A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie

from the rethink-the-pie dept

Continuing the ongoing series on economics in the absence of scarcity, today's post is about rethinking the overall "pie." One of the problems that people have in grasping some of this is that they focus very much on the "haves" in the existing model, rather than the "have nots." In other words, in a world where scarcity is present, there are a limited set of options, and that means that many potential options never even make it to the market. This is what Chris Anderson talks about concerning "The Long Tail," when businesses are entirely hit driven.

It's what makes people ask the $200 million movie question, wondering how the same kind of huge blockbuster movies can be made without scarcity, or how rockstars will reach rockstar status. However, part of the problem with this is that while scarcity may create these types of huge hits, and abundance may decrease the likelihood of any individual work to be that same kind of hit, it expands the overall market by making it much easier for the long tail to exist. Without having to worry about stocking a limited number of shelves, an Amazon or a Netflix can carry unlimited products -- opening up an entirely new market for movies that don't need to reach the same level of blockbuster to be a success. In the same sense, a record label no longer needs to churn out a huge hit in Britney Spears to make up for all their duds, but can invest smaller amounts in many, many more artists, recognizing that it's possible to be modestly successful with many more artists, adding up to a much bigger pie overall -- and a much less risky business, since there's less reliance on just a few big hits.

What's important here is the recognition that as you remove scarcity from the equation, it may dilute the huge mega-successes, but inflates the ability to have a lot more moderate successes that add up to a lot more overall. The existing system, with scarcity, is often a bimodal distribution. There are the haves at one end, and the have nots (or the hoping to be the haves) all the way at the other end. However, as scarcity is removed, the distribution morphs into the famed power law curve. There are still hits at one end, though, there may be fewer of them. However, rather than simply jumping all the way from the super successful to the poor, starving and hopeful, you get a much nicer distribution from top to bottom of super successful, to moderately successful to less successful -- but with a much great overall value under the curve.

Unfortunately, many of the complaints about economics without scarcity focus on the fact that some at the high end of the bimodal distribution (the "rockstars" or the "mega hits") will lose some of that status without forced scarcity. But, the problem is that argument completely ignores what it does to the rest of the curve, moving up many who were at the other end (the poor, starving artists) into a position to be able to actually create a lot more product, rather than having to go out and find "a real job" that pays them a regular salary. The only "losers" here are a few people at the very, very top. Everyone else, however, benefits -- and the net benefit is tremendous. It does involve a shift in business models for those who relied on the hits, but it's a huge opportunity to expand a business while making it a lot less variable and a lot less dependent on catching one or two big hits to make the numbers work.

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  1. identicon
    a, 7 Dec 2006 @ 7:38am

    The long tail won't generate profits for the creators of content as long as you think that that content will be created by the mass market. The profits will go to the Googles, the Fox Studios, the NBC's of the world that aggregate that content. NBC can take advantage of the long tail by putting old episodes of Gilligans Island (forgive me if that wasn't NBC) that are just sitting in their archives. Someone out there would pay a buck or two to get the series, and considering there is virtually no cost for them to ship it to a consumer. Now take that someone out there, multiply that small percentage of consumers that would want it against the population of the planet, throw in all the other content they have and you can generate some real profits.

    User generated content might generate small profits for the creator, but most of the profit will go to the aggregator. Google can sell ads around searches for content, drive traffic and increase clicks. Google will make money, but the content creator coming from the masses really won't.

    The issue of the long tail benefits the labels, benefits the networks, benefits the network provider, but user generated content creators shouldn't quit their day job. Blockbuster movies won't go away, because the blockbuster movies of today will be long tail generators in the future.

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