Is the Long Tail really all it is cracked up to be?

Chris Anderson’s philosophy of the Long Tail has formed the backbone of the business strategy for the phenom known collectively as Web 2.0. Fortunes are being made on this belief with everyone from Google right down to the lowliest of blogs counting on the traction that being a part of the Long Tail gives them. In a way it has almost become sacrosanct with very few people questioning whether it has any flaws.

So it was nice to see a piece by Tom Foremski of the Silicon Valley Watcher where he does in fact call the whole user generated mantra and the Long Tail into question. While he readily admits the success of the business models built on the whole concept provided by the Long Tail, his problem apparently is with the sustainability of such business models over the long haul.

As he points out the business success of the Long Tail philosophy is based on not large markets but more on the aggregation of millions of tiny markets

This is the business of the Long Tail, making money from tiny markets. And this has been the business of the Internet in one form or another, for two decades.

How much can be made from the traffic to my YouTube videos? Not much. How much money can be made from traffic to my Flickr photos? Not much. But aggregate many millions of such tiny long tail markets and you can make billions in revenues and hundreds of millions in profits.

The problem as Tom sees it is what happens when the traffic required to sustain the profit margins from hosting the ever increasing user generated content begins to drop. In his mind traffic growth is limited whether it be by actual number of eyes or right down down to the time available for the eyes that are already there. As he puts it it there are fundamental limits to the rate of growth. It is his feeling that a point will be reached when no amount of Internet traffic increases will be able to keep pace with the ever increasing number of long tail micro-markets.

Additionally he suggests that the costs will at some point exceed profits made from living in the Long Tail

The costs of hosting long tail micro-markets will continue to increase until they exceed the profits that can be made from them.

…..

At some point, businesses will be chocking on the costs of supporting the Long Tail of data that makes up their micro-markets. The costs of the Long Tail will twist tighter around the neck of profitability. What happens then?

What Tom suggest will happen is that businesses built on the philosophy of the Long Tail will at some point be in danger of being dragged under by the economics of having to maintain the Long Tail micro-markets.

I don’t know if Mr. Foremski is correct in his assessment or not but as a blogger that lives in that Long Tail with the hope of building a sustainable income stream that comes as a result of that philosophy it does make me stop and think. Could we really reach a point where the Long Tail become more of an anchor around our collective nets. With the majority of blogs that have revenue streams built around an advertising model that exists because of this Long Tail philosophy one has to wonder what would happen should that Long Tail dry up.

Right or wrong it should be food for thought I believe.

Conversation Tags: Long Tail, user generated content

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felix 5 months ago 1 point
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I agree with engtech - storage is always getting cheaper, really a lot cheaper. And all the costs of maintaining these huge scale sites are valid, but people and services are learning to deal with exactly this problem as efficiently as possible. So now rather than having to reinvent every wheel, for example, you can now load your stuff up onto EC2/S3 and let Amazon worry about how to handle scale.

But I think the core of his premise is this quote:

"More of any product or service means less revenue for that product or service. A current example: more housing on the market means a lower price for housing. Same thing applies in any market."

But that implies constant demand - sadly for me, look at the NYC real estate market for proof that that is not a simple truth. More to the point with broadband still making inroads, especially in the US and with mobile broadband just starting to gain acceptance my guess is that the market still has awhile to go before demand comes anywhere near peaking.

Which is certainly not to say that all long tail plays are destined for success. :) But I'm guessing his scenario isn't any more valid now than it has been since long tail businesses began.

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engtech 5 months ago 1 point
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While I completely agree that most long tail markets will not have enough traffic to justify their existence, the guy is smoking something if he thinks storage/bandwidth will be a problem.

Storage is cheap, cheap, cheap and only gets cheaper. Bandwidth not as much, but now traffic no bandwidth.

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