CA: This is the coolest thing I've done all morning.

HA: To start off, give us the "elevator pitch" for The Long Tail.

Talking_long_tail

CA: The Long Tail describes the world beyond the blockbuster. Our economy and culture is shifting from mass markets to millions of niches. The rise of distribution methods with unlimited capacity or “infinite shelf space”, of which the Internet is the foremost (but not only) example, have made it finally possible to offer consumers an incredible variety of products and other goods that were previously suppressed by the economic and physical limits of traditional retail and broadcast.

The Long Tail refers specifically to the “long tail” of the familiar fast-falling demand curve in economics—we’ve usually looked just at the high part of the curve on the left, where the hits are. But the tail of smaller-sellers is incredibly long, and when you can offer everything all those niche product can add up to a market that rivals the “head”.

Phew... now on to the fun stuff.  Ask away...

HA: Excellent. Walk us through one of the most potent examples of the Long Tail phenomenon from your book, and tell us a bit about the factors at play.

CA: Well. The most dramatic--but by no means only--examples are in the media and entertainment businesses... That's where there is a huge amount of variety and cultural diversity that has been obscured by the very narrow focus on blockbusters in traditional distribution channels, from retail shelves to radio stations.

For example, today, around 40% of the music downloaded on digital music services such as Rhapsody are tracks not available at Wal-Mart, America's leading music retailer.

For Netflix (DVDs) and Amazon (books), about a quarter of their sales are for titles not available in the largest bricks-and-mortar retailers in their industry. Products that aren't for everyone--but may really suit some people--typically don't pass the economic test for traditional retail. But because each of us has some niche interest somewhere and we now have distribution methods with "infinite shelf space" and near-zero marginal costs, we can now aggregate all these minority tastes. This new market of a million niches is adding up to a big new opportunity and the fastest-growing one around.

HA: As you say, much of The Long Tail dwells on media content-- books, movies, and so on. But that's only a small part of the overall economy. Does the Long Tail apply to the fundamental material or perishable industries of modern society? In other words, is there a Long Tail for, say, raw steel, or bushels of mache?

CA: Mache? But to answer your question, yes. To greater or lesser degrees, it applies almost everywhere that digital economics are lowering the cost of distribution. That includes hard goods (think eBay) and services (think Google AdWords, which are the Long Tail of advertising.)

To give an example that shows just how far you can take this, Anheuser-Busch recently started a new division called "Long Tail Libations".

[audience laughs]

What's the Long Tail of beer? Microbrews! Supply chain efficiencies in supermarket distribution now mean that you can efficiently stock twice as many products as just 15 years ago, so there's room for minority beer tastes.

HA: (Mache are those leafy greens you put on salads. Trader Joe's has them, they're hard to manufacture, but they rock.)

So to my next question...  Don't the realities of corporate management make the Long Tail fairly irrelevant? Take the film industry. When a big budget movie is a huge hit, the parent corporation's stock goes up, and the executives get rich. So executives have incentive to finance out-the-gate hits, but do they really have an immediate, next quarter incentive to foster the long tail of their back catalog, where profits are slow to come?

CA: But hits are unpredictable. Why risk your career on the toss of a dice when you can spread the risk over a larger portfolio of smaller investments? The profits in the back catalog (which is just one form of the Long Tail) aren't slow--they're steady!

Reading_the_long_tail_1

HA: A lot of people worry about how the Long Tail effect might fracture society. To that concern, you've said, "We may be more fragmented, but we'll also be richer as a culture." But let's consider a specific example. If thanks to the Long Tail, all the conservatives are only reading Bill O'Reilley and his kind, and all the liberals are only reading Al Franken and his kind, how can this possibly make our political culture richer?

CA [nods]:  Yeah, I get that a lot. Clearly the political climate at this moment isn't helping. Broadly, I think that this is just a case of a pendulum overswing. We've been so hungry for fresh, authentic voices in politics that we're rushing for the blogs, even though they're often shrill. I suspect over time we'll get better at compiling a more balanced view from many source rather than just counting on the New York Times to do it for us.

HA: Wired.com just reported about a Second Life project that can take in-world objects and fabricate them in the real world. Assuming this 3D printing becomes a widespread and affordable procedure, what Long Tail applications do you see coming out of it?

CA: I saw a great quote the other day that 3D printing "makes complexity free". Moore's Law made transistors free, which is why we can "waste" computing as extravagantly as we're doing right now. 3D printing makes complicated objects as cheap as simple ones. So the question is what's the physical version of something like the Mac UI? I suspect that it will be things that are "unnecessarily" detailed and beautiful--because we can. That would be cool.

HA: Obviously the purchase of YouTube by Google is the big Internet news this week. Reflect on it for us. What's it say about the Long Tail phenomenon?

CA: It's a huge vote of confidence. Media learned how to compete with the Long Tail in the 90s, because the bandwidth of the time made text work online. Then the music industry learned to compete with the Long Tail around 2000, when the bandwidth made sense for MP3s. Now TV is going to have to compete with web video. They thought we wanted thirty minute and one hour dramas and high production content that only they could created. The truth is that we do, but we also want more. YouTube offers us more, and what's great about it is that's it's unbounded in supply, diversity and source.

HA: Rodica, there were some questions from the audience?

