The economics of the internet are different to the economics of the offline world. The ways in which it’s different are still being shaken out, but the most well-established principle is that of The Long Tail.
Originally an article by Wired Magazine editor Chris Anderson, and then a book, The Long Tail is actually a very simple concept. It’s a model of distribution and a way of describing an interesting phenomenon about the online environment.
The top left of the graph represents a very small number of popular items that have a very high number of sales. These are the hits. The tail towards the bottom right represents the vast number of items that sell in smaller quantities.
The main point of Anderson’s article is that the internet enables the large number of non-hits to expand to the extent that they economically outweigh the hits. And, he argues, this is exactly what’s happened.
In a sense, it’s all about physical space. In the offline environment, there’s only a certain amount of shelf space. Online, storage is not a problem. In traditional record shops and bookstores, only the most popular items can be offered. Online, far more things can be made available, and that raises some issues.
The first issue that arises from this is that the more things you make available, the more people will explore the non-hits. The repercussion of this is that the sales of the most popular items suffer. If 100 things are available, those 100 things will enjoy sales success. If a million things are available for sale, the 100 most popular things will still enjoy sales success, but a greater proportion of people will explore the tail instead of consuming the hits.
The second issue is that the more things you make available, the more things people will consume overall. Amazon.com sells more books than any other bookstore because it sells a greater range of books than any other bookstore.
The third, and perhaps most important aspect, is that the Long Tail provides not only greater potential for mass market retailers moving online by reducing the problem of shelf space, but also a route to market for a wide range of niche products that might not otherwise have been made available by more traditional means.
The book has had two subtitles (in the American and UK versions), each with different emphasis. The first is: ‘Why the Future of Business is Selling Less of More’ — that is, the trick is to make everything available, and sell a small quantity of a large number of items, rather than the other way around. The second subtitle is: ‘How Endless Choice Is Creating Unlimited Demand’ — a slightly more problematic assertion, but it does carry a message of hope to niche businesses.
The simple fact is that economics are transformed online. An online music retailer will never sell out of a record. They will never have to stop stocking an item in order to stock another. There is no reason for labels to delete catalogue and every reason to reissue everything.
And the more easily searchable you make it, the more you will benefit at the business end.
The real reason the major record labels are experiencing problems is not the issue of piracy or filesharing. It’s that they no longer have only to compete with other hits. Now they have to compete with a range of choice that is exponentially greater than anything they’ve ever come across. The age of the hit is over.
Because the simple, powerful fact is this: for the first time in history, the sum total of the economic value of the tail is now greater than the sum total of the economic value of the head. Amazon sells more books overall that are not in the top 100 bestseller list than those 100 combined. Probably more outside the top 1000 than in it.
Add all the sales of all the records that made it into the charts in the last year, and the economic value of everything that never made it close eclipses it.
This is something that requires more reading — because understanding these concepts could radically transform both how you approach what you do for a living, and how much money you could make doing it.
Start with the original article. Then read ‘The Rise and Fall of the Hit‘. Then you should probably get the book. You should definitely keep tabs on Anderson’s The Long Tail blog. Here’s the Wikipedia article. And you might want to watch this presentation he made for the Long Now Foundation.