FAQ: Does the LT increase demand or just shift it?

Does the Long Tail grow the pie or simply slice it differently? In other words, as the number of available products grows many-fold with the infinite shelf space of virtual retailers, does it encourage people to buy more stuff or just less popular stuff? Several readers have written to ask about this, some arguing that at most the Long Tail will shift demand because consumers don’t have extra time to consume more content and they don’t have extra money to pay for it.

I've touched on this some in the economics of abundance discussion, in particular noting that scarcity of human attention is indeed a limiting factor in demand. But in general, the answer depends on the sector: some do seem to have huge opportunities for growth as their niches become widely available and some do not.

Although human attention and spending power are finite, you can get more for your time and money. Some forms of entertainment, such as music, are "non-rivalrous" for attention, which is to say you can consume them while you're doing something else. For instance, some explanations of the rise of average hours of TV watching in the 70s and 80s were because a generation had grown up used to television on in the background of their lives; as the novelty wore off it went from a rivalrous to a non-rivalrous medium, and thus we consumed more of it. 

Other media, such as text, can be consumed more efficiently and with higher quality through better pre-selection. Indeed, it’s quite extraordinary how much we’ve been able to increase our consumption bandwidth of information, speed-reading pages of Google search results and custom RSS feeds. I may not read any more words than I once did, but they're more likely to be meaningful to me, thanks to much better filters (better at suiting my own interests than, say, the editors of the New York Times) pre-selecting what I do read. So because the words are more relevant, my meaningful bandwidth has increased; I have, in a sense, compressed human attention.

But once you combine the scarcity of disposable income with the scarcity of time, some non-rivalrous media may become rivalrous. The reason people have the television on in the background is because it doesn't cost them anything to do so. But if that were pay-per-view video, you can bet it would suddenly have become the center of their attention. This then favors all-you-can eat subscription services in the Long Tail stakes. You're likely to consume more if it doesn't cost you more to do so.

So, bottom line: human attention is more expandable than money. The primary effect of the Long Tail is to shift our taste towards niches, but to the extent we're more satisfied by what we're finding, we may well consume more of it. We just won't necessarily pay a lot more for the privilege. I hope that doesn't screw up anyone's business model.

Comments

[twdanny]

It just occured to me that maybe a better question is not about slicing the existing market vs. increasing the demand, but rather which comes first between the increased demand and the long tail phenomenon, i.e. which causes the other to happen? and just like your answer, it seems like it depends.

Sometimes, LT slices the market in percentage only "because it's growing", meaning LT doesn't really slice a static market. In other words, there's already a growing demand for the entire market and LT happens to be seen in much of it, essentially "slicing it". In this case, LT is only a natural consequence of the growth. On the other hand, we've seen many cases where LT is actually the driving force of the demand expansion, in the area of media and multimedia contents, in particular.

Most of the time, though, I feel like it's more of a chicken-and-egg problem: there's a demand growth which works in favor of LT and because of LT, more users/consumers like it and the business naturally tries to catch up with the trend, only increasing the demand even more.

[Ben Hyde]

Another way to frame this question: As the curve's shape changes does how does the volume under the curve change. What's the volume a measure of? Attention, revenue?

One way the curve changes is that the 'industry' begins to reach further to the right. That the definition of the industry changes. So that things that previously were out of scope come into scope and people start putting them onto their balance sheets. One hypothesis is that previously unmonitized attention becomes revenue. Very similar to the advice given disruptive businesses to competing with "non-consumption." The hours of attention captured by your white ear'd new yorkers are an example of this.

One way the curve shifts is that it moves up, everybody wins; and as it moves up segments to the right become viable places for business models. This can create a situation where the elite vendors feel they are losing, even if their revenue is still rising, because their market share is falling. And it's certainly true that as market shares shifts out onto the long tail the structure of the market changes. Particularly in how innovation emerges. And that makes the elite vendors position risky, until they figure out how to capture that innovation.

If the curve has constant volume under it, and technology enables a reach further into the long tail, they clearly the volume captured by the elite vendors will fall; but I think the scenarios above are more plausible.

[Chris Anderson]

Ben,

Two quick responses:

1) In general the Y axis and by extension the area under the curve represents sales (revenue) but in the case of flat-fee subscription services it's plays/watches/reads.

2) You wrote "One hypothesis is that previously monitized attention becomes revenue." I presume you meant *un*monitized attention, yes?

[Alex Rowland]

I think the area under the curve is clearly attention, or total time dedicated to consumption (whether passive or active). As Chris alluded, attention is a more fungible commodity than revenue. The fact is a company like Netflix provided a mechanism for gaining access to the long tail without requiring substantial additional investment by the consumer (if anything, it reduced the real and “psychic costs” of the transaction - as described by Kevin Laws over at www.Ventureblog.com). I think this is essential to driving early adoption of niche content. LT content must be highly relevant, easy to find and consume, and inexpensive to acquire (likely free). Due to consumer inertia, the long tail must minimize consumer investment, both monetary and non-monetary, in order to claw attention away from other activities (including the consumption of more popular content.)

Over time I believe the financial metrics can change such that providers of LT content will eventually be able to charge a premium for this content, but that’s a ways in the future. Unfortunately the audience will have to be aggregated long before the real revenue starts to flow (although permission-based advertising can bridge the gap to a certain extent.)

However, I do also feel that the total volume under the curve will grow quite dramatically over the next decade to accommodate this new content before settling down to a more moderate level. We are not only going to consume more content because it will be more relevant; we are also going to consume it in more places. I don’t know about you guys, but a far greater percentage of my life is now spent in front of a screen (both fixed and mobile) than 5 or 10 years ago. I’m pretty sure I’m not the exception.

[Ben Hyde]

Chris, thanks.
1 - i guess then it's revenue in one case and more like hours of attention in the other; though once your on an unlimited subscription - well you may not read all those books you bring home from the library.

2. Right, feel free to fix it if you want.

[Grant Henninger]

Indeed, it does put a kink my my business model. However, I'm early enough in the game where I can look at it and think through the problem to a solution before locking myself in to my current model. Thanks for pointing it out.

[Patrick]

I bookmarked your blog when I saw your article "The Grokster Case's Silent Majority" in the LA Times. I had just written about the same subject and wanted to offer comment on your argument. I finally visited today and though I haven't found the LA Times article, I have found a number of other posts, including this one, that surprised and intrigued me with the parallels in our work: you on the way to writing a book, me on the way to building a company. Perhaps what is most fascinating is the semantic convergence: "niche", "economics of abundance", "scarcity of attention". Obviously, I believe that these ideas provide a business opportunity, but after a recent lecture I gave at MIT I'm more confident that these trends in the music industry/information economy are indicative of a larger political/economic shift in the making.

Oh, the comment I wished to make on your LA Times article:

There are many better ways to support "the new creative" class than a technology that is primarily a forum for consuming material from "the old creative class". The legal merits of P2P are solid but any moral/ethical defense is dubious. For now, the court should uphold the MGM vs. Betamax precedent. However as recently developed technologies like the GarageBand.com/RSS/iPodder stack and Snocap mature, the court will be faced with a novel twist to the precedent: competing (perhaps superior) technology that supports the legitimate uses without enabling the illegitimate ones.

[Patrick]

correction to previous comment: "MGM vs. Betamax precedent" should have been "Movies vs. Betamax precedent". I would make an awful judicial clerk.