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November, 2004

The Long Tail of Digital Life

It's been a couple days since my last posting, which I apologize for. I no longer work at American Demographics and have been kind of busy in my job search. I was in Chicago for two days this week and have had all sorts of phone calls and interviews in the last few days. I learned a ton at American Demographics and made some fantastic contacts and I wouldn't trade the experience for the world. However, it's incredible to think that I could be doing something completely different come next month. My new opportunities are all unique and offer me chances to use all different kinds of skills that I think I possess. In college I studied media, culture and postmodernism. Essentially my interest was in understanding how media and culture interact and why people think the way they think. As long as what I do next allows me the opportunity to think about those kinds of issues then I think it's a good fit. Recently my biggest interest has been how digital technology is shaping the world we live in and the way people think and feel. This also needs to be an aspect of my next job. I am not interested in only talking about analog media because I think in the coming years those media will become increasingly irrelevant in our lives. The possibilities of digital are literally endless as opposed to the limited analog spectrum.

Everything is changing in our digital world of endless possibilities. Gone are the traditional rules associated with analog media and what Chris Anderson refers to as "hit-driven economics" in his Wired article "The Long Tail".

Hit-driven economics is a creation of an age without enough room to carry everything for everybody. Not enough shelf space for all the CDs, DVDs, and games produced. Not enough screens to show all the available movies. Not enough channels to broadcast all the TV programs, not enough radio waves to play all the music created, and not enough hours in the day to squeeze everything out through either of those sets of slots.
There are profound differences associated with the endless opportunities available to us in nearly every part of our lives. No matter what your interest, there's someone on the internet talking about it (most likely there's even a blog about it). Successful internet businesses have taken that model of near-unlimited availability and made huge impacts. No matter what book you want to read, it's only click away thanks to Amazon. No matter what movie you want to rent, it's available on NetFlix. Their catalogs are nearly endless. The world is literally at our fingertips and it's changing traditional economic rules that once only gave shelf space to those titles that 100 people wanted, rather than just one. Because hard drive space is so cheap, iTunes can literally have a song just for you. A meat-space music store can't afford to waste shelf space on a CD that only one person is interested in buying. When every CD is just a series of ones and zeroes, however, who cares if only two people buy it? There is no cost associated with leaving the music up for others to find and buy. In fact, when all those little sales are aggregated, these companies are finding that they're making a pretty penny. Something like shelf space is an analog-world limitation that drove businesses to let hits drive their business plan.

Businesses needed to understand that this is a "hit-driven" economy to survive. Using this model, at least 80 percent of the entertainment industry's output will not be a hit. This is known as the 80-20 rule and Anderson explains it like this in "The Long Tail": "Only 20 percent of major studio films will be hits. Same for TV shows, games, and mass-market books - 20 percent all. The odds are even worse for major-label CDs, where fewer than 10 percent are profitable, according to the Recording Industry Association of America." However, in a digital world where space has virtually no cost, hits are not the only things that make money. While there's no doubt that there's still an elite 20 percent, the other 80 percent is selling when given the chance. Anderson calls the other 80 percent misses:

With no shelf space to pay for and, in the case of purely digital services like iTunes, no manufacturing costs and hardly any distribution fees, a miss sold is just another sale, with the same margins as a hit. A hit and a miss are on equal economic footing, both just entries in a database called up on demand, both equally worthy of being carried. Suddenly, popularity no longer has a monopoly on profitability.
This other 80 percent is what Anderson refers to as "the long tail." Rhapsody is a subscription-based music service with over 735,000 songs. Of those three-quarters of a million tracks, nearly every one is played at least once a month.
Chart Rhapsody's monthly statistics and you get a "power law" demand curve that looks much like any record store's, with huge appeal for the top tracks, tailing off quickly for less popular ones. But a really interesting thing happens once you dig below the top 40,000 tracks, which is about the amount of the fluid inventory (the albums carried that will eventually be sold) of the average real-world record store. Here, the Wal-Marts of the world go to zero - either they don't carry any more CDs, or the few potential local takers for such fringy fare never find it or never even enter the store.

The Rhapsody demand, however, keeps going. Not only is every one of Rhapsody's top 100,000 tracks streamed at least once each month, the same is true for its top 200,000, top 300,000, and top 400,000. As fast as Rhapsody adds tracks to its library, those songs find an audience, even if it's just a few people a month, somewhere in the country.

