In a new-to-me post on his Ventureblog (OK, it as way back in Dec/05), venture capitalist David Hornik explains why the real money in Long Tail businesses goes to the companies that aggregate and/or filter content- and not to the content creators. This is the point I've been exploring in talking about the economics of digital distribution and the Fallacy Of Composition (an advantage for everyone is an advantage for no one). But Hornik brings the perspective of someone who vets business models all day, looking for good investment risks:
I continue to hear funding pitches that talk about the Long Tail as a powerful enabler for content creators... The fact that increasingly the likes of Amazon and iTunes make it possible for Long Tail authors or bands to sell a few books or records through legitimate, recognized channels is touted as the revolution of the artist. Far from it...I have come to the conclusion that there are essentially two general classes of technology the will benefit economically from the Long Tail -- aggregators and filterers. And while both aggregators and filterers rely upon the increasing volume and diversity of content to assure their value in the ecosystem, that growth of content will not have a material impact upon the value of any one piece of content floating somewhere in the Tail.
My version of that thought:
Digital efficiencies have the effect of driving down prices, and the end of the trend may be music that's worth next to nothing on a per unit basis. One possible outcome: Aggregators of that nearly free content may very well be able to make money, but small labels, and artists, may not.
But really, neither Hornik nor I am saying anything new. To go back just to the middle-near-past, Eric Raymond explored the economics of gift culture in his landmark The Cathedral And The Bazaar. He noted that when a resource, such as open source software (or, in our case, digital media), is abundantly available, scarcity cultures evolve into gift cultures. In a gift culture, you don't get paid in money by producing something scarce, you get paid in reputation by giving away things that are abundant.
In some cases you may gain enough reputation in a gift culture (through giving away excellent work) that you can leverage it to make some money in a scarcity culture, for example by writing a book. Thus many digital media businesses depend on advertising - in other words, on giving away things that are abundant, such as songs, in the hope of being able to make money on something that is becoming more and more scarce: attention.
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Ah, okay. Yes, I agree with that.
Making money directly from the Long Tail is not going to happen, not very well anyway - people like owning stuff, ie. tangible objects, and the better-off will pay for services, say, a subscription to a steady supply of new premium content. But noone likes to pay for bits in a file.
Now, many web comic artists would never have made it in the days when newspaper syndication was paramount (classic controlled channel situation). Some of them are so niche-specific you'd never think they'd find an audience, but they do.
So yeah: you don't make money from the Long Tail. You make money by building an audience you would never have reached otherwise, and then doing secondary business with them. I guess we'll all fumble and stumble a lot until this gets figured out broadly and properly.
(Not that I claim to know exactly where this is headed, mind, in case I sound like it. I'm just trying to look at things known to work and things known not to, and they seem to indicate a rough direction quite confidently. I'm anxious to see whether things do play out that way.)
I think it's a good point, but I think my point about the Long Tail still stands. I think a lot of people have been assuming they'd make money directly from Long Tail business models, but it seems to me your solution makes money by reaching out of the abundance domain into traditional scarcity domains - i.e. since T shirts and mugs are still physical objects, they have built-in scarcity and supply can be controlled - I guess we could call it Physical Rights Management.
I made this comparison in another of your posts: web comic artists give away their comics. Instead they make money from selling shirts, buttons, books (with either higher-quality original content or collections of posted strips) and the like. Fans buy the stuff. I see no reason that "web musicians" couldn't subsist on a similar model.