This is a must-read book for anyone that is looking to do business in the digital age. It provides many foundational concepts related to the business of the internet.
Since the industrial revolution global society functioned by consumerism rules. The goods of the industrial revolution experienced economies of scale, driving down the costs of production. This provided goods at reduced prices making them accessible to the masses.
For mass-market consumption, the industrial age manufacturing process required economies of scale. Massive-scale production supported company profitability. ie: Companies were making a lot to get lower material costs, so they had to sell a lot. In a consumer-driven economy, the goal was to produce hit products or blockbusters. Another goal was to create ideas that go viral. These goals were the lens that consumer society used to view success.
Developed world society built its culture using this consumerism lens. You went to the best possible school and found a standardized corporate job at a large company. Or you worked in manufacturing. Regardless, one way or another you were part of the industrial manufacturing complex. The straight and narrow path.
Then the internet arrived and has changed how society views success.
The internet is a massive expanse of networked computers. The development and worldwide adoption of the internet changed the economics of consumerism. As the cost of internet access dropped, new tools for self-expression have grown. Small communities and “micro stars” or influencers emerged in this new environment.
These people and their communities may have always existed. But it was the internet that made reaching them at scale possible. Internet access has grown our ability to consume an unlimited supply of content. By creating this access, an environment of subculture growth has emerged.
Unlimited choice has allowed society fragment, diverging from mainstream culture. Fragmented culture allows self-expression in new ways, eliminating one size fits all consumerism.
It’s now possible to be selective and picky in what we choose to consume. Do you want mainstream content options or niche community options?
Affordable internet provides access to vast information, people, and communities. Combined with systems to combine and filter information creates new subcultures. And new classes of people.
How The Long Tail Works
The economics of the internet provided massive scale, achievable at little cost. With access to a global network, you can provide a link and if you generate curiosity, people will click it. Making it possible to reach large audiences for their products, services, and content.
Access to larger audiences made it possible to monetize niche content. Demand for niche content resides on the long-tail distribution curve. Before the internet, niche audiences were too small and dispersed to be profitable.
The pre-internet economy required blockbusters to rationalize retail spaces and costs. The internet provides better margins. Making it viable to sell content to smaller groups and profit from fewer numbers.
This makes micro-cultures important.
You don’t need to create blockbusters to be successful. Instead, it’s possible to capture greater value from many small communities. The internet has allowed us to reach more of what we want as consumers.
In our modern form of consumerism, we reward the first to share new content. The speed with which we are able to share the new information is rewarded with likes, shares, clicks, and dollars.
We want more niche information and we want it fast. It’s addicting.
The internet created an environment where you can be open for business 24 hours a day. As long as you have web access, you can operate from any region of the world.
Constant access and addiction to new content created an environment of information arbitrage. We can take old concepts and transmute them into new concepts. Using influences of a particular subculture to influence and create a certain freshness. A fresh take on an old mainstream concept. And we can do it at little to no cost.
There is so much to experience in such a short time that we have trouble processing it all. We need ways to sift through all the information and process what we like and don’t like.
Filters, Information Theory and Sorting Complexity
The internet gives unprecedented access to information. But society needed a way to sift through all the noise to get any value from it. This led recommendation systems (filters) that categorize and rank content by many factors. With so much random information, the need to organize it into useful buckets was clear.
Google and other search engines provided a means for individuals to get to what they wanted.
Think of the internet as a massive marketplace of ideas. When you enter a market, there is signage pointing you towards goods to aid you in finding what you want. Search engines do the same, helping to get you to the right marketplace. Once at the right market, filters help you refine your search.
Filters help categorize information by sorting it into buckets. Examples include: most popular, cheapest, expensive, recently purchased, old, new and so on. These filters help people sort through information to get to what they want.
Information aggregators emerged creating filters across many niche categories. A company like Amazon provides filters and recommendation systems that create feedback loops.
Users find what they want using filters to discover niche brands. As they discover what they want with more frequency, they return for more. Information aggregators, in turn, fine tune their filters to provide more value. This creates a feedback loop.
More On Filters
Too much choice can be paralyzing. It can prevent user acquisition if not organized by filters.
Pre-filtering is what the traditional path of consumerism provided us. Professionals acted as gatekeepers selecting the content that they deem will be “hits”. Mainstream consumers could choose from these mass-market options with limited alternatives.
We are shifting away from pre-filtering to a post filter age. We provide the user/consumer with the ability to filter through content as they see fit. Thus, empowering them to find exactly what they want.
