The Long Tail is a concept popularised by British-American writer Chris Anderson, first in an 2004 article in Wired Magazine (where he was editor), and then later in a book of the same name.
- The book’s sub-title was “why the future of business is selling less of more”, later amended to “how endless choice is creating unlimited demand”.
The original concept was that online market places with limitless shelf space might lead to more sales in less popular goods.
- Digital markets could bring about a democratization of content creation as well as distribution.
When consumers are offered infinite choice, the true shape of demand is revealed. And it turns out to be less hit-centric than we thought. People gravitate towards niches because they satisfy narrow interests better, and in one aspect of our life or another we all have some narrow interest (whether we think of it that way or not). – Chris Anderson
IT – and the internet in particular – was supposed to facilitate our access to forgotten and hard to reach products – books, films and music – by flattening out distribution costs along the popularity curve.
Anderson saw a world where total demand for less popular goods would grow to rival the demand for mainstream items.
- He saw long-tail goods as old established technology, with R&D costs long written off.
- This lower production cost coupled with the new low distribution and stocking costs would mean they could be as profitable as new, heavily marketed goods.
The world of scarcity was to be replaced by the world of abundance.
- This was to be the end of the blockbuster.
The distribution costs were indeed flattened, but the consequences were, as so often with IT, unintended.
For a while sales of less-popular items did grow.
- Online stores like iTunes split albums into tracks and let people fill in the gaps in their back catalogue of MP3s.
- Ebay and Amazon allowed geeks like me to get hold of spare parts for their cameras and computers, and re-buy all those books they had forgotten about.
- Algorithm-driven recommendation systems reminded buyers of other things they hadn’t realised that they needed.
We sold more books today that didn’t sell at all yesterday than we sold today of all the books that did sell yesterday. – Amazon employee.
But it didn’t last, and now the new stuff has a bigger share of the market than ever.
- In books, films and music, a few artists and franchises dominate.
- In 2014, the top 1% of music artists sold 77% of the product.
The “fat head” is beating the “long tail”.
More than that, the platforms that offered the off-piste merchandise all base their business models on locking you in to them as your platform of choice.
The true influence of the internet – of distributed machine intelligence – is most evident in the information technology industry itself.
- The long-tail distribution leads to winner-takes-all amongst the distributors.
So we now have a lot of niche monopolies with enormous power and influence – and enormous power to make profits:
- Amazon is the general store
- eBay is still the flea market (though in decline)
- Google dominates search and ads, plus video (YouTube)
- Facebook owns social messaging (increasingly photos), and another part of ads
- Apple stills sells a lot of kit, but is increasingly a music and TV store
- Netflix dominates streaming TV (though Amazon is giving it a fight)
And these new monopolies have surprisingly small workforces compared to the “real world” firms they replaced.
- The classic example is Instagram, which was bought by Facebook when it had a few dozen employees.
- The equivalent “meatspace” firm is Kodak, which once employed hundreds of thousands of people.
But the same thing applies further up the food chain, too:
- Google makes more money than General Motors every did, but with twenty times fewer employees.
Superficially, the internet is a flattening force.
- The barriers to entry are lower, and there is equal opportunity for all.
- Anyone can code an app or write an e-book and publish it for everyone to see.
- You can build a website – and run ads on it – for everyone to read.
We’ve all heard the success stories from each of these approaches, because they make it into the papers.
But the reality for most people is that you code and write and build something just for everyone to ignore it.
- The barriers to entry are low, but the barriers to scale are higher than ever.
- Networks exhibit the network effect (duh) and the bigger the network, the more value-add.
- Reach means first-mover advantage, or mega-marketing.
As consumers peer through the tiny window of their device’s screen into the never-ending shelf-space of the online store, their attention is drawn to the product at the top of the list.
Most of the money goes to a few big players, and to the distributors.
- You can list your apartment on AirBnB, but its AirBnB that’s making billions.
- You can become a cab driver with Uber (until the driverless cars arrive) and you can catch a cheaper, more convenient cab with Uber (certainly here in London), but it’s Uber that’s going to make all the money.
The internet offers lots of work, if you want to work for $5 an hour in the “gig economy”.
- What the internet doesn’t do is create middle-class jobs for people wanting to settle down with a house and a family (and don’t mention saving for retirement).
Internet sectors are winner-takes-all – the long-tail distribution in practice.
- The long-tail distribution exists, it’s just that the low-cost aggregation of profits all along the tail is done by the same monopoly distributor.
If you want to compete in a section to the right of the tail, you’ll be up against people who can work for free or next to free:
- trustafarians, retired people, and teenagers in their bedroom paid for by their parents’ steady jobs.
This is a market in transition.
When the steady jobs that back the work-for-free crowd – the ones the internet hasn’t already destroyed – dry up, these niche subsistence players and free-riders will slowly drop out of the picture.
- The online gig economy is just the third-world economy with more computers.
- A first-world country without solid middle-class jobs is just a third-world country with better legacy infrastructure.
We have history’s best-ever store of knowledge at our finger tips, and supercomputers in our pockets, but we in the West have no way to make a living from them.
- So unless we tax the robots and share out the tax, the long-tails looks like good news for the few and bad news for the many.
Until next time.