The Long Tail Starts Wagging

There's a new book out called "The Long Tail : Why the Future of Business Is Selling Less of More" by Chris Anderson. (It is a longer version of an article he wrote in 2004 for Wired magazine.) The main premise is that, when consumers have the opportunity for virtually unbridled choice, they choose to buy very specialized items that may only interest them. The author drew this conclusion by looking at sales data from places like Amazon and Rhapsody (Real Networks' online music service), where over half of all sales come from items well down the popularity list (hence the name of the book -- these items are well down in the "long tail" of the distribution.) It should be pointed out that these items are far more profitable than the mass-market items up toward the top of the list, because these niche items have no marketing nor overhead. The conclusion of the book is (in my words) that we're moving to an economy of niche producers selling to niche consumers. It's like the Middle Ages with broadband. Back then, the village had a niche-type ecosystem, with specialized professionals selling to villagers who had specialized needs. They were, of necessity, geographically constrained in their distribution network. The Internet (and FedEx/UPS/DHL/etc.) obliterates geographical constraints. So, what underlying phenomenon allows the eBays, Amazons, iTunes and myriad other outlets to empower small purveyors of niche items to succeed? I think it is the fact that the internet can provide enough information about a product or service that a consumer can purchase without seeing the whole product in person. A page of a book, or a clip of music. Or a description and photo of the product and the ability to email the vendor with questions. The Web enables producers to be discovered via search (as long as they are in the proper "marketplace" -- like the village bazaars of old). The ramifications for the distribution industry (which is really what the retail business is -- a final depot for goods before they reach their ultimate user) are profound, eBay, Amazon and iTunes are all aggregators -- perhaps eBay is the best example. There are hundreds of thousands of "stores" on eBay that sell pretty much anything. Pretty much everything, actually! Obviously, even the largest Giga*Mart can only stock a very small fraction of what is available, so your choice is limited to what they think they can sell the most of -- not necessarily what you actually want. If this "Long Tail" trend becomes the norm, how are companies that specialize in mass production and blockbuster distribution going to grow and generate returns on stockholder investment? It will be very interesting to see the money move to companies that figure this out.