According to Chris Anderson, “Post filters amplify, rather than predict”. “…the role of filter then shifts from gatekeeper to advisor. Rather than predicting taste, post-filters such as google manure it.”
Filters should exist at the subculture or genre level. Ie: Placing specific filters on Science Fiction books rather than applying these filters to all books.
How Does The Internet Make The Long Tail Valuable?
The democratization of the tools of production –The internet is affordable to access, it allows the creation of content at little cost. As the internet spread, access to tools for cultivating audiences became more available. Reduced costs allowed internet users to create content that matched unique preferences.
The internet provides access and the ability to share information for everyone. On a globalized scale, this allows us to fragment society by niche preferences.
Cutting the costs of consumption by democratizing distribution – The internet provides low-cost access to physical products, services and, information products. Made possible by reducing costs for digital listings and distribution of information products. Businesses can now be efficient with warehousing space and reduce the costs of space.
Connecting supply and demand – The internet aggregates supply in one location and filters it. This helps people find what they want and makes it easier to connect supply with demand.
As more people get comfortable with the web, new tools support more interactions. Social media is an example of a tool that has become a funnel for connecting supply and demand.
Society has shifted from pure consumerism to an environment promoting value in production. It’s now important to produce content as it is to consume content.
Digital Citizens must produce content to establish a shared reality.
We are in the early stages of this shift to a more active form of consumerism. We still consume in massive amounts. But we now also produce what we want for ourselves and our communities. A direct result of the democratization of production.
By reducing costs and increasing access to the means of internet production, society gains more value. There is no longer a reason or lack of means to produce.
Consumer-driven economies have historically been controlled by individuals and institutions that operating the means of production.
Now that anyone can access tools of production the power structure of the consumer-driven economy has changed. Power is still in the hands of those that produce. But now society is shifting from an oligopoly with a few powerful institutions to an open system. A system defined by power dispersed among many.
Fresh, new, creative and amateur concepts are now rewarded. Before, the polished and professional concept took home the majority of value. The rise of amateurism has produced runaway growth in the production of ideas.
For this new class of creators, its important to understand the probabilistic value of creation. We may not be able to comprehend the value of the long tail because of it’s statistical nature. According to Dunbar’s Number, our brains are limited to maintaining a maximum of 150 stable relationships. It’s hard to understand that our physical network may not value what we produce but the internet does.
The internet allows us to reach a wide enough audience that may indeed find value in what we produce. And this larger audience provides larger profit margins, allowing us to pursue our ideas further.
The internet is evolving to accommodate more of this democratic creation. It’s becoming important to learn and understand the interworking of information theory. Understanding that filtering on the internet is a way of establishing order. Sifting through massive amounts of information on the web allows people to find what they want.
The internet made the long tail profitable. With it, the internet ended the need for one size fits all approaches. Instead, it’s now common sorting through information and establishing filters to build communities.
Money is no longer the only means of capitalizing on economic opportunities on the web. You can now establish reputational currency as equity that returns a quantifiable value. Your ability to control attention and exert influence on the web will provide reputational equity.
These status games are common within our localized communities. But now, they can expand our connections beyond Dunbar’s Number. Through the internet, we have a greater geographical reach to establish more connections and reputation than ever before.
Reputational currency becomes a vehicle for extracting value from a network. Using reputation, a person or company sells products and services.
ex: if you like my writing, like my ideas and believe that I generally have something of value to offer… you would love the book that I’m writing. I’m also available to consult you on building your personal brand. I have helped companies build strategies to grow their businesses. Etc.
The internet allows for grassroots reputation building at massive scale with minimal costs. Like a door to door salesmen having the ability to knock on millions of doors and share your message all in the same moment.
The internet has given rise to influencer-driven economies. Characterized by individuals and groups using grassroots campaigns to build influence.
Viral campaigns are important to this era. But generally influence campaigns to take a long time to develop. They need significant amounts of content creation to develop loyalty staying power.
The development of small communities requires the producer to shepherd the growing community. Shepherding includes aggregating, filtering, and developing strong recommendations. It means coordinating a sense of community context building ability for the community to be found.
This refers back to information theory, the ability to cut through the noise of information on the web. An influencer’s value is derived from their ability to cut through the noise and produce high-value niche content. Valued content is material a niche subculture would be willing to seek out and pay for.
