The Long Tail

Our culture is a massive popularity contest. We are consumed by hits—making them, choosing them, talking about them, and following their rise and fall. We define our age by our celebrities and mass-market products—they are the connective tissue of our common experience. The star-making system that Hollywood began decades ago has now spun out into every corner of commerce, from shoes to chefs. Our media is obsessed with what’s hot and what’s not. Hits, in short, rule.

Yet look a little closer and you’ll see that this picture, which first emerged with the postwar broadcast era of radio and television, is now starting to tatter at the edges. Hits are starting to “rule less.” Number one is still number one, but the sales that go with that are not what they once were. Where are those fickle consumers going instead? No single place. They are scattered to the winds as markets fragment into countless niches.

The hits now compete with an infinite number of niche markets, and consumers are increasingly favoring the one with the most choice. The era of one-size-fits-all is ending, and in its place is something new, a market of multitudes. Increasingly, the mass market is turning into a mass of niches.

The mass of niches has always existed, but as the cost of reaching it falls—consumers finding niche products, and niche products finding consumers—it’s suddenly becoming a cultural and economic force to be reckoned with. The new niche market is not replacing the traditional market of hits, just sharing the stage with it for the first time. For a century we have winnowed out all but the best-sellers to make the most efficient use of costly shelf space, screens, channels, and attention. Now, in a new era of networked consumers and digital everything, the economics of such distribution are changing radically as the Internet absorbs each industry it touches, becoming store, theater, and broadcaster at a fraction of the traditional cost.

Many of these kinds of products have always been there, just not visible or easy to find. They are the movies that didn’t make it to your local theater, the music not played on the local rock radio station, the sports equipment not sold at Wal-Mart. Now they’re available, via Netflix, Spotify, Amazon, or just some random place Google turned up. The invisible market has turned visible.

Other niche products are new, created by an emerging industry at the intersection between the commercial and noncommercial worlds, where it’s hard to tell when the professionals leave off and the amateurs take over. This is the world of bloggers, video-makers, and garage bands, all suddenly able to find an audience thanks to those same enviable economics of distribution.

In a world of almost zero packaging cost and instant access to almost all content in this format, consumers exhibit consistent behavior: they look at almost everything. With unlimited supply, our assumptions about the relative roles of hits and niches were all wrong. Scarcity requires hits—if there are only a few slots on the shelves or the airwaves, it’s only sensible to fill them with the titles that will sell best. And if that’s all that’s available, that’s all people will buy. But what if there are infinite slots? Maybe hits are the wrong way to look at the business. There are, after all, a lot more non-hits than hits, and now both are equally available. What if the non-hits—from healthy niche product to outright misses—all together added up to a market as big as, if not bigger than, the hits themselves? The answer to that is clear: it would radically transform some of the largest markets in the world.

When we think about traditional retail, we think about what’s going to sell a lot. You’re not much interested in the occasional sale, because in traditional retail a CD that sells only one unit a quarter consumes exactly the same half-inch of shelf space as a CD that sells 1,000 units a quarter. There’s a value to that space—rent, overhead, staffing costs, etc.—that has to be paid back by a certain number of inventory turns per month. However, when that space doesn’t cost anything, suddenly you can look at those infrequent sellers again, and they begin to have value. This was the insight that led to Amazon, Netflix, and many others. All of them realized that where the economics of traditional retail ran out of steam, the economics of online retail kept going. The non-hits were still only selling in small numbers, but there were so many of them that in aggregate they added up to a big business.

New efficiencies in distribution, manufacturing, and marketing were changing the definition of what was commercially viable across the board. The best way to describe these forces is that they are turning unprofitable customers, products, and markets into profitable ones. Seen broadly, it’s clear that the story of the Long Tail is really about the economics of abundance—what happens when the bottlenecks that stand between supply and demand in our culture start to disappear and everything becomes available to everyone.

When you think about it, most successful Internet businesses are capitalizing on the Long Tail in one way or another. Google, for instance, makes most of its money not from huge corporate advertisers, but from small ones (the Long Tail of advertising). eBay is mostly “Tail” as well—niched products from collector cars to tricked-out golf clubs. By overcoming the limitations of geography and scale, companies like these have not only expanded existing markets, but more important, they’ve also discovered entirely new ones. Moreover, in each case those new markets that lie outside the reach of the physical retailer have proven to be far bigger than anyone expected—and they’re only getting bigger.

In fact, as these companies offered more and more (simply because they could), they found that demand actually followed supply. The act of vastly increasing choice seemed to unlock demand for that choice. These infinite shelf-space businesses have effectively learned a lesson in new math: A very, very bit number (the products in the Tail) multiplied by a relatively small number (the sales of each) is still equal to a very, very big number. And, again, that very, very big number is only getting bigger.

What’s more, these millions of fringe sales are an efficient, cost-effective business. With no shelf space to pay for—and in the case of purely digital services like iTunes, with no manufacturing costs and hardly any distribution fees—a niche product sold is just another sale, with the same (or better) margins as a hit. For the first time in history, hits and niches 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.

When you can dramatically lower the costs of connecting supply and demand, it changes not just the numbers, but the entire nature of the market. This is not just a quantitative change, but a qualitative one, too. Bringing niches within reach reveals latent demand for non-commercial content. Then, as demand shifts toward the niches, the economics of providing them improve further, and so on, creating a positive feedback loop that will transform entire industries—and the culture—for decades to come.

We are now a nation of niches. There are still blockbuster movies, hit TV shows, and top-selling CDs, but fewer events that capture the communal pop culture spirit. The action is elsewhere, with the country watching cable shows or reading blogs that play to a specific audience. We’re increasingly forming our own tribes, groups bound together more by affinity and shared interests than by default broadcast schedules. We are turning from a mass market back into a niche nation, defined now not by our geography but by our interests.

While the Long Tail currently manifests itself largely as an Internet phenomenon, its origins predate Amazon and eBay, and even the Web. Instead, it is the culmination of a string of business innovations that date back more than a century—advancements in the way we make, find, distribute, and sell goods. Think about all the non-Internet elements that enable, for instance, an Amazon purchase: FedEx, standard ISBN numbers, credit cards, relational databases, even bar codes. It took decades for these innovations to emerge and evolve. What the Internet has done is allow businesses to weave together those types of improvements in a way that amplifies their power and extends their reach. In other words, the Web simply unified the elements of a supply-chain revolution that had been brewing for decades.

