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Using data on movie-rating patterns, new Wharton research challenges current thinking on the Long Tail effect -- a widely publicized theory that suggests the Internet drives demand away from hit products with mass appeal, and directs that demand to more obscure niche offerings.

September 16, 2009 in Knowledge@Wharton

In a working paper titled, "Is Tom Cruise Threatened? Using Netflix Prize Data to Examine the Long Tail of Electronic Commerce,"Wharton Operations and Information Management professor Serguei Netessine and doctoral student Tom F. Tan pull information from the movie rental company Netflix to explore consumer demand for smash hits and lesser-known films. Netflix made its data available as part of a $1 million prize competition to encourage the development of new ways that will improve its ability to introduce customers to lesser-known titles they might find appealing.

The Long Tail theory suggests that, as the Internet makes distribution easier -- and uses state-of-the-art recommendation systems that allows consumers to become aware of more obscure products -- demand will shift from the most popular products at the "head" of a demand curve -- as charted on an xy axis -- to the aggregate power of a long "tail" made up of demand for many different niche products.

"There are entire companies based on the premise of the Long Tail effect that argue they will make money focusing on niche markets," says Netessine. "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."

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