First Look

September 19, 2006

Online retailers are increasingly becoming attuned to Chris Anderson's concept of the "long tail"—the notion that a huge market is available for niche products. may sell just a few copies of this title or that title, but collectively those small sales add up to big business. In a new working paper, professors Anita Elberse and Felix Oberholzer-Gee take the long tail to the world of video sales. Will the long-tail effect mean more videos are sold overall, or will video sales at the end of the tail cannibalize purchases of hit titles? The research leads to some surprising findings. Also new this week, a case study examines the age-old question familiar to many business leaders: Should I enter a potentially lucrative new market or keep my company focused on the rapid growth being experienced in the current business? What will Icebreaker's CEO Jeremy Moon decide?
— Sean Silverthorne

Working Papers

Superstars and Underdogs: An Examination of the Long Tail Phenomenon in Video


The rise of online channels facilitates the distribution of a wide range of products and services. Academics and industry observers agree that online distribution will fundamentally change the number and variety of products that consumers purchase. However, there is sharp disagreement about what type of change will occur. Proponents of the "long tail" idea argue that a sharp increase in the variety of products offered through online channels will fuel a shift in consumption away from hits to a much larger number of lower-selling niche products. While the long-tail view predicts an increase in the heterogeneity of consumption patterns, the well-known superstar effect promises the exact opposite. As consumers have access to their favorite content wherever they are whenever they demand it, consumption patterns will become more, not less uniform, this theory predicts. To shed light on this debate, we study the distribution of revenues across products in the context of the U.S. home video industry for the 2000 to 2005 period. We find superstar and long-tail effects in home video sales, but each effect comes with a twist. There is a long-tail effect in that the number of titles that sell only a few copies every week increases almost twofold during our study period. But at the same time, the number of non-selling titles rises rapidly; it is now four times as high as in 2000. Many underdogs thus in fact appear to be losers. We also find evidence of a superstar effect. Among the best-performing titles, an ever-smaller number of titles accounts for the bulk of sales. The caveat here is that today's superstars lack the punch of earlier generations: video sales generally decrease over time across all quantiles of the sales distribution, but this effect is most pronounced among best-selling titles. Our findings have important implications for entertainment companies. Exploiting the tail might prove unprofitable if many titles do not sell at all. At the same time, producing superstars is more difficult than ever. The trends we uncover thus point to significant challenges for the entertainment industry.

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Cases & Course Materials

China: To Float or Not To Float? (F)- Alcatel and Strong Chinese Competition

Harvard Business School Case 706-036

The Chinese operations of Alcatel, a global communications solution provider based in France, were faced with strong local competition and a difficult market. It remained unclear how Alcatel would be able to recover growth in the Chinese market. Initiatives were underway to increase focus on services over equipment, to increase Chinese research and development presence, and to merge with U.S. competitor Lucent.

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Frederick Douglass Charter School: The Renewal Decision

Harvard Business School Case 806-063

Five years after the launch of the Frederick Douglass Charter School, its performance is under review by the state board of education as part of the decision process about whether to renew the school's charter. The case explores the opportunities and challenges of starting up and leading an urban charter school as well as the consequences of a state accountability system based on student achievement data.

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Sharp Corp. 2004

Harvard Business School Case 706-508

Presents the performance of Sharp Corp. in 2004. Illustrates Sharp's continuing leadership in the high end LCD market.

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Takashimaya in Transition

Harvard Business School Case 506-054

Takashimaya, the largest department store in Japan, was suffering from declining sales. CEO Koji Suzuki had succeeded in instituting changes to cut costs. However, Suzuki needed to come up with a strategy to increase sales, particularly in apparel, which comprised the largest segment. The case describes in detail the company's endeavors to develop its private brand in apparel.

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Icebreaker: The China Entry Decision

Harvard Business School Case 806-195

Jeremy Moon, CEO of Icebreaker, maker of merino-fiber activewear, thinks about the strengths and weaknesses of staying focused on his rapidly expanding U.S. and European markets versus broadening his attack to include China. If he enters China, should he continue his current strategy of pushing the technical merits of the merino fabric, or should he go the inherently subjective fashion route, given that the technical apparel market in China is virtually nonexistent?

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World Wide Licenses Ltd.: From Disney to Polaroid

Harvard Business School Case 805-060

World Wide Licenses (WWL) was a low-technology firm that licensed famous brands, which it then applied to timepieces, stationery, and back-to-school products. It transformed into a digital imaging company and landed worldwide rights to the Polaroid brand name. The case explores how it made the transformation and how it should proceed.