A Short History of the Long Tail

The man who first showed the American consumer just what all of this could mean was a railway agent in North Redwood, Minnesota. His name was Richard Sears. In 1886, a box of watches was mistakenly sent from a Chicago jeweler to a local dealer in North Redwood who didn’t want them. Buying them up for himself, Sears sold the watches for a nice profit to other railway agents up and down the line. He then bought more and started a watch distribution company. By 1887, he’d moved the business to Chicago and placed an advertisement in the Chicago Daily News looking for someone who could repair watches. Alvah C. Roebuck answered the ad. Six years later, the two partnered up and founded Sears, Roebuck and Co., which used catalogs to sell watches by mail to the rural farmers who were being gouged by local general stores and an army of middlemen.

The promise of Sears, Roebuck and Co. was simple, according to its corporate history: “Thanks to volume buying, to the railroads and post office, and later to rural free delivery and parcel post, it offered a happy alternative to the high-priced rural stores.” What Sears and Roebuck’s warehouses and efficient processing operations enabled was nothing less than revolutionary. Imagine being a farmer living deep on the vast Kansas prairie more than a hundred years ago. You are several hours’ ride from the nearest general store, and neither the store’s products nor the price of gasoline is cheap. Then, one day, the weekly mail delivery brings you the 1897 Sears “Wish Book”—786 pages of everything under the sun at prices that can hardly be believed.

This was mind-blowing stuff for a rural farm family. With the heavy thunk of a single mail drop, the choice of available products increased a thousandfold from the typical inventory at the general store. What’s more, the catalog also represented a drop of often 50% or more in price, even after shipping. Likewise, the supply-chain techniques Sears used to achieve its miracle of abundance are not so unfamiliar today: a combination of goods in stock at its warehouses and a “virtual warehouse” network of suppliers who would ship the goods directly from their own factories.

Food was the next frontier. The first was a King Kullen store that opened in Queens, New York, on August 4, 1930, in the depths of the Great Depression. Like Sears, King Kullen offered a greater variety, lower prices, and one-stop shopping, along with the opportunity for customers to select products directly from shelves. The supermarket helped create the Middle Class. Its low prices freed up substantial funds for families to spend on cars, homes, education and other needs and amenities of life. The corner grocery store of the 1920s had carried about 700 items, most sold in bulk, and consumers had to shop elsewhere for meat, produce, baked goods, dairy products, and other items. The supermarket collected all these products under one roof. What’s more, the number of unique products it carried climbed: to 6,000 by 1960, 14,000 by 1980, and more than 30,000 today.

The rise of e-commerce on the Web in the early 1990s started by simply building on the catalog model with even more convenient ordering, larger selections, and broader reach at lower cost. The Internet provided a way of offering a catalog to everyone—with no printing and no mailing required. What the Internet presented was a way to eliminate most of the physical barriers to unlimited selection. The bricks-and-mortar superstores had scale, but they still had to deal with the economics of shelves, walls, staff, locations, working hours, and weather.

From purely virtual retailers such as eBay to the online side of traditional retailing, the virtues of unlimited shelf space, abundant information, and smart ways to find what you want—Bezos’s original vision—have proven every bit as compelling as he thought. And as a result, there are now Long Tail markets practically everywhere you look. Just as Google is finding ways to tap the Long Tail of advertising, Microsoft is extending the Tail of video games into small and cheap games that you can download on its Xbox Live network. Open-source software projects such as Linux and Firefox are the Long Tail of programming talent, while offshoring taps the Long Tail of labor. More esoteric examples include the proliferation of microbrews as the “Long Tail of beer,” the growth of customized T-shirts, shoes, and other clothing as the “Long Tail of fashion,” and the growth of online universities as the “Long Tail of education.”

The Three Forces of the Long Tail

The Theory of the Long Tail can be boiled down to this: Our culture and economy are increasingly shifting away from a focus on a relatively small number of hits (mainstream products and markets) at the head of the demand curve and moving toward a huge number of niches in the tail. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly targeted goods and services can be as economically attractive as mainstream fare.

But that’s not enough. Demand must follow this new supply. Otherwise, the Tail will wither. Because the Tail is measured not just in available variety but in the people who gravitate toward it, the true shape of demand is revealed only when consumers are offered infinite choice. It is the aggregate sales, use, or other participation of all those people in the newly available niches that turns the massive expansion of choice into an economic and cultural force. The Long Tail starts with a million niches, but it isn’t meaningful until those niches are populated with people who want them. Collectively, all of this translates into six themes of the Long Tail age:

  1. In virtually all markets, there are far more niche goods than hits. That ratio is growing exponentially larger as the tools of production become cheaper and more ubiquitous.
  2. The costs of reaching those niches is now falling dramatically. Thanks to a combination of forces including digital distribution, powerful search technologies, and a critical mass of broadband penetration, online markets are resetting the economics of retail. Thus, in many markets, it is now possible to offer a massively expanded variety of products.
  3. Simply offering more variety, however, does not shift demand by itself. Consumers must be given ways to find niches that suit their particular needs and interests. A range of tools and techniques—from recommendations to rankings—are effective at doing this. These “filters” can drive demand down the Tail.
  4. Once there’s massively expanded variety and the filters to sort through it, the demand curve flattens. There are still hits and niches, but the hits are relatively less popular and the niches relatively more so.
  5. All those niches add up. Although none sell in huge numbers, there are so many niche products that collectively they can comprise a market rivaling the hits.
  6. Once all of this is in place, the natural shape of demand is revealed, undistorted by distribution bottlenecks, scarcity of information, and limited choice of shelf space. What’s more, that shape is far less hit-driven than we have been led to believe. Instead, it is as diverse as the population itself. Bottom line: A long Tail is just culture unfiltered by economic scarcity.

None of the aforementioned happens without one big economic trigger: reducing the costs of reaching niches. What causes those costs to fall? Although the answer varies from market to market, the explanation usually involves one or more of three powerful forces coming into play. The first force is democratizing the tools of production. The best example of this is the personal computer, which has put everything from the printing press to film and music studios in the hands of anyone. The power of the PC means that the ranks of “producers”—individuals who can now do what just a few years ago only professionals could do—have swelled a thousandfold. Millions of people now have the capacity to make a short film or album, or publish their thoughts to the world—and a surprisingly large number of them do. Talent is not universal, but it’s widely spread: Give enough people the capacity to create, and inevitably gems will emerge. The result is that the available universe of content is now growing faster than ever. This is what extends the tail to the right, increasing the population of available goods manyfold.

