What Happens When the Economics of Scarcity Meets the Economics of Abundance?

The "Long Tail," a term coined by Chris Anderson—and the title of his new book—describes the item popularity curve. Does the Long Tail represent a paradigm shift for business and consumer behavior? What are its implications for management going forward? Key concepts include:
  • Chris Anderson first coined the term "the Long Tail" in Wired magazine.
  • In a long-tail world, everything digital is available at all times.
  • Anderson describes three conditions critical to potential long-tail profits, all of which are provided by the Internet combined with creative new software and hardware.
by James Heskett

Summing Up

There's no need to rethink important economic constructs just because of the growth of the Long Tail phenomenon and its impact on demand and supply. Or is there?

That was part of the debate that occupied respondents to this month's column. As El Hakeem Yesufu put it, "The economics of scarcity has not been repealed by the digital Long Tail … prices are set by demand, not the constraints of supply." Edward Hare opened an aspect of the debate that several commented on when he said, "The rules of economics have not been repealed by digitization…. It occurs to me that 'costs' are being shifted … nothing is free. We're just not looking at 'cost' properly in this new world."

Along with shifts in costs, several commented about the new sources of scarcity in the world of the Long Tail. But there was disagreement about where they might arise. For example, Yeom Tae Seon commented, "The cost of creation is increasing in every creative area…." Len Bullard wrote, "As Yeom Tae Seon points out, scarcity based on digital format is only one domain. The other is scarcity of ideas and talent." In Gerald Nanninga's words, "… the economics shift in terms of where value is added in the supply chain…. The value … is created through the service of helping customers find what they want within the sea of choice…. It is ironic that the Internet, which is supposedly the key driver of infinite choice, tends to have near-monopolies for the portals to more efficiently reach any type of 'Long Tail' content." But even with increased ease of access, others pointed to added sources of scarcity. Soura Bhattacharyya commented, "… there is no such thing [as a free lunch]. Scarcity of time on the part of the consumer is the ultimate limiting factor even if we remove physical constraints of shelf space and supply chains." Andrei Iordache agreed, writing, "… there will always be at least one element in the economic equation that will be marked by scarcity…. Despite consumers' ability to find and access content in constantly simpler ways, do they have more time to experience this content?"

What does this bode for the future of economic theory and management education? Paula Thornton offered this opinion: "If there were to be a new discipline, it would be one that more closely embraces both psychology and economics as a means to understand human behavior and finds ways to accommodate and direct such behaviors." Citing the works of Ronald Coase, David Touve opined, "It would seem that economics has grappled with the question of markets for non-scarce products for some time…. The implication for management education would seem to be … [the need] to consider how … freely available … assets might support and increase the value of those nondurable, non-replicable assets a company might possess."

Mark Hammer's comment should provoke further discussion about the economic significance of the Long Tail phenomenon: "If Long Tail economics means embracing flawed principles that 'money is to be made by avoiding inventory, producing to order, and letting customers do the work,' most old-school marketers will be very pleased to take the Long Tail enthusiasts' lunch money in the real world…." What do you think?

Original Article

An entire generation brought up to regard many things in life—including communication and most intellectual property—as limitless and free is coming of age. They will join generations of their elders who studied college courses on the economics of scarcity and believe that "there is no such thing as a free lunch."

The new generation of twenty-somethings lives in what Chris Anderson terms "the Long Tail," a term he coined in his Wired magazine column and that is the title of his new book. The "Long Tail" describes the region of the item "popularity curve" comprising the vast population of least-popular items, whether it is song titles, books, or little-known brands. Life in the Long Tail is a busy routine involving the downloading of anything digital from the Internet; paying for some things, such as iTunes, but sharing and trading many others; creating and maintaining blogs, some of which are more frequently visited today than network television shows; contributing and editing items on the ever-changing open-network encyclopedia, Wikipedia; and when watching television (rarely), doing it when and where it is convenient to do so, through such devices as TiVo and cell phones. It is a world where everything digital is available at all times. And because of the very low cost of maintaining and distributing inventory, everything is likely to remain available forever, enabling the occasional gem of intellectual property to survive "in print" or in circulation. It is a world of non-zero-sum thinking.

This is in stark contrast to many of the rest of us who actually read newspapers, watch television, go to the movies, and use the Internet for such mundane purposes as sending and receiving e-mail and making purchases of merchandise generally thought to be in what Anderson calls "the Short Head" of the item popularity curve. The Short Head accommodates hit recordings, the most popular fashions, best-selling books, and other products of a world taught to believe in the economics of scarcity based on a limited amount of retail shelf space, a limited number of television channels, and generally limited resources of all kinds—in short, zero-sum thinking.

