This is a drill-down on some issues glossed over in the short preceding FAQ on whether the Long Tail grows demand or just shifts it. One of the aims of my quantitative work with the large data sets now available from online retailers is to answer the question statistically; in the meantime, here's the academic background.
More variety does not, by itself, always encourage more demand. Indeed, as some studies have shown, people can be overwhelmed by too much choice and actually buy less, as in the 24 kinds of jam example cited by Barry Schwartz in his "Tyranny of Choice" arguments. Amazon has found that one solution to this is to add information about
the products, from something as simply as "rank by bestselling" to more
detailed customer reviews and ratings, which can cut through that
confusion and encourage consumers to buy with confidence. (See my
previous post on why variety is not enough.)
But anecdotally, we all know of instances where increased variety
and better ways to find things encourages people to consume more. I
know, for instance, that Napster reawakened my interest in exploring new
music, a passion that continues more easily (and legally) with
Rhapsody, which has probably doubled my music spending. I also know I
buy more books (and practically everything else) because of Amazon's
selection. And my family certainly watches more DVD thanks to Netflix.
The army of white-earbud-wearing New Yorkers are surely listening to more music than they were before the iPod, extending the effect created by the Walkman a generation before. But are they buying more music, too? The hard numbers are, unfortunately, inconclusive. As of February, Apple had sold 10m iPods and 250m tracks on iTunes, for an average of 25 tracks sold per iPod, or less than the price of two CDs over the nearly two years the iTunes music store had been in business. That is not impressive.
Perhaps they're just buying CDs and ripping them. Or just downloading more, but not paying for it. Studies of the industry at large are sadly inconclusive. The RIAA says its members are shipping fewer CDs, but Soundscan says they're selling more of those they do ship (see Kensei for more on this mess).
It's not just music that's in a muddle. In books, overall book sale growth has slowed over the last decade, even as Amazon (which accounts for about 10% of the market) rose. Meanwhile, total entertainment spending has remained pretty constant between 5-6% of the average Americans' spending for decades, despite an explosive rise in entertainment options.
Indeed, although there is a general presumption that more availability leads to more sales, there is precious little statistical work that proves this is the case, especially for large numbers of products. The small-number consumer psychology work, however, does suggest that when the choice is meaningful, more is better--you're simply more likely to find what you want, or at least something that strikes your fancy.
There are a few studies that look at examples such as the effect of increasing the number of yogurt flavors on offer by one or two, which does help sales. One of the better-known bits of "more is better" research is Brown, Read and Summers' 2002 paper "The Lure of Choice", which conducted bank, nightclub and casino experiments to show that consumers picked options more often when they were accompanied by other choices.
Likewise, Malcolm Gladwell has highlighted the case study of the would-be spaghetti sauce competitors who learned not to out-Prego Prego in making the platonic ideal sauce, but to instead celebrate diversity--chunky, homemade, spicy--and expand the market through multiple niche sauces. In part because of this introduction of more variety, which pushed buttons consumers didn't even know they had, spaghetti sauce is now one of the top six growth categories in the dressing and sauce market.
But all this says is that some choice is better than none. What
we've got in the Amazons, Netflixes, and iTunes of the world is another
phenomena entirely: lots of choice turning into near-infinite choice. It is not just three hits going to 30 hits, but 300 hits going to 300,000 niches. This is a new effect, just a few years old, and I'm working with those companies to quantify it. I'm
betting that the effect of massive increases in available variety
coupled with good ways to find stuff is to not only shift demand more
toward niches but also to grow it, following the greater-satisfaction
principle. But the data will have to speak for itself.