Over the past few weeks there has been a flurry of reappraisals of the Long Tail, most of which center around the question of whether it creates bigger blockbusters or smaller ones (more concentrated markets or less concentrated ones).
My predictions have always been that massive increase in variety plus massive improvements in "filters" (tools to make it easier to find new stuff that's right for you) would tend to reduce the blockbuster effect and redistribute attention over a wider range. And, indeed, that's what the data I cited in my book showed, where online markets of books, DVDs and music saw between 20% and 40% of the demand shift to products not available in traditional bricks and mortar stores.
But there were clearly exceptions to this. One of the main ones was the irony that there was a very short Head of Long Tail aggregators: Amazon, iTunes, Google and their kin dominate their markets to a blockbuster-like degree.
I blamed this on a still-young market and assumed that even aggregators would fall victim to the flight from one-size-fits-all someday. But new research from McKinsey (free registration req'd) suggests that this sort of radical inequality is increasingly the norm as markets get more networked.
The past decade has seen the rise of many “mega-institutions”—companies of unprecedented scale and scope—that have steadily pulled away from their smaller competitors. What has received less attention is the striking degree of inequality in the size and performance of even the mega-institutions themselves. Plotting the distribution of net income among the global top 150 corporations in 2005, for example, doesn’t yield a common bell curve, which would imply a relatively even spread of values around a mean. The result instead is a “power curve,” which, unlike normal distributions, implies that most companies are below average.
Here's an example: the increasing gap between the top two or three financial services companies and everyone else since 1994 (the recent collapse of many financial firms and the roll-ups that have led to three "megabanks" will only accentuate this):
And it's not just companies. The Long Tail--the powerlaw created by network effects--may be creating super-celebrity, too. Here's what Google CEO Eric Schmidt (pictured above) says about the Long Tail and blockbusters (I've transcribed his interview with McKinsey):
I would like to tell you that the Internet has made such a level playing field that the Long Tail is absolutely the place to be, that there’s so much differentiation, so much diversity, so many new voices. I’d love to tell you that that’s in fact how it really works. Unfortunately, it’s not. What really happens is that we follow what’s called a powerlaw. A powerlaw has the property that a small number of things are very highly concentrated and most things have relatively little volume. And virtually all of these new network markets follow what’s called Zipfs’s law, or a powerlaw.
It means unfortunately for our political point of view, although the tail is very interesting and we enable it, the vast majority of the revenue remains in the head. And this a lesson that businesses have to learn. While you can have a long tail strategy, you better have a head, because that’s where all the revenue is.
And in fact it’s probable that the Internet will lead to larger blockbusters, and more more concentration of brands, which doesn’t make sense to most people, because it’s a larger distribution medium and when you get everybody together they still want to have one superstar. It’s a bigger superstar. It’s no longer a US superstar, it’s a global superstar. Global celebrities, global scandals, global politicians. And just to be clear, it’s a 90/10 model. We love the long tail, but we make most of our money in the head, just because of the math of the powerlaw. But you need both. You need the head and the tail to make the model work.
Since Google is the canonical Long Tail company, I should probably have a good response to this. But the truth is that he's no doubt right. Powerlaws do imply wildly unequal distributions of money, power, celebrity and everything else. But this is nothing new. The rich get richer, fame snowballs, and so on. Vilfredo Pareto spotted this in 1906 in Italian wealth distribution, which is why a powerlaw is more commonly known as a "Pareto distribution."
So how to square this with my own prediction of more widely distributed markets? Three ways:
- There's a big difference between a highly concentrated market with a small number of players and one with a huge number of players. If there are ten stores in the world, having one of them with 70% market share smacks of a monopoly. If there are ten million stores, it doesn't. Amazon may be by far the largest e-tailer, but there are hundreds of thousand of other, smaller specialists. Google may be the largest online advertising company, but there are again many thousands in its wake. The Tail is Long. As Schmidt notes, these countless specialists are essential to a well-functioning market, but it's true that few of them are getting rich at it.
- The consequence of the above is that it's very hard to measure the entire market. Schmidt rightly notes that network effects on a global scale mean that Paris Hilton is more famous today, in terms of the number of people who have heard of her, than she would have been a half-century ago. But at the same time, there are millions of microcelebrities (of which I am one, I guess) who are also more more famous than they would have been a half-century ago, for the same reasons. What is the total market of celebrity, and what is Paris Hilton's share? We have no idea--it's practically impossible to measure, to say nothing of how it has changed over the years. But I would bet that the aggregate market for microcelebrity (think: Facebook) is gaining share on traditional celebrity.
- Finally, it's not all about money. As I've said many times, both in the book and elsewhere, most of the rewards in the Tail are non-monetary: a larger audience for producers, and more choice for consumers. Sometimes those can lead to economic benefits, but often they can't. Today, a decade into the arrival of unlimited variety online, the Long Tail is still more of a cultural force than an economic one.
I'll end by conceding a point: It's hard to make money in the Tail. As Schmidt notes, it's also hard to make money if you don't have a Tail (to satisfy minority taste, which improves the consumer experience), but the revenues are disproportionately in the Head. Perhaps that will never change, but what will change is our definition of Head. Once that was choice counted in tens or hundreds of items. Now, especially in Google's world, it's counted in tens or hundreds of thousands. Powerlaws may indeed create bigger fish, but the Long Tail is all about the bigger pond.