The second force is cutting the costs of consumption by democratizing distribution. The fact that anyone can make content is only meaningful if others can enjoy it. The PC made everyone a producer or publisher, but it was the Internet that made everyone a distributor. At its most dramatic this is the economics of bits versus atoms, the difference between fractions of pennies to deliver content online and the dollars it takes to do it with trucks, warehouses, and shelves. Still, even for physical goods, the Internet has dramatically lowered the costs of reaching consumers. Over decades and with billions of dollars, Wal-Mart set up the world’s most sophisticated supply chain to offer massive variety at low prices to tens of millions of customers around the world. Today anybody can reach a market every bit as big with a listing on eBay. The Internet simply makes it cheaper to reach more people, effectively increasing the liquidity of the market in the Tail. That, in turn, translates to more consumption, effectively raising the sales line and increasing the area under the curve.

The third force is connecting supply and demand, introducing customers to these new and newly available goods and driving demand down the Tail. This can take the form of anything from Google’s wisdom-of-crowds search to Netflix’s recommendations, along with word-of-mouth, from blogs to customer reviews. The effect of all this for consumers is to lower the “search costs” of finding niche content.

In economics, search costs refer to anything that get gets in the way of finding what you want. Some of those costs are non-monetary, such as wasted time, hassle, wrong turns, and confusion. Other costs actually have a dollar figure, such as mistaken purchases or paying too much for something because you couldn’t find a cheaper alternative. Anything that makes it easier to find what you want at the price you want lowers your search costs. Other consumers are often the most useful guides because their incentives are best aligned with our own. Netflix and Google tap consumer wisdom collectively by watching what millions of them do and translating that into relevant search results or recommendations. Consumers also act as guides individually when they post user reviews or blog about their likes and dislikes. Because it’s now so easy to tap this grassroots information when you’re looking for something new, you’re more likely to find what you want faster than ever. That has the economic effect of encouraging you to search farther outside the world you already know, which drives demand down into the niches.

The other thing that happens when consumers talk amongst themselves is that they discover that, collectively, their tastes are far more diverse than the marketing plans being fired at them suggest. Their interests splinter into narrower and narrower communities of affinity, going deeper and deeper into their chosen subject matter, as is always the case when like minds gather. Encouraged by the company, virtual or not, they explore the unknown together, venturing farther from the beaten path. The explosion of these technologies that connect consumers is what drives demand from the head to the tail. In other words, the third force further increases demand for the niches and flattens the curve, shifting its center of gravity to the right. Think of each of these three forces as representing a new set of opportunities in the emerging Long Tail marketplace. The democratized tools off production are leading to a huge increase in the numbers of producers. Hyperefficient digital economics are leading to new markets and marketplaces. And finally, the ability to tap the distributed intelligence of millions of consumers to match people with the stuff that suits them best is leading to the rise of all sorts of new recommendation and marketing methods, essentially serving as the new tastemakers.

The New Producers

Never underestimate the power of a million amateurs with keys to the factory. There will always remain a division of labor between professionals and amateurs, but it may be more difficult to tell the two groups apart in the future. Just as the electric guitar and the garage democratized pop music several decades ago, desktop creation and production tools are democratizing the studio. Apple’s GarageBand, free with every Mac, greets a user with the suggestion to “Record your next big hit,” and provides the tools to do just that. Likewise, digital video cameras and desktop editing suites are putting the sort of tools into the hands of the average home moviemaker that were once reserved for professionals alone. Then there’s the written word, always the leading edge of egalitarianism. Blogging has sparked the renaissance of the amateur publisher. Today, millions of people publish daily for an audience that is collectively larger than any single mainstream media outlet can claim. What sparked blogging was, again, democratized tools: the arrival of simple, cheap software and services that made publishing online so easy that anyone could do it.

Today, millions of ordinary people have the tools and the role models to become amateur producers. Some of them will also have talent and vision. Because the means of production have spread so widely and to so many people, the talented and visionary ones, even if they’re just a small fraction of the total, are becoming a force to be reckoned with. Don’t be surprised if some of the most creative and influential work in the next few decades comes from this Pro-Am class of inspired hobbyists, not from the traditional sources in the commercial world. The effect of this shift means that the Long Tail will be populated at a pace never before seen. When the tools of production are available to everyone, everyone becomes a producer. From filmmakers to bloggers, producers of all sorts that start in the Tail with few expectations of commercial success can afford to take chances. They’re willing to take more risks, because they have less to lose. There’s no need for permission, a business plan, or even capital. The tools of creativity are now cheap, and talent is more widely distributed than we know. Seen this way, the Long Tail promises to become the crucible of creativity, a place where ideas form and grow before evolving into commercial form.

People create things for all sorts of reasons, ranging from expression to reputation. What makes this important is that there is increasingly frictionless mobility in the Long Tail. In a seamless digital marketplace, content that starts at the bottom can easily move to the top if it strikes a chord. Understanding the diverse incentives that can motivate the creators of such content becomes essential in finding and encouraging it. Because the tools of production have become democratized, the population of producers is expanding exponentially, and now there’s little stopping those with the will and skill to create from doing just that.

The New Markets

A Long Tail “aggregator” is a company or service that collects a huge variety of goods and makes them available and easy to find, typically in a single place. That’s the root calculus of the Long Tail: The lower the costs of selling, the more you can sell. As such, aggregators are a manifestation of the second force: democratizing distribution. They all lower the barrier to market entry, allowing more and more things to cross that bar and get out there to find their audience. Google aggregates the Long Tail of advertising. Spotify aggregates the Long Tail of music. Netflix does the same for the Long Tail of movies. eBay aggregates the Long Tail of physical goods and the Long Tail of merchants who sell them, right down to the millions of regular people getting rid of unwanted birthday presents. Wikipedia is an aggregator of the Long Tail of knowledge and those who have it. Business aggregators fall mostly into five categories:

  1. Physical goods (i.e. Amazon, eBay)
  2. Digital goods (i.e. Spotify, Netflix)
  3. Advertising/services (i.e. Google, Craigslist)
  4. Information (i.e. Google, Wikipedia)
  5. Communities/user-created content (i.e. Facebook)

Each of these categories can range from massive companies to one-person operations. A single blog that collects all the news and information that it can about a topic is an aggregator, as is Google. Some aggregators attempt to straddle an entire category, such as Netflix (films) or Spotify (music), while others simply find their niche, such as services that aggregate only SEC filings or techno music. Many aggregators occupy multiple categories. Amazon aggregates both physical goods (from electronics to cookware) and digital goods (from eBooks to downloadable software). Google aggregates information, advertising, and digital goods (Google Video).

The only way to reach all the way down the Tail—from the biggest hits down to all the garage bands of past and present—is to abandon atoms entirely and base all transactions, from beginning to end, in the world of bits. With the pure digital model, each product is simply a database entry, costing effectively nothing. The distribution costs are simply broadband megabytes, bought in bulk at fast-dropping costs incurred only when the product is ordered. What’s more, pure digital retailers can choose between selling goods as stand-alone products (ninety-nine-cent downloads at iTunes) or as a service (unlimited access music subscriptions at Spotify).

