March 22nd, 2008
Will the burden of the Long Tail kill Internet commerce?
I’ve been thinking about the economics of Long Tail businesses. Check my math:
Long Tail businesses are based on aggregating huge numbers of micro-markets. GOOG, Facebook, YouTube, and many other online businesses are Long Tail businesses–they make money from servicing micro-markets.
The content needed to attract traffic to micro-markets is free (harvested by servers scraping sites as GOOG does, or content is user generated and uploaded.)
The traffic to the content is free, users want to find something, or they send links to friends and family to content they’ve uploaded, such as pohtos and videos.
The costs of maintaining micro-markets is very low, data storage and servers are cheap and getting cheaper.
The number of micro-markets is increasing at a tremendous rate. The increase is greater than the increase in traffic.
The cost of storage and serving Long Tail micro-markets is is a micro-cost per market but it soon adds up. There will come a time when maintaining mountains of Long Tail markets will exceed the profits that can be generated by all those markets.
There will come a time when companies will have to dump unprofitable micro-markets. They will dump photos of grandma, they will dump videos of grandma. That will cause millions of broken links, the permalink culture of the Internet will be dead.
This will dry up user generated content. Why spend hours creating and uploading and linking to your content if it might not be there in a year or more? Will this kill a Long Tail business such as YouTube? It could…less new content means less reason for return visits.
For a company such as Amazon, why support a micro-market of people interested in an obscure episode of a TV program? Etc. The burden of supporting many hundreds of millions of micro-markets will have to be lifted because profits will suffer.
Culling the Long Tail will be necessary to preserve the profitability of Internet commerce. Otherwise the Long Tail will kill Internet commerce.
Here is a longer essay on this topic: Saturday Post: Choking On The Long Tail - The Unbearable Burden
Tom Foremski reports on the business and culture of Silicon Valley at the intersection of technology and media. He also writes at Silicon Valley Watcher. See his full profile and disclosure of his industry affiliations.
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| 03/23/08