Just what are the economics of "the Long Tail"? If so much is free, can money be made there? Because if there is no money to be made, many would regard this as a quaint set of beliefs held by people about to come face-to-face with the real world. Anderson describes three conditions critical to potential long-tail profits, all of which are provided by the Internet combined with creative new software and hardware: drastically reduced costs of creation, increased ease of distribution, and search devices employing "filters" and user recommendations that make all of what is available accessible and understandable to potential consumers. In Anderson's view, all of these drive demand down into the tail, which he terms "a culture unfiltered by economic scarcity." In the Long Tail, money is made by such things as avoiding inventory, producing to order, letting customers do the work, pricing creatively and flexibly to various customers, utilizing a variety of distribution methods, sharing information, trusting the market to do your job, and understanding the "power of free" combined with money-making services or products.

Does the Long Tail represent what some would call a "paradigm shift"? Who will the Long Tail benefit most: consumers, producers, or intermediaries? Is it limited to things that can be digitized, thereby excluding most products for which inventory carrying and other logistics costs for unpopular items are prohibitive? Does it warrant an entirely new field of economics scholarship? What are its implications for management education? What do you think?

    • Bruce Lewin
    Should be an interesting challenge for the incumbents and fun times for "the people formerly known as the audience."
    • El Hakeem Yesufu
    The economics of scarcity has not been repealed by the digital long tail any more than any other time-honoured economic paradigm.

    Prices are NOT set when demand collides with limited supply. Rather, prices are set when supply collides with limited demand. In other words, in most markets, there is the theoretical ability to produce an unlimited quantity of produce to meet demand.

    As long as there is one more customer willing to buy one more item at one cent more than the cost to produce, one more unit of output will be produced. Ford limits its supply of cars to the number of cars demanded. In theory, it could build a million factories to meet demand for a billion cars. "Long tail" goods are not produced because of an absence of demand, not due to supply constraints.

    In the digital realm, the differencees are not fundamental. Yes, in the hardcopy world, a rare book cannot be physically produced at the right price. A digital book can. However, the price of the digital book is determined not by scarcity of supply, but by the intensity of demand. Sellers of e-books, just like sellers of paper books, will sell at the highest price they can charge.

    This is easily observed from the prices of any number of e-books on the web. The most popular carry higher prices than the less popular, even though they all cost virtually nothing to reproduce. This emphasizes the point that prices are set by demand, not the constraints of supply. Of course, the price floor created by direct physical materials doesn't exist any more. But production costs never determined price: Demand always did.

    The scarcity effect, therefore, has nothing to do with physical constraints. If there is a popular Stephen King novel that exists only in digital form, the price charged for it would be determined by how much the individual reader wants the book. It might cost one-hundredth of a cent to reproduce, but still cost $4.99 to download.

    The "scarcity" that determines price is not a limit on physical quantity. It is a limit on the number of suppliers. The digital world does not change this in the least. If 5,000 digital publishers were competing to sell the Stephen King digital book, the price would fall. If there were only one source, the price would rise. Does this digital scenario sound familiar?
    • David Touve
    It would seem that economics has grappled with the question of markets for non-scarce products for some time. Sometimes termed information goods, these are goods that experience little to no marginal cost, are truly non-excludable without certain legal or technical protections, and non-rivalrous in that consumption by one individual does not impede consumption by another individual. These products might even be completely durable, not wearing away in time. Whether the marginal cost is in the product or the logistics of distribution, there is still a good history of scholarship on the matter.

    It would seem Coase and others dealt with this challenge, for a monopolist, in the form of two-part tariffs: One fee to be "in the market" for a good, and another fee for discreet consumption. Given the near-total freedom with which information goods move, however, the second part of the tariff becomes implausible. There is simply a single fee to be "in the market."

    This is how cable TV, music subscriptions, even broadband service are priced. It is also the means by which the BBS, supported by taxes rather than direct sales, produces information goods. Without such pricing, the market devours itself by spending too much money to market discreet goods whose marginal cost is relatively nil.

    The implication for management education would seem to be developing the capacity to think in terms of markets as well as firms, to develop solutions that embrace rather than contest a lack of control, and to consider how "free" (freely available, not free beer) assets might support and increase the value of those nondurable, non-replicable assets a company might possess.
    • Yeom Tae Seon
    • Consultant, Plus Eight Star
    First of all, I'll begin my MBA this October and I think you're pointing out quite an interesting topic for me. I think it is impossible to maintain as only a "Long Tail" or "Short head." You mention that three conditions could brought a certain kind of profit, but I'm not sure about that.

    I've worked in a big web-portal company. If we look at the Internet web portals like Google, Yahoo, etc , how do they earn money? I bet over 30 percent is from advertising, e-shopping mall service, and digital contents services.

