Economy-Why The Digital Marketplace Is Here To Stay !!!

Chris Anderson was the editor of Wired magazineuntil 2012. Now he is the co-founder and chief executive officer of 3D Robotics, a company that produces drones. His book The Long Tail: How Endless Choice is Creating Unlimited Demand (Updated and Expanded Edition, 2009) was shortlisted for the 2006 Financial Timesand Goldman Sachs Business Book of the Year Award.

Before online retailing, there were brick-and-mortar stores like Borders, Barnes & Noble and Circuit City. If you consider books specifically, the average Barnes & Noble superstore carried around 100,000 titles. Of these, some were hits (the top 1,000 maybe) while the rest could be categorised as misses. So, such superstores had to be selective about what they displayed on their shelves.

But an online store like Amazon can carry five million book titles. Here, it is found that “more than a quarter of Amazon’s book sales come from outside its top 100,000 titles”. This is the long tail.

As Anderson writes, “If the Amazon statistics are any guide, the market for books that are not even sold in the average bookstore is already a third the size of the existing market – and what’s more, it’s growing quickly. If these growth trends continue, the potential book market may actually be half again as big as it appears to be, if only we can get over the economics of scarcity…”

The same is true for other Long Tail markets we’ve looked at… Google, for instance, makes most of its money not from huge corporate advertisers, but from small ones (the Long Tail of advertising). eBay is mostly Tail as well – niche products from collector cars to tricked-out golf clubs.

The long tail, which has become a dominant idea in the last decade, replaces the “hits and misses” concept with the “hits and niches” theme. These hits are in the short head of the distribution, but the niches in the long tail can be equally important. What makes this the case?

The forces that make things so are the following:

1. The cost of production of music, videos, books and so on are coming down (being democratised). An important reason for this turn has been the personal computer – along with digital video cameras, editing software and blogging tools.

2. The cost of distribution of niche products has also come down. As Anderson says, “The PC made everyone a producer or publisher, but it was the Internet that made everyone a distributor.” Companies such as Amazon, eBay and Netflix have democratised distribution.

3. Supply can be efficiently connected with demand especially due to Google search, iTunes recommendations, blogs, customer reviews, and so on.

The contributors to the long tail all are not always motivated by monetary rewards. Some do it for fun, some for experimentation and some for respect and reputation in the eyes of their peers. Academics, for example, do not mind free downloads of their papers since it increases their long-term impact.

As an example, Anderson analyses the Wikipedia phenomenon. Started in 2001 by Jimmy Wales, by 2005 Wikipedia was the largest encyclopaedia on Earth. While the Encyclopaedia Britannica offered 65,000 articles in the print edition and Encarta offered 60,000 articles, Wikipedia offered over two million articles in English alone, written by 75,000 contributors (2009 statistics).

Anderson asks: “Is Wikipedia ‘authoritative’? Well, no. But what really is? Britannica is reviewed by a smaller group of reviewers with higher academic degrees on average. There are, to be sure, fewer (if any) total clunkers or fabrications than in Wikipedia. But it’s not infallible either; indeed a 2005 study by Nature, the scientific journal, reported that in forty-two entries on science topics there was an average of four errors per entry in Wikipedia and three in Britannica. And shortly after the report came out, the Wikipedia entries were corrected, while Britannica had to wait for its next reprinting.”

Wikipedia offers all the entries expected in standard references, but then adds to it hundreds of thousands of unexpected ones as well. This long tail is easily searchable and the niches accessible. (Note: The last printed version of Britannica was in 2010. (Now it’s available online.)

Similarly, none of the long tail amateur efforts like blogs and recorded performances is authoritative. But collectively, they are proving more than equal to the mainstream media. Some blogs like ‘Boing Boing’ and ‘PostSecret’ have successfully competed with the mainstream media in terms of popularity. Anderson provides several examples of music, movies, television shows and blogs in this case.

Anderson says the world of scarcity (for which conventional economics with its allocation of resources has been constructed) is now replaced by the world of plentitude. He predicts that the digital marketplace, far from a fad, is here to stay because of the attractive economics of selling online.

This is an interesting thesis which presents huge implications in the coming decades, especially for a country like India which is transitioning to the online world at a rapid pace.


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By | 2017-08-27T23:11:22+00:00 August 29th, 2017|economy|0 Comments