These commercial digital services have all the advantages of Amazon’s online CD catalog, plus the additional savings of delivering their goods over broadband networks at virtually no cost. This is the way to achieve the holy grail of retail—near-zero marginal costs of manufacturing and distribution. Since an extra database entry and a few megabytes of storage on a server cost effectively nothing, these retailers have no economic reason not to carry everything available. And someday they will.

Seen this way, there is no simple divide between traditional retailers and Long Tail ones. Instead it’s a progression from the economics of pure atoms, to a hybrid of bits and atoms, to the ideal domain of pure bits. Digital catalogs of physical goods lower the economics of distribution far enough to get partway down the potential tail. The rest is left to the even more efficient economics of pure digital distribution. Both are Long Tails, but one is potentially longer than the other.

The rise of this virtual selling model turned the traditional inventory problem on its head. A chain retailer like Best Buy has to distribute its supply of, say, digital cameras across all of its stores, hoping to guess roughly at where the demand will be and how big it might get. Invariably the retailer will guess wrong, at least to some degree, running out in some stores and having surplus stock depreciating and taking up valuable space in others. With the Amazon Marketplace form of distributed inventory, the products are still on shelves around the country, but they’re collectively cataloged and offered in one central place—Amazon’s Web site. Then, when people order them, the products are boxed up and shipped directly to the customer by the small merchants who have held the inventory all along.

Like the chain retailers, Amazon also connects centralized supply with scattered demand, but the genius of its model is that the store and customer don’t have to be in the same place. Ironically, this makes it more likely that the supply and demand will actually connect. Regardless, even if they don’t, Amazon bears none of the cost—the surplus stock simply depreciates on the shelves of a third party. As this program continues to grow, Amazon gets closer and closer to breaking the tyranny of the shelf entirely. It doesn’t have to guess ahead of time where the demand is going to be, and it doesn’t have to guess at how big the demand is going to be. All the risk within the Marketplace program is outsourced to a network of small merchants who make their own decisions, based on their own economics, on what to carry.

Virtual and distributed inventory is a dramatic way to move down the Tail, but getting rid of physical inventory altogether can take you even further. Amazon’s next step was to attempt to get closer to this economic nirvana by building a business that kept inventory as bits until it was shipped. One of the problems with carrying books is that a lot of them sell only one or two copies a year. Amazon’s solution was print-on-demand. In its idealized form, books stay as digital files until they’re purchased, at which time they’re printed on laser printers and come out looking just like regular paperbacks. Since bits are turned into atoms only when an order comes in, the costs scale perfectly with revenues. Or, to put it in the simplest terms, the production and inventory cost of a print-on-demand book that is never bought is zero. These economics are potentially so efficient that they may someday make it possible to offer any book ever made.

The ultimate cost reduction is eliminating atoms entirely and dealing only in bits. Pure digital aggregators store their inventory on hard drives and deliver it via broadband pipes. The marginal cost of manufacturing, shelving, and distributing is close to zero, and royalties are paid only when the goods are sold. It’s the ultimate on-demand market: Because the goods are digital, they can be cloned and delivered as many times as needed, from zero to billions. A best-seller and a never-seller are just two entries in a database. This is the model that Spotify is dramatically demonstrating. But the opportunity goes much farther than just music. The overwhelming trend of our age is to take products that were once delivered as physical goods, find ways to turn them into data, and stream them into your home.

eBooks and audio books, online newspapers and magazines, and software were all once delivered on paper or plastic, necessitating all the complexities of physical inventory and delivery. All are now joined by digital versions, with corresponding digital economics. The experience is not always the same, which is why paper books and magazines are still the preferred version for many. But the functional gap is shrinking. And the distribution advantages of the digital versions are irresistible.

The New Tastemakers

We are entering an era of radical change for marketers. Faith in advertising and the institutions that pay for it is waning, while faith in individuals is on the rise. Peers trust peers. Top-down messaging is losing traction, while bottom-up buzz is gaining power. For a generation of customers used to doing their buying research via search engine, a company’s brand is not what the company says it is, but what Google says it is. The new tastemakers are us. Word of mouth is now a public conversation, carried in blog comments and customer reviews, exhaustively collated and measured.

Google PageRank, Facebook friends, Netflix user reviews—these are all manifestations of the wisdom of the crowd. Millions of regular people are the new tastemakers. Some of them act as individuals, others as parts of groups organized around shared interests, and still others are simply herds of consumers automatically tracked by software watching their every behavior. For the first time in history, we’re able to measure the consumption patterns, inclinations, and tastes of an entire market of consumers in real time, and just as quickly adjust the market to reflect them. These new tastemakers aren’t a super-elite of people cooler than us; they are us. We are leaving the Information Age and entering the Recommendation Age. Today information is ridiculously easy to get; you practically trip over it on the street. Information gathering is no longer the issue—making smart decisions based on the information is now the trick. Recommendations serve as shortcuts through the thicket of information.

Amplified word of mouth is the manifestation of the third force of the Long Tail: tapping consumer sentiment to connect supply to demand. The first force, democratizing production, populates the Tail. The second force, democratizing distribution, makes it all available. But those two are not enough. It is not until this third force, which helps people find what they want in this new superabundance of variety kicks in that the potential of the Long Tail marketplace is truly unleashed.

The new tastemakers are simply people whose opinions are respected. They influence the behavior of others, often encouraging them to try things they wouldn’t otherwise pursue. Some of these new tastemakers are the traditional professionals: movie and music critics, editors, or product testers. As our interests expand with the exploding availability of wide variety, the demand for informed and trusted advice is now extending to the narrowest niches. Other tastemakers are celebrities, who are another sort of trusted guide, and whose influence on consumption continues to grow.

The power of celebrity is increasingly measured in terms of their ability to move merchandise. But not all celebrities are Hollywood stars. As our culture fragments into a million tiny microcultures, we are experiencing a corresponding rise of microcelebrities. In the technology world, these take the form of power bloggers. Other microcelebrities are even more micro, ranging from high-ranking playlist contributors on Spotify to the taste mavens behind popular music blogs.

And then there is crowd behavior, which is best seen as a form of distributed intelligence. People who are part of such a crowd may not think of themselves as offering recommendations or guidance at all. They’re just doing what they do for their own reasons. But every day there is more and more software watching their actions and drawing conclusions from them. The rise of the search engine as the economic force of Silicon Valley is simply a reflection of the value that we now recognize in the measurement and analysis of the actions of millions of individuals.

