Apparently there’s at least as much money in unpopular, non-bestselling works then there is in blockbusters. That’s the theme of Chris Anderson’s “long tail” article in Wired. Rhapsody streams at least one copy of their top 400,000 songs every month. Less then half of Amazon’s sales come from the top 130,000 titles in their inventory. The majority of their sales come from books that physical stores don’t (and can’t) carry.
When you’re in an environment where shelf space isn’t a limitation, where it doesn’t matter how big your catalog is, then increasing the number of choices that you provide increases sales and increases profits.
Wired’s article has inspired a lot of writing today. Kevin Laws at VentureBlog has a great article showing that most of the successful .coms (Amazon, eBay, Google, CafePress) can be understood in terms of the long tail–they all stretch way further into the tail then anyone ever did before, and that’s where they found their profits.
From a cultural prospective, the whole long tail thing makes me more optimistic for the future then I’ve been in years. It points out that there’s a market for niche goods, no matter how small of a niche it is. The Walmartification and Hollywoodification that we’ve seen over the past few decades may just be a temporary phenomenon driven by the economies of scale that don’t really matter for digital goods. A lot of smaller markets that have become more obvious lately–groups like hardcore gamers, radical early adopters, anime fans–aren’t just aberrations, but a sign of things to come. The Internet makes it possible to profitably cater to small audiences.
Of course, someone still has to actually build the thing that the niche wants to buy. No matter how many people want a Treo 650 with WiFi, it’s still not going to show up in stores next month. As the business world adjusts to the long tail mode of thinking, we’ll probably see manufacturers who can profitably build a dozens of variants of their products and do small runs without having big distribution problems.
I’ve been wondering how this applies to products that aren’t actually products, though. Case in point: home internet access. I’ve been fighting for six months to get faster network access at home, but I’m running into the niche problem: I don’t want the same thing that most consumers want, so companies don’t seem interested in selling it to me. DSL and cable companies want to sell me an asymmetrical link with a dynamic IP address and a gob of filtering to protect me from whatever is eating Windows boxes this week. I want to buy a link with a decent upload speed, a static address, and no filtering. Both Verizon and Comcast view my market as being too small to bother with–I’m in the long tail, and neither of them looks past the big hits.
The thing is, though, this is completely insane. Because neither network provider is actually selling a product. Sure, they’re selling access to their immense wiring plant and a bunch of network gear (along with really bad support), but fundamentally, the only difference between what they want to sell and what I want to buy is a configuration file. I mean, Amazon at least needs to keep track of a zillion different books in warehouses, and Rhapsody needs to have disk space for 735,000 songs. Verizon doesn’t need that, because the thing that differentiates between the different DSL products that they sell is autogenerated. There’s no fundamental reason why they couldn’t add more speed grades to their DSL portfolio, along with static addresses, looser (and stricter!) filtering, bigger address pools, varying upload vs. download speeds, and then simply charge a premium price for “non-standard” settings, all available via a web interface. If they weren’t a Bell, with all of the ingrained Bell mindset, they could roll something like this out in a matter of weeks. There’d be some support and training costs, but they’d more then make up for it with increased revenue. That’s the point of the long tail. Instead, they view it like different DSL packages are competing with each other for shelf space, and they’re cannibalizing their own sales, alienating their own customers, and providing a safe niche for leaner, faster competitors.