Questioning the Long Tail

By Neal Comment

An anonymous reader raises a good question in connection to last Friday’s item on the marketplace’s embrace of the long tail:

“Chris Anderson writes: ‘The average Barnes & Noble carries 130,000 titles. Yet more than half of Amazon’s book sales come from outside its top 130,000 titles. Consider the implication: If the Amazon statistics are any guide, the market for books that are not even sold in the average bookstore is larger than the market for those that are.’ This is the whole of the longtail argument re: publishing; but Amazon makes up less than 10 percent of a major publisher’s sales, while chain stores make up more than 40 percent.

“So even if half of the books sold on Amazon are long tail, they are only 5 percent of a book publisher’s actual sales, suggesting that the long tail isn’t a vast and untapped marketplace, but simply the 5 percent tail. Am I missing something?”

I’m admittedly no statistician, so I can’t offer that detailed an analysis, but here’s what jumped out at me: “Amazon makes up less than 10 percent of a major publisher’s sales, while chain stores make up more than 40 percent.” Let’s be a bit more precise: According to this AP story on Amazon from last August, “[the] best estimate is that online sales account for 7 percent to 10 percent of total U.S. book sales annually.” Not just “a major publisher,” but “total U.S. book sales.” (And since Amazon isn’t the only online bookstore, we could reasonably ask Anderson if his inventory distribution pattern holds true for or the web division of Powell’s, among other places.) Furthermore, the article says, “while direct-to-consumer sales have been rising in recent years, sales at Barnes & Noble, Inc., and Borders Group, the nation’s two largest book retail chains, have remained relatively stagnant,” so that 40 percent number can be expected to steadily drop.

Now it’s true that a “major” publisher is likely to continue to experience the long tail of the online sales as only a fraction of their total revenues. But for smaller publishers—and the vast majority of U.S. publishers actually put out less than a dozen titles—the tail may well be where they’re able to eke out a reasonably comfortable existence. So it may well be to the particular advantage of indie presses to explore this territory.

Of course, I’m no statistician—so I’d love to hear from people who’ve been following this stuff more closely. Does this analysis make sense to you?

UPDATE: Soft Skull publisher Richard Nash says “the questioner is sort of right, but not entirely.” The full story after the jump!

Here’s what Richard Nash had to say in response to this morning’s post:

“Overall the Amazon market share numbers are correct. And they are also correct for Soft Skull in aggregate. But the interesting thing is that in Year Two of a given title’s life, Amazon could be responsible for as much as two-thirds of a book’s sales. Now those numbers in unit terms could be too small to make it worth a big publisher’s time to keep it in print, but for an indie, or a university press, having, say, half your in-print titles moving 50 units a year (in our case that would be for 100 titles) that’s about an extra $25K/year…and close to pure margin.

“The appeal of the Long Tail in the world of music is that digital downloads have close to zero marginal cost: They’re digital copies! Books of course have a relatively high marginal cost; each additional book could be a dollar, say. But in practice, what we do is make a guess about demand, and print, say, 3,000 books. After about a year, that book has basically had its day in brick and mortar stores and, I would argue, the value of the inventory at that point should be written down to about zero. The books are worthless.

“But in fact they do keep selling! Maybe only 50 units a year, as I said, but it is pure marginal revenue! And, for a publisher that has $1 million in sales, and profit margins of 5 percent, an extra $25K in revenue on which the marginal cost is basically zero (the inventory would otherwise have been pulped), you’ve increased profitability from $50 to $75K!

“Now that’s the short-term benefit from the Long Tail. And there are limits: For 50 units a year, it would be impossible to justify a reprint (unless the book were short enough that you could get $2/book unit cost through short-run digital printing…). The long-term benefit would be when eBooks become viable through advances in reader technology, and the marginal cost of a book truly becomes zero.”