The catch-all phrase for recommendations and all the other tools that help you find quality in the Long Tail is filters. These technologies and services sift through a vast array of choices to present you with the ones that are most right for you. That’s what Google does when it ranks results: It filters the Web to bring back just the pages that are most relevant to your search term. In a world of infinite choice, context—not content—is king.

In today’s Long Tail markets, the main effect of filters is to help people move from the world they know (“hits”) to the world they don’t (“niches”) via a route that is both comfortable and tailored to their tastes. In a sense, good filters have the effect of driving demand down the tail by revealing goods and services that appeal more than the lowest-common-denominator fare that crowds the narrow channels of traditional mass-market distribution.

Reed Hastings believes that recommendations and other filters are one of Netflix’s most important advantages, especially for non-blockbusters. Recommendations have all the demand-generation power of advertising, but at virtually no cost. If Netflix suggests a film to you based on what it knows about your taste and what others thought of that film, that can be more influential than a generic billboard aimed at the broadest possible audience. But these recommendations arise naturally from Netflix’s customer data, and it has an infinite number of “billboards” (Web pages customized for each customer and each visit) on which to display them.

Advertising and other marketing can represent more than half of the costs of the average Hollywood blockbuster, and smaller films can’t play in that game. Netflix recommendations level the playing field, offering free marketing for films that can’t otherwise afford it, and thus spreading demand more evenly between hits and niches. They’re a remarkable democratizing force in a remarkably undemocratic industry.

Filters are so important to a functioning Long Tail because without them, the Long Tail risks just being noise. The field of “information theory” was built around the problem of pulling coherent signals from random electrical noise, first in radio broadcasts and then in any sort of electronic transmission. The notion of a signal-to-noise ratio is now used more broadly to refer to any instance where clearing away distraction is a challenge. In a traditional “Short Head” market this isn’t much of a problem, because everything on the shelf has been prefiltered to remove outliers and other products far from the lowest common denominator. But in a Long Tail Market, which includes nearly everything, noise can be a huge problem. Indeed, if left unchecked, noise—random content or products of poor quality—can kill a market. Too much noise and people don’t buy.

The job of filters is to screen out that noise. Call it pulling wheat from chaff or diamonds from the rough, the role of a filter is to elevate the few products that are right for whoever is looking and suppress the many that aren’t. One of the most frequent mistakes people make about the Long Tail is to assume that things that don’t sell well are “not as good” as things that do sell well. Or, to put it another way, they assume that the Long Tail is full of crap. After all, if that album/book/film/whatever were excellent, it would be a hit, right? Well, in a word, no.

Niches operate by different economics than the mainstream. And the reason for that helps explain why so much about Long Tail content is counterintuitive, especially when we’re used to scarcity thinking. First, let’s get one thing straight: The Long Tail is indeed full of crap. Yet it’s also full of works of refined brilliance and depth—and an awful lot in between. Exactly the same can be said of the Web itself. Then along came search engines to help pull some signal from the noise, and finally Google, which taps the wisdom of the crowd itself and turns a mass of incoherence into the closest thing to an oracle the world has ever seen.

On a store shelf or in any other limited means of distribution, the ratio of good to bad matters because it’s a zero-sum game: Space for one eliminates space for the other. Prominence for one obscures the other. If there are ten crappy toys for each good one in the aisle, you’ll think poorly of the toy store and be discouraged from browsing. Likewise, it’s no fun to flip through bin after bin of CDs if you haven’t heard of any of them. But where you have unlimited shelf space, it’s a non-zero sum game. Inventory is “non-rivalrous” on the web and the ratio of good to bad is simply a signal-to-noise problem, solvable with information tools. Which is to say it’s not much of a problem at all. You just need better filters. In other words, the noise is still out there, but Google allows you to effectively ignore it.

This leads to the key to what’s different about Long Tails. They are not prefiltered by the requirements of distribution bottlenecks and all those entail (editors, studio execs, talent scouts, and Wal-Mart purchasing managers). As a result, their components vary wildly in quality, just like everything else in the world. One way to describe this (using the language of information theory) would be to say that Long Tails have a wide dynamic range of quality: awful to great. By contrast, the average store shelf has a relatively narrow dynamic range of quality: mostly average to good. (There’s some really great stuff, but much of that is too expensive for the average retail shelf; niches exist at both ends of the quality spectrum.). So, tails have a wide dynamic range and heads have a narrow dynamic range.

It’s crucial to note that there are high-quality goods in every part of the curve, from top to bottom. Yes, there are more low-quality goods in the tail and the average level of quality declines as you go down the curve. But with good filters, averages don’t matter. Diamonds can be found anywhere.

Obviously, the terms “high quality” and “low quality” are entirely subjective. Thus, there are no absolute measures of content quality. One person’s “good” could easily be another’s “bad”; indeed, it almost always is. This is why niches are different. One person’s noise is another’s signal. If a producer intends something to be absolutely right for one audience, it will, by definition, be wrong for another. The compromises necessary to make something appeal to everyone mean that it will almost certainly not appeal perfectly to anyone—that’s why they call it the lowest common denominator. The remarkable consequence is that for many people, the best stuff is in the Tail.

Down there in the low-selling side of the curve, there are also products that just aren’t very good. The challenge of filtering is to be able to tell one from the other. If you’ve got help—smart search engines, recommendations, or other filters—your odds of finding something just right for you are actually greater in the Tail. Best-sellers tend to appeal, at least superficially, to a broad range of taste. Niche products are meant to appeal strongly to a narrow set of tastes. That’s why the filter technologies are so important. They not only drive demand down the Tail, but they can also increase satisfaction by connecting people with products that are more right for them than the broad-appeal products at the Head.

One of the consequences of living in a hit-driven culture is that we tend to assume that hits are a far bigger share of the market than they really are. Instead, they are the rare exception. This is what Nassim Taleb calls the “Black Swan Problem.” The phrase comes from David Hume, the eighteenth-century Scottish philosopher, who gave it as an example of the complications that lie in deriving general rules from observed facts. In what has now become known as Hume’s Problem of Induction, he asked how many white swans one need observe before inferring that all swans are white and that there are no black swans. Hundreds? Thousands? We don’t know.

The problem is that we have a hard time putting rare events in context. In any given population there will be a few people who are tremendously rich. Some are smart and some are lucky and we really can’t tell which is which.

Taleb defines a Black Swan as: a random event satisfying the following three properties: large impact, incomputable probabilities, and surprise effect. First, it carries upon its occurrence a disproportionately large impact. Second, its incidence has a small but incomputable probability based on information available prior to its incidence. Third, a vicious property of a Black Swan is its surprise effect: at a given time of observation there is no convincing element pointing to an increased likelihood of the event.

