The ArtLab

Following up on our previous post about the Long Tail, it seems to me there is another problem with the Long Tail business model as it is often applied to the internet. Sustainable business models are usually...

1. Specialization - businesses sacrifice overall sales volume, but they make it up in per-unit profit. For instance, a jewelry store can sell only a few items a day, but the higher margins allow them to offer very specialized products and services which consumers seem to value.
2. Commoditization - businesses sacrifice per-unit profit, but make it up in sales volume. For instance, a grocery store can make only a tiny profit on each item sold, but the volume of product they can acquire and display allows them to offer the low prices and selection that consumers seem to value.

In both cases, the business models marry the various interests in a way that benefits producers, distributors and consumers. Alignment of interests = sustainability.

The "long tail" strategy assumes that you can sacrifice per-unit profit and sales volume on any given niche of products, so long as you can aggregate a little volume in a lot of niches.

There's certainly a lot of merit to the idea, but it falls apart if the incentives are not aligned for everybody. Wal-Mart and Amazon reduce the distribution costs, creating a new and/or bigger market for profitable production. But Wal-Mart and Amazon have to get voluntary cooperation from the people whose products they are selling. Their distribution model only works if it works for the creators. Likewise, it benefits Google, et al, to be a distributor for 1,000,000 different niches, because - even if consumers only buy 5 items in each niche - Google makes a profit based on aggregate sales volume.

What if one side of the producer/distributor/consumer triangle does not profit? What if the Long Tail model benefits only consumers and distributors, but not creators? In this case, 2 out of 3 actually is bad. Imagine if Wal-Mart didn't have to pay their suppliers, or even ask permission to stock their product. That would certainly lower prices for consumers and make life easier for Wal-Mart, but it's hard to see how this is fair for the suppliers, and how you would continue to get high-quality products. The distributors would control monetization, and creators would be unable to negotiate over their worth.

Lower quality content will drive out the higher quality content, and the best producers will be unable to compete at the commodity prices established by the distributors.

Wal-Mart can survive because, even if they reduce the potential margins, they still produce a profit for their suppliers. They would not survive if their business model involved most of their suppliers losing money. Ultimately, access to buy and sell 5 products in each of a million different niches is a good deal for the consumer and the distributor, but it's absolutely necessary that the producers have a say in the pricing and availability of their product, as well.

The lesson here is that incentives have to work for everybody. Content on the internet can be widely available without destroying the property rights of the creators; consumers can get easy access to content without relying upon distribution models that appropriate creative work without fair compensation.

We can all benefit here when we align those incentives in every direction. When that happens, we see much better products and a much more sustainable, creative internet.