Long Tail

Chris Anderson points out that this digital age has presented “an entirely new economic model for the media and entertainment industries”, which should promt the fields to reform away from old models based on economic scarcity.

He cites that the physical world puts two dramatic limitations on our entertainment. Firstly being the need to find local audiences, and secondly the constraints of physics itself. In the physical world of scarcity, a store has only so much space and funds to hold a limited stock of products. “Retailers will carry only content that can generate sufficient demand to earn its keep.” While there may not be high demands for certain items in a given area, this is not to say that the demand for them does not exist.

Anderson refers to these restrained market models with “hit-driven economics”. This has created “an age without enough room to carry everything for everybody”. The world on online distribution and retail is “a world of abundance.”

A model based on scarcity cause us to assume that “only hits deserve to exist”, in an effort to increase revenue and lower opportunity cost. However executives at iTunes, Amazon, and Netflix, have discovered that “misses usually make money” as well. The digital world has reduced the difference between a “hit” and a “miss” to simply different entries in a database. Both are equally worthy of being carried.

According the Amazon statistics “the market for books that are not even sold in the average bookstore is larger than the market for those that are.” These large, previously ignored markets, are something that industries should start investing in.

Andersons lays out two rules for companies willing to “get over the economics of scarcity” and profit off the Long Tail market. Rule one is to make everything available. The industries need to embrace niches because there will always be an audience for them. Documentaries and foreign films are two things Anderson mentions that have a large demand, but little availability. He wants us to throw away our “estimates of demand” and just “thoughtlessly” make all products available for purchase.

Jumping back to the notion of the digital world not being constrained as heavily as the physical world, he introduces rule two: “Cut the price in half. Now lower it.” In regards to the music business he states “If it clearly costs less for a record label to deliver a song online, with no packaging, manufacturing, distribution, or shelf space overheads, why shouldn’t the price be less, too?” Songs on iTunes should be 79 cents, not 99. We should be basing “price according to digital costs, not physical ones” for digitally run markets.

The last of his rules is for the industries to help people find what they want. In an effort to harness the Long Tail market, he shows how industries are using recommendation sytems to cater to a users needs.

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