He could just as easily be describing a blockbuster hit. The reality is that the vast majority of content (from music to movies) is not hits. Sometimes that’s because it’s not very good. Sometimes it’s because it wasn’t marketed well or made by people with the right connections. And sometimes it’s because of some random factor that got in the way, which is just as likely as the random factors that sometimes make a blockbuster out of the flimsiest novelty fare.

This is simply the natural consequence of what’s called a “power-law” distribution, a term for a curve where a small number of things occur with high amplitude (read: sales) and a large number of things occur with low amplitude. A few things sell a lot and a lot of things sell a little. (The phrase comes from the fact that the curve has a 1/x shape). Since most stuff doesn’t sell very well, the volume of the material available—and by extension the volume of stuff you don’t want—rises as the Long Tail falls.

The consequence of this is that whatever you are looking for, there’s more stuff you aren’t looking for the farther you go down the Tail. That’s why the signal-to-noise ratio gets worse, despite the fact that you’re often more likely—if you have access to good search and filters—to find what you want as you go down the Tail. It sounds like a paradox, but it isn’t. It’s just a problem for filters to solve.

When you think about it, the world is already full of a different kind of filter. In the scarcity-driven markets of limited shelves, screens, and channels that we’ve lived with for most of the past century, entire industries have been created around finding and promoting the good stuff. This is what the A&R talent scouts at the record labels do, along with the Hollywood studio executives and store purchasing managers (“buyers”). In boardrooms around the world, market research teams pore over data that predicts what’s likely to sell and thus deserves to win a valuable spot on the shelf, screen, or page… and what’s unlikely to sell and therefore doesn’t deserve a spot.

The key word in the preceding paragraph is “predicts.” What’s different about those kinds of filters is that they filter before things get to market. Indeed, their job is to decide what will make it to market and what won’t. They are “pre-filters.” By contrast, recommendations and search technologies are “post-filters.” The post-filters find the best of what’s already out there in their area of interest, elevating the good (i.e. what is relevant, interesting, original, etc.) and downplaying, even ignoring, the bad. These post-filters are the voice of the marketplace. They channel consumer behavior and amplify it, rather than trying to predict it.

The fact that post-filters amplify, rather than predict, behavior is an important distinction. In the existing Short Head markets, where distribution is expensive and shelf space is at a premium, the supply side of the market has to be exceedingly discriminating in what it lets through. These producers, retailers, and marketers have made a science of trying to guess what people will want, to improve their odds of picking winners. Obviously, they don’t always guess right. There are surely as many things that deserved to make it to market but were overlooked as there are things that made it to market and then flopped.

However, in Long Tail markets—where distribution is cheap and shelf space is plentiful—the safe bet is to assume that everything is eventually going to be available. As such, in Long Tail markets, the role of filter then shifts from gatekeeper to advisor. Rather than predicting taste, post-filters such as Google measure it. Rather than lumping consumers into predetermined demographic and psychographic categories, post-filters such as Netflix’s customer recommendations treat them like individuals who reveal their likes and dislikes through their behavior. Rather than keeping things off the market, post-filters such as MP3 blogs create a market for things that are already available by stimulating demand for them.

Of course, just as pre-filters aren’t perfect (i.e. the talent scouts don’t always pick artists that sell records), the same is true of post-filters. Moreover, the problem with post-filtering is that feedback comes after publication, not before. As a result, errors that would have been caught by editors and other wise eyes can sneak through, and even though the collective post-filter feedback can eventually correct them, they may never disappear entirely. Nonetheless, the day when gatekeepers get to decide what makes it to market and what doesn’t is fading. Soon everything will make it to market and the real opportunity will be in sorting it all out.

Long Tail Economics

The Long Tail is a powerlaw that isn’t cruelly cut off by bottlenecks in distribution such as limited shelf space and available channels. Because the amplitude of a powerlaw approaches but never reaches zero as the curve stretches out to infinity, it’s known as a “long-tailed” curve. As far as consumer markets go, powerlaw distributions occur where things are different, some are better than others, and effects such as reputation can work to promote the good and suppress the bad. This results in what Pareto called the “predictable imbalance” of markets, culture, and society: Success breeds success.

There are three aspects of the Long Tail that have the effect of shifting demand down the tail, from hits to niches. The first is the availability of greater variety. If you offer people a choice of ten things, they will choose one of the ten. If you offer them a thousand things, demand will be concentrated in the top ten. The second is the lower “search costs” of finding what you want, which range from actual search to recommendations and other filters. Finally, there is sampling, from the ability to hear thirty seconds of a song for free to the ability to read a portion of a book online. This tends to lower the risk of purchasing, encouraging consumers to venture further into the unknown.

One of the features of powerlaws is that they are “fractal,” which is to say that no matter how far you zoom in they still look like powerlaws. Mathematicians describe this as “self-similarity at multiple scales,” but what it means is that the Long Tail is made of many mini-tails, each of which is its own little world. When you look closely at the data, you can see that the big powerlaw curve of, say, “music” is really just the superposition of all the little powerlaw curves formed by each musical genre. Music is made up of thousands of niche micromarkets, miniature ecosystems that, when smooshed together into an overall ranking, look like one Long Tail. But look closer and each has its own head and tail.

Why does this matter? First, because it suggests that the filtering is often most effective at the genre level rather than across the entire market. And second, because it explains an apparent paradox of the Long Tail. The characteristic steep falloff shape of a popularity powerlaw comes from the effect of powerful word-of-mouth feedback loops that amplify consumer preference, making the reputation-rich even richer and the reputation-poor relatively poorer. Success breeds success. In network theory such positive feedback loops tend to create winner-take-all phenomena, which is another way of saying that they’re awesome hit-making machines.

Compounding matters, today’s filters make word-of-mouth even more powerful by measuring so much more of it from so many more people and for so many more products. Shouldn’t that then have the effect of making the powerlaw even steeper, increasing the gap between hits and niches rather than having a leveling effect? In other words, why don’t network-effect recommendation systems, which are essential in driving demand down the Tail, actually do the opposite: drive content up the Tail, further amplifying hit/niche inequality? That’s what you’d expect with more powerful network effects, yet what we actually see in Long Tail markets is a flattened powerlaw, with less of a difference between hits and niches.

The explanation, it turns out, is that these filters and other recommendation systems actually work most strongly at the niche level, within a genre and subgenre. But between genres their effect is more muted. There are breakout hits that rise to the top of a genre and then go on to become mainstream hits, topping the overall charts. Yet they’re the exception. More common are titles that use their genre popularity to break into the middle of the overall charts, at which point they have to compete with many other hits from other genres and thus tend to not rise much further. The lesson from this microstructure analysis is that popularity exists at multiple scales and ruling a clique doesn’t necessarily make you the homecoming queen.