    Therefore, e-mail or community blogs or some kind of "clown" to attract people's eye and raise the page-views of the website leads back to those advertising and transaction services after all.

    The cost of creation is increasing in every creative area such as games, Internet websites, and digital contents. It was possible to make a website with one or two developers five years ago, but it is impossible now if they want to make it attractive to consumers.
    • Alessandra Malanga
    • home engineer/housewife/weekend painter/damned poet, Organization: My family
    It is certainly interesting and stimulating to think about the shift in the marketplace that has happened with the spread of the digital world. This shift is certainly becoming a new cultural way of living and is also pushed by a cultural change of values and lifestyle in our society. I wouldn't be so pessimistic about the possibilities of making money through this new way of selling and consuming. I believe that since this new digital marketplace is also an indication of an evolving culture and a different way of living, in conjunction with its diffusion, it will evolve in order to be more in tune with consumer needs and economic opportunities. This process will surely generate a stronger and wider marketplace. I also believe that we will shift more economic emphasis and profits around the possibility of "being in this digital market" through fees and advertising opportunities. Digital reality is the new developing reality, and we should regard it as just a different way of dealing, not as the disappearence of the market and the trade.
    • Harry Tucci
    • Marketing Analyst
    I think that in certain realms this Long Tail may be true; but judged by the continued success of retailers like Wal-Mart, there will always be a demand for bricks and mortar. A large segment of the population is not digitally connected, and like to be able to see, hold, feel, taste, and/or smell a product before they buy it.

    For this populuation the economics of buying have not and will not change. Theories like the long tail tend to oversimplify reality. It is the danger of ivory-tower academia ... they lose touch with what is happening on the ground. Maybe before Chris Anderson published his results he should have spent a weekend at the mall. To even think that malls and Wal-Marts are going the way of the dinosoaurs because of the new digital age makes no sense.
    • Mark J. Hammer
    • Vice President, Marketing & Sales
    While it is important for marketers to understand the behaviors of Millenium Generation consumers (twenty-somethings), the overwhelming majority of basic economic principles do not change. Too often, the identification of interesting or noteworthy trends leads to false predictions of dramatic change and/or "paradigm shifts." Think a short while back to the year 2000, and remember the irrational exuberance and false economic expectations inherent in the thinking of many dot-com enthusiasts. The dot-com bust occurred because most "experts" chose to ignore fundamental commercial economic principles.

    The early anticipation of "significant change" in market dynamics too often results in a tremendous amount of wasted resources. Many individuals who seek to create a new market or new product (or those who seek to capitalize on a supposed economic phenomenon by authoring a new business book) are usually too quick to set aside core economic principles, fundamental rules of commerce, and historical consumer behavior.

    If Long Tail economics means embracing flawed principles that "money is to be made by avoiding inventory, producing to order and letting customers do the work," most old-school marketers will be very pleased to take the Long Tail enthusiasts' lunch money in the real world. In fact, after a painful dose of real-world failure, we'll probably run across more than a few filling out job applications in the HR office.
    • Charlie Cullinane
    The "paradigm shift" of the Long Tail has already hit many areas of business and academia. The number of newspaper subscribers have been slowly decreasing every year as more people get their news from the Internet. This trend will only continue. In academia, the ability to cut and paste has made plgiarism more rampant and tougher to detect. There are now students who see nothing wrong with using sources without giving credit to the author just because it is on the "net," the feeling being that this is available for anyone to use as is.

    The Long Tail brings with it immediate gratification and ease of access to an incredible amount of information. The Long Tail will be a part of our future. But there is something to be said for a cup of your favorite beverage and a good book to read.
    • Len Bullard
    • Senior Technical Consultant
    As Yeom Tae Seon points out, scarcity based on digital format is only one domain. The other is scarcity of ideas and talent. As long as the top bloggers have been able to appropriate the ideas from the mail lists or unknown texts of other kinds, there have been abundant ideas. If copyright rules and modern indexing techniques were applied to create a virtual ontological cookie crumb trail, what would be the effects on the naive logistics curve of the so-called "long tail"?

    A better model for the network systems is the low-energy transport model from the application of non-linear systems. In such systems, commoditization acts as a lagrange point in the market basins where switching costs plummet and small effects (e.g., the clown on the webpage one writer mentioned) become the small perturbations that lead to orbital changes into a different basin. It is the balancing effect of force vectors leading to semantic or situational tensors that one would model to determine means to drive the network markets.
    • Hari
    Let me start by commending that these are interesting questions in the era of a so-called digital world. I'll try to respond to the first question.