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EU Verdict Against Microsoft

Harvard Business School Case 706-503

In 2004, following an investigation that began in 1998, the European Commission (EC) issued an antitrust judgment against Microsoft Corp., levying a record fine of 497 million euros ($613 million) and mandating changes of commercial behavior and bundling of Windows Media Player with Microsoft's Windows operating system. The case summarizes the EC's ruling and Microsoft's response to it, places that ruling in the context of U.S. government antitrust action against Microsoft, and describes Microsoft's efforts to comply with the ruling. Also covers Microsoft's appeal of the ruling, which was heard in a European court in April 2006, and outlines further EC scrutiny of Microsoft.

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Paths to Power: How Insiders and Outsiders Shaped American Business Leadership


Are the doors of access open equally for all in business? Are talent and hard work really enough to make it to the top? As much as we would like to believe in the American meritocracy, an elusive class system exists where a small group of "insiders" possesses advantages that facilitate a smooth and relatively easy journey to the top, whereas a larger group of "outsiders" faces disadvantages that make their path to leadership positions more difficult. Though open access is a myth, authors Anthony J. Mayo, Nitin Nohria, and Laura G. Singleton find that throughout the history of American business, the composition of insiders and outsiders has been open to redefinition and even today remains in constant flux. And, even though it appears that white men still hold the majority of positions of power just as they did 100 years ago, the gates of access are not as static as they might appear. What mechanisms of access are really at work, and what does this evolving portrait of access mean for the future of leadership? Paths to Power is the second book (In Their Time was the first) to come from the HBS Leadership Initiative's Great Business Leaders Project, one of the largest academic studies of its kind on leadership and its evolution over the course of the 20th century. This important work sheds new light onto the changing demographic composition of American business leadership and reveals why these subtle changes are in fact quite groundbreaking (indeed it "…would be enough to cause a resuscitated J.P. Morgan or Thomas Watson to look at today's corporate landscape and collapse with shock."). Through a combination of statistical analysis of their large leadership database and in-depth biographical sketches of those who did make it to the top during the last century, this book reveals the mechanisms of advancement for both insiders and outsiders and speculates on what this means for the future of leadership selection and development.

Asymmetric Timeliness Tests of Accounting Conservatism


Recent accounting research employs an asymmetric timeliness measure to test the hypothesis that accounting earnings is conservative. This research design estimates whether "bad" news is incorporated into earnings on a more timely basis than "good" news using a regression of earnings on returns. We examine the asymmetric timeliness estimation procedure and identify properties that result in biased test statistics used to test conservatism predictions. We then provide empirical evidence that the properties of the empirical distributions typically employed in prior conservatism studies result in these biases producing evidence consistent with conservatism, even when using data series devoid of asymmetric timeliness in reported earnings. We conclude that the biased test statistics inherent in the asymmetric timeliness test preclude using this research design to measure conservatism, that these biases are irresolvable as they originate in the test's specification, and that studies employing asymmetric timeliness tests cannot be interpreted as providing evidence of accounting conservatism.

Competitive Advantage and the Value Network Configuration: Making Decisions at a Swedish Life Insurance Company


Executives in industries that facilitate transactions within a network of customers, such as financial services and telecommunications, currently face tough challenges. The factors determining success in their industries are changing rapidly and the boundaries of many of their markets are realigning. General analytical tools exist to support decision-making on these issues, but many of these tools have been devised primarily with manufacturing industries in mind. These tools may therefore require modifications in order to accommodate the underlying value creation logic of transaction services, the so called network-industries. We present a case study of a project in a Scandinavian life insurance company where the value network, an alternate value configuration analysis tool to the established value chain, was used to represent the company's activities and identify and evaluate the strategic options facing the company. The value network tool, which closely matched the executives' view of their industry and firm, proved useful in making a significant decision for the company. In particular, value network analysis channeled attention to the composition of the customer set and the mechanisms affecting the composition as being at the heart of the company's competitive position. Transaction service firms link their customers for a wide variety of purposes, such as risk sharing, financial transactions or communication. The composition and the size of the customer set are therefore important drivers of the value of service to individual customers of such firms. The experience of this case study merits further investigation of the use of different types of activity configurations depending on a given industry's underlying value creation logic. It provides insights into the types of situations in which value configuration analysis is most helpful, and gives guidance on how to identify issues for which the value network is the more powerful tool to support decision-making.