Archive for April, 2008

Long Tail Economics: Benefits for the Digital Market Only

April 5, 2008

After reading the first four chapters of Chris Anderson’s The Long Tail my first thought was that perhaps this new Internet-fueled phenomenon might play a role in bring and end of the Big Box stores. Does this mean we can remake our small town mom and pop businesses online?

Already there is a clear disdain for the homogenized megastores that dot the suburban – and even some urban – landscapes. As we move to the Internet more and more to find our “community,” we can view these niche web sites and stores as our new “local” favorites? My take on the economics as spelled out in The Long Tail is that this a viable option for many who want to start up a small business.

But after second, more realistic though, I have concluded that that is not the case. The Long Tail economics, I believe, only applies to a select group of businesses who deal in digital goods. Anderson’s theory is right, but only as it relates to the world of digital entertainment content. If your product is 100% digital, the cost of storing and distributing it is close to nothing. And thanks to Google, blogs, and other recommendation programs, buyers can find and access an ever increasing range of offerings at very low cost.

Non-digital merchandise still requires require space, employees, and delivery infrastructure. All of that costs money, and the companies that are best positioned are the Big Box stores, such as Barnes & Noble, Wal Mart, or Home Depot. These companies will still maintain a monopoly.

Moreover, one of the unique and defining features of the markets and products Anderson talks about is that they are all about novelty and variation. Movies, books, and music are things we enjoy once or twice, for the most part. The joy of these products lies in the discovery and experience of new things, which fuels the long tail.

However, if you look at products such as furniture, cars, televisions, or even food, Anderson’s logic begins to fail. While it is nice to have some variety, the value of these products is not simply their novelty or rarity, but in their functionality. Other products where standards and interoperability are critical also would not benefit from the long tail theory. In this sense, the “tail” seems much shorter.

It seems that for many businesses, therefore, the only way to sustain profitability in the Long Tail construct is to have enough of the popular, “blockbuster” items in order to also have room on their shelves for those that fall down toward the tail end of the chart.