    In my opinion, the thought of a shift in paradigm from the Short Head to a Long Tail world is nothing but an illusion. Let's try and have a bigger picture to understand this illusional paradigm shift.

    Chris Anderson's hypothesis is primarily based on the assumption that "internet" is the key for making profits in the Long Tail world for the unpopular items. What if a significantly larger portion of the population doesn't access the internet for buying items and only a smaller portion of the population accesses the internet for buying items? For the larger group that doesn't access the internet, only the most popular items appeal and are known to them, while the rest of the unpopular items don't even get noticed by such a population.

    A reliable publisher of statistics of internet usage around the globe shows that North America and Europe, which respectively have a population of 5 percent and 12.5 percent of the world, contribute 22 percent and 28 percent to the internet usage respectively. However, Asia, which accounts for 57 percent of the world population, contributes only 36.4 percent to internet usage. Clearly, a larger mass is not using the internet.

    In such countries where the internet is not widely used, people will not be aware of the unpopular items that are advertised mostly through internet, and will purchase only those items that prevail in the market. This is why, in my opinion, all this looks like an illusion.
    • Kapil Sopory
    • Company Secretary, SMEC (India) Private Limited
    In a regime of scarcity, the consumer uses choice alternatives very carefully and makes choices after due circumspection. The supplier is also not worried about campaigning as there is generally more demand than supply.

    Pricing is also not an issue as such. On the contrary, abundance leads to severe competition for marketing. Offers are backed by concessions of all sorts and customers tend to purchase more than is needed, keeping only the costs in view. Quality also is compromised at times. Hence even the otherwise least-popular items are sold off and customers, more so the gullible customers, lose in reality.

    This trend is spreading like a virus. Correctives by way of a midpath are, therefore, considered necessary. It is also observed that sellers resort to cutthroat competition to expedite sale of their products. In India this is true in the case of apparel, for example. There is a multiplication of manufacturers, resulting in an abundance of supplies which are very often disposed of at throwaway prices in off-seasons; the change in fashions that occurs so often also becomes a factor for this.
    • Yadvinder Singh
    • Management student
    "Click here" economics has arrived and we all can witness its impact. The Long Tail is evident and is sure to stay. With the reach of internet increasing, the Long Tail will multiply accordingly. Companies now must think twice before allowing that digital reproduction of their productions (of future products); pilfering is always a threat and will remain so.
    • Soura Bhattacharyya
    • Project Manager, OmniGuide
    Whether or not there exists "a free lunch" has been the subject of economic debate, and I would side with the majority in asserting that there is no such thing. Scarcity of time, on the part of the consumer, is the ultimate limiting factor even if we remove physical constraints of shelf space and supply chains. Our attention span is limited, and far too many product or service purchase decisions vie for that space. A simple question will illustrate the fact: How many of us use Google as a search engine more frequently than any other? Is this a matter of product superiority (do we even compare quality or results) or a consequence of us not wanting to be bothered with more than one place to go to for a search?

    Moreover, as a recent article in the Economist points out, the value of the "long-tail" has yet to be proven in the marketplace. While the concept is indeed attractive, I would reserve judgement till such evidence is more visible.
    • Rob Stancliffe
    • Internal Web Manager
    The long tail is absolutely a paradigm shift, just like the advent of the Sears Roebuck catalog created a paradigm shift. Both vastly expanded the available shelf space for sellers to use, consumers to purchase from, and producers to fill.

    What the long tail means now is that producers don't have to have a hit product in order to sell it. For instance, Tabasco has multiple flavors of pepper sauce, but I only see 3 or 4 in my local grocery store. However, through online retailing I can purchase my favorite flavor (which happens to be garlic) even though the demand in my market does not warrant the shelf space. The long tail is important because it allows producers to fill niche wants/needs without sacrificing bigger "hits."

    Sellers and producers can provide free content, which builds awareness and shows competence, followed by a more robust product or service provided at a price. This is really evident with the proliferation of free white papers available on the Internet, which tout a skill or service the firm provides.

    While all actors (sellers, consumers, producers) will receive benefits, I believe that the long tail creates more competition, which always benefits the consumer the most.
    • Tom Patterson
    • Entrepreneur in Residence, Mayfield Fund
    The long tail premise is all about the benefits that the digital economy has brought to understanding the needs and wants of consumers according to their individuality. And then it's about providing them with efficient access to it. In many ways, a brand new channel has been created for consumers to express preferences that fall out of the mainstream of goods, services, and media. Personalization of products and services has been talked about forever in marketing, but we are finally at a technology age where there is enough data that defines what someone personally wants, tools that efficiently connect that person to that want, and businesses that can run productively (enough) to make it worthwhile to facilitate these consumption transactions.

