May 192013
 

THE RULES OF BUSINESS ECONOMICS IN AN INCREASINGLY ONLINE WORLD

the long tail

 

 

 

 

 

This book makes an important albeit, perhaps, obvious point. It is something that most people younger than a certain age instinctively understand.

The long tail in the age of Internet is a model where abundance and endless variety is available and can be found and filtered. Costs being near zero this long tail of goods – although the book clearly focuses on music and film – is a revenue stream equal to or superior to the head, which in mainstream parlance is the hits or what is available in a typical retail outlet. The book was initially instigated when author Chris Anderson, who at the time edited Wired magazine, was meeting with someone at a company called Ecast and was surprised to find how deep the sales `tail’ extended. That is, how much obscure titles sold in aggregate. Also, the title of the book stems from the type of curve representing powerlaws an example of which is linguist George Zipf’s observations on frequency of words’ usage (and many other things). Note: clearly an obscure product would not sell as much as a well-publicized or mainstream one, but in total the sum of available non-mainstream `long tail’ products would match or surpass their better-known cousins. Now imagine a business (on the net) that can supply an infinite choice to its customers not constrained by what page 94 calls the “tyranny of the shelf.”

Incidentally, and as an aside, pages 90 and 91 taught me that there are no atoms in bits – something I had believed was unimaginable. The author makes mention of how one can reduce atoms to zero as well as getting rid of atoms. I didn’t know what to make of it and had to ponder the physical reality of it.

Here are the secrets to the Long Tail business:

1- Make Everything Available
2- Help Me Find It
 

Don’t panic. In the model described costs are near zero. Traditional economics are placed on its head. As the author reminds us economics is the science of scarcity, but while many things like money and time remain scarce the shelf space or incremental cost of the net are approaching a cost of zero.

The principles are focused on CD (music) and DVD (film) likely because it is still the dawn of Internet and the available data is limited. Still, at the book’s end there is a perfunctory attempt to go beyond the aforementioned markets. Having said that, still half the non-music and film examples are Internet-related. What is more, likely partly due to the data and the industry and partly due to the author’s location the data, if not the conclusions, is US-centric. It is still universally applicable but Yahoo, Rhapsody, Netflix are all USA-based. These are several of the main companies the author cites as case studies.

Anderson thinks that this model not only supports his central thesis, but also proclaims the end of the era of central command and control. Not so fast, he should check who owns most of these Internet bits and bytes assets. The answer is the same moguls and conglomerates that own everything else. More importantly, the medium is now the centre. Never mind. He makes a point about fragmented and decentralized micro niches being the end of hits and the mainstream.

The concept discussed is really a simple and observable one that the author takes to in detail. Occasionally it is inarticulate and occasionally it is self-servingly elongated. Ultimately, it is not improbable to see how it could have been an article (in Wired magazine?) or a Blog post (which it once was) given its data, theme and conclusion.

Finally, I bet former Google CEO Eric Schmidt is misquoted from the company’s first shareholder’s meeting where he did not say, “we were able to capture very large and historically undeserved businesses…” or perhaps he was not!

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