Search Engine Optimization And How Google Filters The Internet
Google’s search engine and its algorithms forced internet producers to learn SEO. SEO is a method of adapting to the filtering mechanisms used by Google’s search algorithm. Google helped the internet structure by making it possible to navigate the internet.
By using indexing algorithms, Google was able to improve the signal to noise ratio on the web. This made the internet useful to all manner of producers and consumers. Google’s indexing of the web made SEO a required skill for building long-tail communities.
The Long Tail
What is most profound to me from reading The Long Tail is the mindset shift from long-tail economics. As a society, we still get caught up in the hype of wanting to create “hits” or “home runs” every time we produce something. Long-tail economics make hits irrelevant if you understand how to leverage the internet. You don’t need to focus on hits to be successful.
Niche community building on the internet provides access to such large opportunities. Reduced holding costs and increased profit margins, small non-hit-driven opportunities are now common.
To take advantage of long tails, focus on how to leverage the scale of the internet. Use the internet’s low costs to create reputational value over the long term. Shift your mindset from chasing home runs to building many long-tail opportunities.
It’s like using a small ball strategy in baseball. Stop aiming for home runs. You want to get on base as much as possible. The more opportunities that get you on base the better chance you have of scoring runs. Over time, the total number of runs you score will add up to greater value.
The Economics of The Long Tail
The Law of the Vital Few aka the Pareto Principle which argues that 80% of the profits come from 20% of the products.
Long Tails follow powerlaws of distribution. When graphed, the curve of its distribution approaches but never reaches zero. When comparing powerlaws, its best to compare them on logarithmic scales for better contrast. This helps you to see the contrast that is taking place.
Digital business profit margins improve as storage and search costs drop. Long-tail products allow for greater dynamic pricing from one product to the next.
Once you establish profit margins, the goal is to establish reputational feedback loops. You do this by making it easy to share feedback by word of mouth. Reputational feedback compounds over time and helps establish a winner take all system.
Reputational value on the internet is measured by the number of incoming links a site or product generates. AKA backlinks. These inbound links act as a voting mechanism within search engine algorithms. Fortune favors businesses’ speed at organizing content within a niche. Businesses must produce content early, often and establish a positive word of mouth.
Web consumers want a one-stop-shop experience. That is why it is important to organize a niche to be as wide and as deep as possible. By covering the breadth of the niche, you can capture more value along the long tail. This is best orchestrated using a recommendation system. Ex: If you liked x and y then you will like z. Check out all the people that liked x and y and went on to enjoy z as well.
This why proactive product labeling is important. Labeling helps position other products for consumption and shepherds incoming consumers to adjacent products.
General Rules For The Long Tail
Focus on inventory cost reductions. 3PL and fulfillment operators do this for physical products. The inventory shelf space of the internet is inexpensive and limitless.
Establish the ability for customers and niche community members to provide feedback. It’s a cheap and effective way of establishing positive network effects.
Focus on gaining inbound hyperlinks. They are the holy grail of exposure on the internet. Make this process as easy as possible for users to pump your brand and send business your way. It helps to boost the signal to noise ratio.
The days of one size fits all approaches are over. Focusing on one method can be a barrier to success.
Figure out how to get more quality information to the user. Be digestible at scale.
Use the advantage of free shelf space. Test market opportunities and measure outcomes rather than predicting and chasing phantom opportunities. ie: A/B testing
Reduced costs allow you to use the psychological weapon of “free” product offerings. Lead Magnets generate a lot of inbound traffic.
This book has made me see the importance of information theory and data science in the digital age. As technology continues to drive down the costs of production and storage, long-tail opportunities will grow.
As the internet grows, there will be a rise in consumer paralysis. How can they make choices with so many options?
It gives rise to an era of clickbait.
Studying information theory, Long Tails, and SEO, you can develop filters and increase customer acquisition. IE: Learn how to get the information people want delivered in the most efficient way possible.
This book paired well with the behavioral economics book by Dan Ariely, Predictably Irrational. People don’t often want many choices. They want the illusion of choice.
Filtering systems provide the illusion of choice while shepherding the consumer to products with the best margins. Filters will position consumers for anchor products that data indicates they should like. The more value delivered, the increased loyalty a consumer will give.
People love “free” products. Free products can be used to establish brand loyalty or position them to buy something else.
Long Tail – The Bottom Line
“Bottom line: A Long Tail is just culture unfiltered by economic scarcity.”
Learning to build filters is one of the most critical skills a Digital Citizen can develop.