This is the Long Tail.

This is a profound change in the way we understand and interact with our world. Just think of digital cameras, for example. While you once might not have taken a picture of that sign you thought was funny on the street because you didn't want to waste your film, it's no longer something you worry about. There's little doubt that the majority of your pictures still come from parties or trips where the old film camera would have been used anyway. But look at your pictures and you'll notice that the vast majority are of little random events that start to add up. With space no longer an issue you're capturing more of your life. When you eliminate analog space restraints whole new models emerge. Just look at the explosion of blogging. As people are finally beginning to see that the internet is a two-way medium they're doing more than just reading the New York Times online. By publishing to the web they're creating millions of niche sites. Now everyone has a place to go and communicate. There are a few largely read blogs, but the rest of the blogosphere, which Technorati puts at 4.7 million is made up of little blogs. Read by a few dozen or hundred people a day. What these blogs are providing is the other 80 percent that you're not getting from the mainstream news. Because you can find a blog focused on nearly anything you can get the information that newspapers and magazines can't afford to give space to. Do you think that the New York Times technology section could possibly cover every new gadget in the same way Engadget or Gizmodo can? The internet got closer with sites like CNet, but even they have too wide a focus and too traditional a model to capture the entire segment in the same way a blog can.

These kinds of patterns are visible all over the digital world. But just noticing them isn't enough. Since I'm a strong believer in McLuhan, it's not enough to watch (or use) the internet, but you must understand the people who watch (or use) the internet. What kind of effects does this shift have on their non-digital life? How does it affect friendships when everyone now has the ability, thanks to IM and email, to communicate with those other 80 percent of people they would have lost touch with? What kind of other media will people consume when they lock in on their interests online and get their personal fill of information? Now that we've got this space that exists for us, how will we interact with a government that claims to exist for us? The internet is helping us understand the power of the individual. That's what happened on Howard Dean's campaign. It wasn't the internet that made it a success; it was what the internet taught those involved. It showed millions of people that they can be involved and most likely changed the way politics will work forever. The Dean campaign used the internet to reach the portion of the electorate that hadn't been reached. They figured out that instead of getting a few $2,000 checks from the "hits," that you get a bunch of $20 checks from the "misses."

These trends will only continue. As people continue to be empowered by the internet, the difference between success and failure for many companies is going to be whether they understand the long tail. We're already seeing the effects on bookstores and CD shops that can't compete with the internet's unlimited selection. But there's more to it than just that. The internet is encouraging more independent artists and producers to come out of the woodwork. Thanks to the long tail, the most obscure band can be listed next to U2 and sell. Entrepreneurs can start their own business online without having to fork out the money for retail or office space. These are the places that the long tail really excites me. We have been taught in the past that only 20 percent of ideas will be hits and therefore many people suppress ideas that could be brilliant because of the fear of failure. This knowledge was internalized whether we wish to admit or not. Those who were most successful in the past tending to be able to take risks and look beyond this traditional rule. However, the definitions of success and failure are changing by the minute as the internet teaches people there's always someone else out there who shares your interests.

Sadly, I expect that many institutions will try to suppress this tail out of fear. We consistently hear from the mainstream media that the internet can't be trusted. That it doesn't live by the same ethical standards. Or we see the RIAA suing file sharers, even though there's no proof that swapping songs hurts the music business. Or the government, imposing moral guidelines on television and radio to flex its muscle and show the country that it still runs the place. Now, take a look at the revolutions that are going on to fight these institutions. In response to the mainstream media the blogosphere is exploding as a source of breaking news and commentary as well as a check and balance to their coverage (e.g., Rathergate). In response to the RIAA people are still sharing songs and Wired magazine is putting out a CD of songs with Creative Commons licenses by major artists (Beastie Boys, David Byrne, Spoon, etc.). In response to the government censorship, satellite radio is making a big push to be the new home of radio without the FCC interference. By signing Howard Stern, Sirius signaled to the world that this will be a space where people can speak freely.

This is a battle between old and new, between analog and digital. In the end, I have little doubt that digital will win out. The day will come when people embrace the new rules of the digital world and that suppressed 80 percent begins to emerge. I'm excited for that day.

November 20, 2004
Noah Brier | Thanks for reading. | Don't fake the funk on a nasty dunk.