The Short Head

Hits may not dominate society and commerce as much as they did over the past century, but they still have unmatched impact. And part of that is their ability to serve as a source of common culture around which more narrowly targeted markets can form. Successful Long Tail aggregators need to have both hits and niches. They need to span the full range of variety, from the broadest appeal to the narrowest, to be able to make the connections that can illuminate a path down the Long Tail that makes sense for everyone.

Consumers want one-stop shopping. They want to have some confidence that what they’re looking for is in one specific place. Stores that give consumers the most confidence that everything they want is there are going to be the ones that succeed. This notion of ultimate selection, of knowing that the filters are selecting the best from a choice of everything (or at least everything in that domain) is why good Long Tail aggregators are so compelling. If you just have the products at the Head, you find that very quickly your customers want more, and you can’t offer it. If you just have the products at the Tail, you find that customers have no idea where to start. They’re unable to get traction in the marketplace because everything you’re offering is unfamiliar to them. The importance of offering the stuff at both the Head and the Tail is that you can start in the world that customers already know: familiar products that tap into and define a space.

One of the most vexing problems with physical goods is that they force us into crude categorization and static taxonomies. As a store manager, you have to guess where most people would expect to find a windbreaker. With the evolution of online retail, however, has come the revelation that being able to recategorize and rearrange products on the fly unlocks their real value. For one, online stores are free to list products in whichever, and however many, sections they choose. This captures the attention of potential buyers who wouldn’t have found the product in the default category, and it also stimulates demand in people who weren’t even looking for the product in the first place but were spurred to buy because of clever positioning.

The efficiency and success of online retail have illuminated the cost of traditional retail’s inflexibility and taxonomical oversimplifications. It’s one thing to have high prices or limited selection; it’s quite another to simply be unable to help people find what they want.

In the world of information science, the tricky question of where to put things is known as the “ontology problem.” Ontology is a word that means different things in different disciplines, but for librarians and computer scientists, it’s about ways to organize things. The Dewey Decimal System is one way to organize books; the Encyclopedia Britannica is one way to organize information; the Periodic Table of the Elements is one way to organize matter. All of these are successes, as far as they go. However, as the Google era has shown, we’re suddenly realizing how limited those fixed ways of making sense of the world really are.

Shelves have another disadvantage: They are bound by geography. Their contents are available only to people who happen to be in the same place as they are. That is, of course, also their virtue: The stores near you are convenient and offer the immediate gratification of sending your purchase home with you. For all the time we may spend online, we do, after all, live in the physical world.

The main constraint of bricks-and-mortar retail is the need to find local audiences. Whether we’re talking about movies, CDs, or any number of products, bricks-and-mortar retailers will carry only the content that earns its keep, products that attract the greatest amount of interest (and dollars) from the limited local population. In the tyranny of physical space, an audience too thinly spread is the same as no audience at all. Thus, local demand must be at a high enough concentration to compensate for the high costs of physical distribution. In other, more obvious words, not enough local demand equals no store.

In a nutshell, that is the business case for online retailers. Because they can reach all of those many low-density towns as efficiently as the high-density ones, they can tap the Long Tail of distributed demand. That’s exactly what the Sears, Roebuck catalog did a century ago: tap the distributed demand for variety in the American heartland. Today, we just do it faster, cheaper, and with even greater variety.

The Paradise of Choice

The overwhelming reality of our online age is that everything can be available, but does anyone need this much choice? The conventional view is that more choice is better, because it acknowledges that people are different and allows them to find what’s right for them. But in The Paradox of Choice, an influential book published in 2004, Barry Schwartz argued that too much choice is not just confusing but is downright oppressive. As the number of choices keeps growing, negative aspects of having a multitude of options begins to appear. As the number of choices grows further, the negatives escalate until we become overloaded. At this point, choice no longer liberates, but debilitates.

As an antidote to this poison of our modern age, Schwartz recommends that consumers “satisfice,” in the jargon of social science, not “maximize.” In other words, they’d be happier if they just settled for what was in front of them rather than obsessing over whether something else might be even better. But the solution is not to limit choice, but to order it so it isn’t oppressive. As Schwartz himself notes, “A small-town resident who visits Manhattan is overwhelmed by all that is going on. A New Yorker, thoroughly adapted to the city’s hyperstimulation, is oblivious to it.”

Despite the detriments associated with choice overload, consumers want choice and they want a lot of it. The benefits that stem from choice, however, come not from the options themselves, but rather from the process of choosing. By allowing choosers to perceive themselves as volitional agents having successfully constructed their preference and ultimate selection outcomes during the choosing task, the importance of choice is reinstated. Offer customers abundant choices, but also help them search. Make choice easy—popularity, comparative prices, reviews, etc. The paradox of choice is simply an artifact of the limitations of the physical world, where the information necessary to make an informed choice is lost.

The conventional wisdom was right: More choice really is better. But now we know that variety alone is not enough; we also need information about that variety and what other consumers before us have done with the same choices. Google, with its seemingly omniscient ability to order the infinite chaos of the Web so that what we want comes out on top, shows the way. The paradox of choice turned out to be more about the poverty of help in making that choice than a rejection of plenty. Order it wrong and choice is oppressive; order it right and its liberating.

Real estate agents, financial planners, search engines, and the recommendation services at Amazon all do the same thing. Each knows something about us and something about what’s valuable. They don’t just reduce the number of options. They do so intelligently with an eye to what we’re most likely to want. They help us be ourselves.

Niche Culture

The Long Tail is nothing more than infinite choice. Abundant, cheap distribution means abundant, cheap, and unlimited variety—and that means the audience tends to distribute as widely as the choice. Infinite choice equals ultimate fragmentation. Each individual listener, viewer, or reader is, and has always been, a unique mix of generic interests and specific interests. Although many of these individuals might share some generic interests, such as the weather, most, if not all of them, have very different specific interests. Until a few decades ago, the average American hadn’t access to any medium that could satisfy each of their specific interests. All they had was the mass medium, which could somewhat successfully satisfy many of their generic (i.e. “mass”) interests.

Then media technologies evolved in ways that started to satisfy their specific interests. During the 1970s, improvements in offset lithography led to a bloom of specialty magazines; no longer were there a dozen or two magazines on newsstands, but hundreds, most about only specific topics. Proliferations of, first, analog cable television systems during the 1980s, then digital ones during the late 1990s, increased the average American’s number of accessible TV stations from four to hundreds, mostly specialty channels (Home & Garden TV, the Golf Channel, the Military Channel, etc.). Then the Internet became publicly accessible during the 1990s and the average individual quickly had access to millions of websites, most of those sites about very specific topics.

