The new economics of the web are turning traditional business models upside down. In a 2004 article for Wired, Chris Anderson explained that the Long Tail concept completely overturns the old model of music marketing and distribution. The idea in a nutshell, is that instead of making all the money on a few megahits, and since digital distribution costs virtually nothing, the need to limit cash flow to just those megahits is precluded. Yes, you can make money on the megahits….but there’s also a huge market for niche music. Instead of one album selling a million, you can sell a million people one album each. And/or both. Anderson also provided a great example of a long out of print book that got a new publishing life after it was recommended on Amazon.com. The “Long Tail” model was at work. The beauty of this model is that it has the potential of getting us out of the lowest common denominator choices for music and books.
Anderson explored the concept of a digital economy where most things are free in a later (2008) article in Wired. He explained that the rapidly decreasing cost of providing information and products in the digital age is the major factor in this phenomenon. He used an interesting turn of phrase and explained that in this new economy, things may not necessarily be “too cheap to meter,” but they are definitely “too cheap to matter.” He also explains that the new economy is based attention and reputation. The botton line is that someone pays…a third party makes money off the free interaction of two other parties. Anderson also coins a new economic vocabulary.
These new concepts are changing the way we define economics. The concept of scale is likewise changing. While there will continue to be mega- companies such as Google and Facebook, increasingly what we will see will be niche oriented businesses focussed on extremely narrow consumer segments. And while there will continue to be mass marketing approaches to advertising, I believe that what we will see in the coming years is a re-calibration of ad budgets away from huge mass market brand campaigns to resources being re-directed to increasingly narrow target market campaigns.