Long_tail_audience

[Event moderator] Rodica Millionsofus:  Yes, Gwyneth Llewelyn want to know Wired has been at the forefront of the Net culture — always was and always will. Some Wired editors and columnists are regular residents of SL now. Do you wish to reveal now the plans that Wired has for Second Life?

CA: Fortunately, I've got [Wired editor] Chris Baker, my SL master, sitting next to me here. Rodica has built us an amazing environment and there will be an open house there… [Ed - details to come ]

Rodica Millionsofus: Ariel and Csven both have economics related questions:

Ariel asks, “If Long Tail revenues of any significance are spread over time, what are the short term incentives to producers who can often get a higher short-term return on investment?” Csven asks, “How's the time-based work coming on the data?”

Long_tail_audience_2

CA: Yikes. Okay, I'll try to answer that one. There are two Long Tails in content. One is broad appeal down to narrow appeal. The other is new versus old. So the Long Tail revenues that you describe as being slow to mostly refer to the second, the monetization of archives over time. The other big point to make is that we're not just talking about a monetary economy. Most of the content created in the Long Tail these days --from blogs to web video -- is done for free, with no expectation of financial return. There are plenty of business opportunities in *aggregating* that content, but the money doesn't necessarily accrue to the creators.

Now for the second question. Csven, could you elaborate?

Csven Concord [from the audience]: Some time back you posted a couple of images showing some time-based data. Just wondering if you've continued that analysis.

CA: Ah. Yes, I did a project on the Long Tail of Time (for a Long Now lecture.) We quantified the decay function of content (mostly music) over time, thanks to a cool service called InfoFilter. It, unsurprisingly, turned out to follow a powerlaw curve as well, although it was hard to make many predictions on the exponents because music is so diverse. What we're mostly focusing on right now is estimating the latent value in archives by looking at where sales fall off the predicted powerlaw curve.

The_long_tail_of_predators

Rodica Millionsofus: Speaking of new versus old, Epredator [Potato] wants to know, "Is Web video going to have to compete with participation in the metaverse?" He continues that question with, "Do you think the Long Tail applies to the number of environments like Second Life, i.e. lots of metaverses?"

CA: I think the question is what YouTube competes with. Does it compete with TV, the Web, real life, or Second Life. I suspect the answer is that it mostly competes with TV and the Web, and less with interactive and communal activities such as games and SL.

As for the second part, I see lots of Long Tails here. Yes, lots of niche communities, both within places like SL and in other metaverses. Also the content created in-game, of course. And finally the different usage modes, from casual to intense, which are not as widely spread in traditional gaming.

Rodica Millionsofus: A computer columnist for CBC Radio and Television Canada asks: "Do you see an economic tipping point in third world countries near term? For instance, do you imagine micro-finance led/Grameen Bank-style projects such as groups of women artisans in the Sudan becoming a significant part of the Long Tail?"

Sue Stonebender [laughing from the audience]: That would by my question, I'm the columnist asking...

CA: Yikes. That's a bit outside my area of expertise. I did run the Economist bureau in Southern China in the 90s, but that's not third world anymore. But to try to answer your question...

Many people have noted that there's a similarity between the Long Tail and CK Prahalad's "bottom of the pyramid" theory, which is also about the big market below the traditional markets. I spent a while in India trying to match the two, and I came to the conclusion that they're about different effects. CK's theory is about commoditization--making products so cheap that anyone can afford them. My theory is about nichefication--making product variety so wide that all tastes are served, regardless of price.

Rodica Millionsofus: Icon Serpentine wants to know: "How does the Long Tail affect small business and independent artists?"

Long_tail_stage

CA: Well, it's a very good thing, but I wouldn't expect the rewards to be loads of money. Basically, the democratization of the tools of production and distribution mean that it's easier to make and distribute products, which means that there's more variety out there and that it's easier to tap distributed demand and not just the usual geographically-concentrated demand. That means larger audiences, for a start. How to turn that into money isn't always clear, although in music at least there's a clear shift from selling music as a product to using free music as an advertisement for the live show, which is an experience that can't be replicated well online (SL aside!).

For other small businesses outside of entertainment, the opportunities lie in being more efficiently aggregated in global markets. Like the eBay effect, but in more markets and for more goods.

Rodica Millionsofus: And one last question from Zenigma Suntzu… He asks, “What are some of the ways to convert a business that has been ‘head’ focused to Long Tail?  For example, print music where quite a lot of it is out of print and unavailable.”

CA: The big issues in those business lie in the conversion of the products to digital, and clearing the rights. Each industry is different, but in general those transaction costs are still really high. I call that the "elephant in the room" of the Long Tail, and it's the biggest barrier remaining. The costs of releasing archival material have to be so low that you can afford to have much of it not sell at all.

You just can't predict what will sell and what won't, so you have to find methods to get it all out there and let the marketplace sort it out.

[audience applauds]

Chris Anderson bows, then moves to the autograph session, signing the SL edition created by Falk Bergman.

Autographing_the_long_tail
Anderson autographs his book for a leopard-lady fan

Reuben Millionsofus: Thanks so much for coming Chris. Next time we'll get you an actual long tail from Luskwood to wear.

A cool video montage of the event is available on YouTube.

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