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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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.