The result is that more and more individuals who had been using only the (generic) mass medium because that’s all they had, have gravitated to these specialty publications, channels, or websites rather than continue to use only mass medium publications, channels, or websites. More and more use the mass medium less and less. The same Long Tail forces and technologies that are leading to an explosion of variety and abundant choice in the content we consume are also tending to lead us into tribal eddies. When mass culture breaks apart, it doesn’t re-form into a different mass. Instead, it turns into millions of microcultures, which coexist and interact in a baffling array of ways. As a result, we can now treat culture not as one big blanket, but as the superposition of many interwoven threads, each of which is individually addressable and connects different groups of people simultaneously.

The resulting rise of niche culture will reshape the social landscape. People are re-forming into thousands of cultural tribes of interest, connected less by geographic proximity and workplace chatter than by shared interests. In other words, we’re leaving the watercooler era, when most of us listened, watched, and read from the same, relatively small pool of mostly hit content. And we’re entering the micro-culture era, when we’re all into different things.

Long Tail Rules

The secret to creating a thriving Long Tail business can be summarized in two imperatives: 1) make everything available. 2) Help me find it. Now that you’ve got the big picture, here are the nine rules of successful Long Tail aggregators:

  1. Move inventory way in . . . or way out. Sears blazed the trail. It achieved its first big efficiencies with the old mail-order advantage of large, centralized warehouses. Today, the online sides of Wal-Mart, Best Buy, Target, and many others are using their existing warehouse networks to offer far more variety online than they do in their stores, because centralized inventory is so much more efficient than putting products on shelves in hundreds of stores. To offer even more variety, companies such as Amazon have expanded to “virtual inventory”—products physically located in a partner’s warehouse but displayed and sold on Amazon’s site. Digital inventory—think iTunes—is the cheapest of all. Eliminating atoms or the constraints of the broadcast spectrum is a powerful way to reduce cost, enabling entirely new markets of niches.
  2. Let customers do the work. “Peer-production” created eBay, Wikipedia, Craigslist, Facebook, and provided Netflix with hundreds of thousands of movie reviews. At the same time, self-service enabled Google to sell advertising for a nickel a click and Skype to sign up 60 million users in two-and-a-half years. Both are examples where users do for free what companies would otherwise have to pay employees to do. It’s not outsourcing, it’s “crowdsourcing.” The advantage of crowdsourcing is not just economic: customers can do a better job, too. User-submitted reviews are often well-informed, articulate, and most important, trusted by other users. Collectively, customers have virtually unlimited time and energy; only peer production has the capacity to extend as far as the Long Tail can go. And in the case of self-service, the work is being done by the people who care most about it, and best know their own needs.
  3. One distribution method doesn’t fit all. If you focus on distributing to just one customer group, you risk losing the others. The best Long Tail markets transcend time and space. They’re not constrained by any geographic boundaries, nor do they make any assumptions about when people want what they want. Multiple distribution channels are the only way to reach the biggest potential market.
  4. One product doesn’t fit all. Increasingly, the winning strategy is to separate content into its component parts (“microchunks”), so that people can consume it the way they want, as well as remix it with other content to create something new. Newspapers are microchunked into individual articles, which are in turn linked to by more specialist sites that create a different, often more focused, product out of content from multiple sources. Each recombination taps a different distribution network and reaches a different audience.
  5. One price doesn’t fit all. One of the best understood principles of microeconomics is the power of elastic pricing. Different people are willing to pay different prices for any number of reasons, from how much money they have to how much time they have. But just as there’s often room for just one version of a product in traditional markets, there’s often room for only one price, or at least one price at a time. In markets with room for abundant variety, however, variable pricing can be a powerful technique to maximize the value of a product and the size of the market.
  6. Share information. The difference between an overwhelming shelf of look-alike products and the bliss of “rank by best-selling” is information. In one case, the store knows what sells best but doesn’t tell its customers. In the other, it does. So too for “rank by price,” “rank by review,” and “sort by manufacturer.” All that data already exists; the question is how best to share it with customers. More information is better, but only when it’s presented in a way that helps order choice, not confuse it further. Likewise, information about buying patterns, when transformed into recommendations, can be a powerful marketing tool. Deep information about products, from reviews to specifications, can answer questions that would have otherwise halted a purchase. Explaining why a consumer is getting a certain set of recommendations builds confidence in the system, and helps consumers use it better. Transparency can build trust at no cost.
  7. Think “and,” not “or”. One of the symptoms of scarcity thinking is assuming that markets are zero-sum. In other words, the mistake of assuming that everything is an either/or choice. Release this version or that version. Sell this color or that color. On shelves or broadcast channels, that’s natural enough: There really is room for only one product in any single slot. But in markets with infinite capacity, the right strategy is almost always to offer it all. The problem with choosing is that it requires discrimination, and the process of discrimination requires time, resources, and guesswork. Someone must decide, on the basis of some criteria, that one thing is likely to be more successful than another. They may be right at the macrolevel, but such a decision almost always gets it wrong at the microlevel. The more abundant the storage and distribution, the less discriminating you have to be in how you use it. “And” is a far easier decision than “or.”
  8. Trust the market to do your job. In scarce markets, you’ve got to guess at what will sell. In abundant markets, you can simply throw everything out there and see what happens, letting the market sort it out. The difference between “pre-filtering” and “post-filtering” is predicting versus measuring, and the latter is invariably more accurate. Online markets are nothing if not highly efficient measures of the wisdom of crowds. Because they’re information-rich, it’s relatively easy for people to compare goods, and spread the word about what they like. Collaborative filters, for instance, are a market-based way to do product promotion. Popularity rankings are another voice of the market, amplified by the positive-feedback loop of word-of-mouth. And ratings are collective opinion, quantified in ways that make it easy to compare across products and sort them. All of these tools can order variety in ways that make sense to consumers, without some retailer having to guess at what will work. The lesson: Don’t predict; measure and respond.
  9. Understand the power of free. One of the most powerful features of digital markets is that they put free within reach; because their costs are near zero, their prices can be too. One of the most common business models on the Internet is to attract lots of users with a free service and convince some of them to upgrade to a subscription-based “premium” one that adds higher quality or better features. Because digital services are so cheap to offer, the free customers cost the company so little that it can afford to convert only a tiny fraction of them to paying customers. Samples, from thirty-second music clips to video previews, are possible because the cost of delivering bits on broadband pipes is so low. Video-game makers routinely distribute demos with a few free levels; if you like them, you can pay to unlock the others. Ultimately, in abundant markets with loads of competition, prices tend to follow costs. And thanks to the power of digital economics, costs just get lower.