    I submit two things:

    I agree with others that there will be many businesses that look to aggregate the back end of the long tail to create unique business propositions.

    I also think this new channel/these businesses will uncover interests that did not make it in the first commerce cascade of products/interests/services, and will ultimately bring some of these long tail products/services/media back into the fat head. Much of this will be facilitated by the ever-increasing velocity of word of mouth in the digital economy.
    • Gerald Nanninga
    • VP, Retail Ventures Inc
    In an era when content is virtually free to produce and infinite in variety, the economics shift in terms of where value is added in the supply chain. The value in the supply chain is no longer created through producing content. Instead, value is created through the service of helping customers find what they want within the sea of choice.

    While choice may become near-infinite, time is still very finite and precious. In fact, one might argue that the value of time is increasing, because there are now so many more choices for how to spend our limited time. Those who can help us manage choice more efficiently will be rewarded.
    It is ironic that the Internet, which is supposedly the key driver of infinite choice, tends to have near-monopolies for the portals to more efficiently reach any type of "long tail" content, be that Google, Facebook, Amazon, or whatever.

    The economy really hasn't changed all that much. The real money is still going to be made at the "short head." The only thing that's changed is that the short head has moved from product producers to those who have access to the customer and who best help them find the right product.
    • Andrei Iordache
    In my opinion, there is no such thing as the "Economics of Abundance." Regardless of hype that one or the other economic theory generates, there will always be at least one element in the economic equation that will be marked by scarcity.

    In the case of the Long Tail approach, I strongly feel that we ignore disposable time as a relevant variable. My question is: Despite consumers' ability to find and access content in constantly simpler ways, do they have more time to experience this content?
    • Hemant Rachh
    • Student, NMIMS, Mumbai
    I think the Long Tail certainly represents a paradigm shift. It will benefit consumers more than anybody else. The effect of the Long Tail will not be limited to a few digitized things because it will keep giving consumers at least the same amount of information that producers or intermediaries have. Thus, it gives consumers choice about whatever they want, not just what producers produce.

    And if someone questions whether Internet usage is limited to a few million users, think again, because the Long Tail is not limited to the Internet. How many mobile users are there in the world? At what rate is mobile usage increasing?

    As for management education, the Long Tail has already made theories outdated. The fundamentals definitely do not change, but applications, practices, and environment do.
    • Dan Hoch
    • Principal, Rocky View School Division
    We are already seeing the pursuit of the Long Tail in education through the offering of online public school education. The groundswell support for this initiative by high school students is indicative of their desire to have access to all things, including education, on their own terms.

    Public education is already having to adapt to the demands of its consumers by offering more choice in the marketplace via various specialty or charter schools. These cater to a specific segment of student and, more often, parental interest, such as sport schools, fine arts, denominational schools, and the like.

    As the Long Tail trend continues, it's reasonable to assume that not only will the curricular offerings continue to be modified, but so will the mode of delivery, as well as the location of delivery. Will students continue to want to be bound by education delivery in a typical school-building setting? No doubt some will, whether it be for social reasons or specific group needs, such as playing on a team or within a group. However, the market is demanding more choice on its own terms, something that behooves education providers to consider.
    • Paula Thornton
    • Experience Design Strategist
    The real opportunity is not in a new field of economics, but in embracing the principles that have always been obvious to me: Do not to look at markets, but at individuals and collections of individuals.

    The goal would be to make the fundamentals of economics as a study of human choice more mainstream. Too often, economics is either misused (the term "finance" would be more appropriate) or is not understood for its global application to value, which is more often than not aligned with things other than financial measures when individual choices are made.

    If there were to be a new discipline, it would be one that more closely embraces both psychology and economics as a means to understand human behavior, and finds ways to accomodate and direct such behaviors.
    • Beryl Deskin
    • Sr. Consultant, Deskin Leadership Communications
    The premise, and ensuing conversation, are quite curious. Long tail, short head? Reminds one of the old story of the three blind people trying to describe an elephant. One explored the tail, another the head, the third the body. No one put the whole picture together.

    By speaking of "long tail" and "short head" the conversation leaves out the mid-section, where the vital organs are. In this topic the vital organs are the consumers. Like those high school students, they desire access to all things ... on their terms.

    Take the shift from reading daily newspapers or watching network news to receiving updates online. If you're only reading the papers that you subscribe to, or watching network news, you're also only receiving information filtered through a single source/point of view. Where do you go when you have questions, disagree, or want to learn more? When you get your news online, you're only a few clicks and a short time away from finding out more. But then you might be inspired to pick up the longer, print book of thoughtful columnists to put things in historical, scientific, psychological, and sociological context.

