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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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.