    Consumers make up the vital organs of all marketplaces.
    It's their schedules, habits, interests, and daily activities that continue to drive economics, especially the global economy. Access to information is the coin of the global realm. That won't be found exclusively in the long tail or the short head of the beast.
    • Pauline Mitchell
    • Programme Development Officer
    The understanding of "Long Tail" offers the picture of actions or activities that have a very futuristic view; it offers as well a shady or closed view of the true or real picture for those who become caught in this or choose this route.

    The Long Tail affords the opportunity for success for many, and may result in failure for others. Overall I perceive that the Long Tail will have an impact on the consumer, producer, and intermediaries. This is so because more people are becoming aware of and being involved in the technological age and the so-called benefits that may or may not be derived from its use.

    As we continue to evolve as a people, new thinking, new concepts, and new ways to ensure survival by staying on top of the game, will always be emanating.
    • Frank
    • Member Services Assistant, LifeScience Alley
    Are we as a society increasingly moving away from having a shared culture to one that is extremely individual in nature?

    The ability to access so much diverse information makes it very easy to wall ourselves off from people who do not share our views, listen to the music we do, or dress the way we do. How do we continue to communicate with each other to share our views if things become so diverse that it is too difficult for any indivdual to maintain enough knowledge on a topic to discuss it?
    • Christopher Mahan
    • Software Architect
    The next shift? Every book, sound recording, and video ever made available on demand, anytime, anywhere. Along with live communcation with any person on the planet anytime, anywhere.

    What is the personal impact? The tail is richer in individual experiences. This leads to more individualized lives through the pursuit of better tailored and wider fields of interests.

    What's the impact for authors? Besides the obvious question of how to get paid for all that lies the harder one of what content to produce next.

    A musician does not compete against the latest hits. He competes against all hits in history, as well as all non-hits.

    There is a precedent. It's what happened in classical music, the kind that has to be played by a professional orchestra. A budding composer wants to make a ditty into a 30-minute symphony. He does not compete against other budding composers and the latest on the scene. He competes against Mozart, Beethoven, Tchaikovsky, Sibelius, Handel, Brahms, Mahler, and countless others. So unless he is a personal friend of Esa-Pekka Salonen or Roy Disney, the odds are fairly small that his work will be performed by the Los Angeles Philharmonic. This is why, in despair and anger at the unfairness of it all, he picks up a guitar at The Guitar Center and a Mac Pro to reach the masses through modern grunge on mp3s.

    It happened too with the printing press.

    It's happened with the internet. The very first line in the Lord of the Rings trilogy says it all: "The world is changed."
    • Sam Caruso
    • Senior Management, Attica Hydraulic Exchange
    I think the concept of the "Long Tail" only works in special, niche situations, where the product line is very extensive and product usage is numbered by decades of use. This fits the common examples of the Long Tail that I have read about, such as music catalogs. Our company is in a niche industry that defies the standard concepts of inventory and product sales. We carry extensive inventory to meet unique market needs, and our product lines fit some of the "Long Tail" concepts of low sales items, in total, equalling or surpassing the sales of the top 20 percent of product items in the product line. It works well in our specialized industry, but I do not know if it would work elsewhere. As with all new ideas, I think caution would be the rule when trying to apply the concepts in this book.
    • Jan Gullett
    • CEO, Tribe Networks, Inc.
    I would assert that microeconomics needs to assessed to develop insight here.

    If the growth in revenue and profit in the long tail is due to erosion of barriers to entry associated with traditional retailing, in favor of the Internet, for instance, how specifically will distribution production costs act with low volume and specialized products?

    For digital media and intellectual property that can be distributed directly via the Internet, distribution costs may in fact drop dramatically, making low volume products profitable at low revenue levels if the cost of production is low or sunk upfront, leading to greater product variety and profit in the long tail.

    The extent of this opportunity will still be determined by production costs, though. If the premium required in production costs of these unique items is high relative to mass production, the long tail opportunity will be reduced.

    In the case of high fixed-cost, upfront-investment production like software, music, and movies, the long tail may become a dumping ground for products that failed in previous high-barrier cost distribution attempts. Eventually production and investment decision makers should adjust to reflect their anticipated costs and the marginal addition in profit a long tail may yield, much like syndication has done to TV and movie production.

    Further, the distribution costs may remain high for a unique physical asset inventoried sparsely and delivered directly via UPS, for example, versus full truck load distribution to mass retailers, even if it is marketed and sold via the Internet. In this case, growth and profit in the long tail may be modest indeed.

    We currently have a plethora of user generated content joining the Internet which is essentialy donated by producers. With very low Internet costs of distribution, this long tail is likely to grow dramatically, and I predict will yield solid profits. The value in the chain will likely be captured by those who control the distribution through search or other means. One example of the profitablity of this long tail example is the recent Google ad deal with MySpace.

    If I were a software or media company, I would think long and hard about how I was going to compete with user generated content created as a hobby, for fun, or for personal self-expression and distributed via the Internet. In many respects, MySpace is a sequel to open source software.
    • Anonymous
    I believe we are just in the initial stages of the Long Tail. As it has been in the past, demand and supply would be controlled by each other, which in turn will determine the price of goods in this era. Potential long tail profits would be backed up and accelerated by intellectual property rights and certain laws. There may be several factors that might act as a hurdle to this acceleration. Examples are IP violations, cyber fraudulent activities, and other destructive activities: These would also have some controlling factor in determining price.
    • Ron Strieker
    • Senior Vice President, Consultant
    The premise of consumer behavioral change as described by Chris Anderson is premature and does not represent a paradigm shift from today's "touch and feel" consumer patterns.

    There are many reasons for this; however, one that is deeply engrained in present consumer patterns is the joy of shopping. It is truly a social phenomena that is clearly supported by the ever-growing mall expansions and superstores, such as Wal-Mart. As we all know, "let's go the mall" is a common phrase around many U.S. households. People love it; they are hard pressed to let it go.

    Another issue with digital buying is service. When I buy a tool at the local Home Depot and it breaks, I bring it back and get a new one. When the tool breaks that I purchased over the net, I'm stuck with the painful process of returns and delays. Again, not a satisfying consumer experience and an obstacle to the development of the Long Tail pattern.

    Mr. Anderson has hit on a very interesting notion and one that will continue to evolve over time; however, I feel its time is clearly in the distant future and is one that economists should continue to study and monitor.
    • S. Ramachander (Ram)
    • Independent Consultant
    The juxtaposition of two such ideas (abundance and poverty) is great for selling magazines and books, but in reality it is all a mixed bag. As it is, economics as taught is innocent of real life work in the marketplace that many of us have experienced (in my case for nearly 40 years). There are very few totally free, open, plentiful, perfect competition arenas. Nearly all firms are oligopolies. The greater problem is that in countries like India, very few people have been used to the idea of plenty, having lived in markets of partial state control where allocations and rationing ruled.

    The far more important revolutions come from innovations that break the cost and delivery barriers and reach out to those billions of people with per capita incomes of two dollars a day and less. Then we can really talk of having tackled the dismal science's most fundamental characteristics which are to deal with scarce resources and the "allocation" problem.
    • Edward Hare
    • Retired Planning Director, Fortune 300 Mfr.
    I think we're in danger of confusing businesses with a wide variety of hobbies or interests not pursued for profit by individuals. The rules of economics have not been repealed by digitization. Certainly, the Internet allows us to "find" items of uncertain value as they can be shared cheaply with little regard to perishability. But they are still influenced by time, place, and form utility for the consumer--the basic considerations we've long faced. It occurs to me that "costs" are simply being shifted and few understand the real cost of it all. Printing, binding, and distributing a book, for instance, has all the costs we've long recognized and has a protocol to account for. We see this reflected in the offering price. If I buy a book digitally it appears cheap or free, but it isn't. Like many people, I have a considerable investment in a PC, associated hardware, software, and ongoing Internet access fees. So the acquisition cost of that book rests largely on my shoulders, and I've never tried to calculate my total costs and how they should be "allocated" over my particular use of my PC. I'm willing to bet that this cost shifting is not fully understood by most people. But nothing is free. We're just not looking at "cost" properly in this new world.
    • Ogidan Friday
    • Systems Manager, Intersystem Computer, Kano
    These two ideas (scarcity and plenty) are magnificient for marketing products of any kind in any capacity. This is considered a reengineering activity in the sense of economic position. Based on the definition of economics, it is clear that abundance will definitely compliment scarcity in reality.
    • Anonymous
    My tendency is to think that the long tail does not provide people with a basic satisfaction of their sociability needs, since we are humans and have a need for social settings and situations. Also, so many senses are excluded from purchases through these means: looking, feeling, and old-fashioned quality control. I am curious to hear what others think.
    • Jim Smith
    • Executive Happiness Coach, 1LeaderCoach.com
    You pose the question: ..."is this limited to things digital?" What immediately came to mind for me is my Gen Y daughter's upcoming wedding--bride, groom, his family, her family are in four different cities, bridal party is spread across country, and wedding is in yet a different city. Without (yet) setting foot in the physical location of the wedding, my digital daughter has booked the hall (through their website, an easy one), booked a band (she sourced them through a blog), picked out a cake design by looking through digital archives, and selected the bridesmaids' dresses virtually.

    Her onsite visits to bridal shops were futile and somewhat depressing--these shops stock only what is trendy and most in-demand (and per my daughter, ugly!). Digital daughter researched warehouses and old designs, and found something that was "so last year!" in an expanded online portfolio. What she chose was not preferred (translate as: not stocked) by the retailer, and without the digital Long Tail she would never have found the dress she desired.

    See the comment above on the issue of fulfilling social needs. Shopping for the dress (bride and bridesmaid) is part of the socializing process of a wedding, I would think. Yet my whole notion of socializing is so different from my digital children's. Digital daughter accomplished all of the above in full communication with her bridal attendants--via IM, text messaging, sharing images online, building consensus through MySpace, etc. It WAS a social decision. I'm not sure 50-year-old executives like me will ever truly "get" how different the world looks and feels to someone who is in their early 20's! Those are the ones who brought the long tail to life!
    • Amar
    • MBA student, Babson College
    There was a time when many scientists sincerely believed that a perpetual motion machine could be created, and spent the best part of their lives trying to create one. When we say that the cost of maintaining and distributing anything digital is very low today, we forget to take into account the cost of searching and filtering due to the limitless availability of information. Due to the multitude of players involved in this process, it is difficult to quantify the indirect costs in the long tail. The huge profitabilty of Google should be ample evidence that search is a very profitable business today, but have I ever paid Google directly for using its search engines a thousand times every day?
    • L. Scott
    • Farm manager, SCJ
    The Long Tail does represent a significant shift, not only in paradigm but in all of economics as we know it, and it will not stop with digital goods and services. Before our eyes, the theories of Malthus and Adam Smith are being refuted. Chris Anderson has seen well.

    The Internet has become a instrument of equalisation and empowerment for the global consumer and producer. It has rendered many international trade agreements ineffective by removing the boundaries of the market or making them porous. I live in the Caribbean but I shop for clothes in Europe, get my news from BBC online, my entertainment from North America, and my software from South Africa; all from my desktop at a cost less than what local businesses provide. Examples of this Long Tail phenomenon include eBay, YouTube, and fast-growing Linux distributions.

    Increasingly, the consumer will benefit because the excess "inventory" of goods and services floating around on billions of Web sites will remain for the life of the goods and services in a vast global market. Suppliers will find it increasingly difficult to market, but there will not be the regulatory reduction in supply because of the massive groundswell of daily entrants into the market who are hopeful and sometimes ignorant of global marketplace conditions. Ford's planned cutback in vehicle production is a significant statement, but it only means that Ford will sell fewer cars; others will fill the surplus they withdrew from. Intermediaries will be cannibalised. Suppliers will seek to reduce costs by direct marketing. Example? Dell. Scarcity economics worked because there were boundaries and constraints, but this is no longer the case.

    This new theory does warrant an entire field of study because it is happening at a significant pace and is changing the structure and face of economics as we understand it currently.

    Global regulation of trade on the Internet is the only possibility of managing this Long Tail. Soon enough, governments will realise the significant upheaval globalisation is having on their economies and their power to manage their citizens, and will agree to draconian measures to regulate the market. The U.S. is attempting this with online gambiling.

    The implication for management education is a new demand for creativity and insight into how the market of the future will operate. This requires a reorientation and in some cases a total reform of some current ideologies in management education. Management education will have to look at collaboration more closely. Attention will have to be paid to leadership as a service and as a central hub rather than a hierarchic function. It will have to develop managers who see consumers as interpersonal relationships rather than just purchasers. Managing in communities will also have to be explored. Business-for-profit theories will have to be adjusted, equipping managers with skills to handle new approaches to business. Google and Yahoo give free e-mail to consumers but sell advertising to goods and service providers. How creative is that?

    Chris Anderson has seen rightly and the Long Tail will extend beyond virtual goods. It is a tsunami of change in economics, the waves are already on the shore, and whether or not we are prepared it will bring massive change to the way we conduct busineess and our lives.
    • Anjali Mahendra
    • Doctoral student, MIT
    This discussion and many comments above focus on changing, or intensifying demand in the "long tail." While demand and supply in the "long tail" are in my opinion more efficiently managed through the digital realm, what holds much significance is the way supply in the "short head" is changing. Someone argued with the example of Wal-Mart that brick-and-mortar stores will always remain important. But just look at the enormous changes Wal-Mart has brought into its inventory-management systems. To supply more efficiently within the "short head", more and more mainstream businesses--small and large--are using just-in-time and other intelligent production systems.

    I would argue that Anderson's three conditions for "long tail profits" are relevant much more so in the short head, and rather than driving demand down into the tail, are responses to ever-increasing demand in the short head.