RAD Thoughts

Tom Slee’s critical analysis of The Long Tail continues with Chapter 3 – A Short History of the Long Tail.

The Sears Catalogue has several parallels to the online world that Anderson calls “the ultimate catalog”. One that he does not mention is that it was not easily mimicked. Once there is a big catalogue, a second big catalogue doesn’t help much. The cost of keeping an item on the virtual shelf — whether that be a catalogue or a web server — is small, but the cost of building a virtual shelf in the first place is actually pretty big, and once someone’s built a good one it is difficult to compete with them.

I completely agree with Tom on “the cost of building a virtual shelf” but I would challenge the claim that it is “difficult to compete with them” once the catalog is in place.

It is easy to mimic an online catalog, what is difficult is finding a way to add customer value over what exists. Amazon has stayed on top of the online book business because of execution. Their dominance does not come from being first on the block. The only piece of the puzzle that gives Amazon monopoly-like power is the review writing user base.

Back to the cost of the virtual shelf. One of the biggest issues I have with The Long Tail is the idea that the cost of building and running an online catalog is negligible. The costs of running an online store/catalog are different than running a brick-and-mortar operation but that does not mean the new costs are negligible.

Consider online music. The original Napster was an enormous success because it avoided the costs of paying music royalties and and it used a peer-to-peer file sharing approach to avoid bandwidth costs. The peer-to-peer file sharing was also Napster’s way around the legal aspects of music sharing but their central database turned out to be their legal Achilles heel. Kazaa then made everything peer-to-peer, avoiding the central database, giving them a legal edge over Napster.

Then came the legal offerings. The iTunes Music Store went through all the necessary legal hoops and tackled the bandwidth cost and succeeded partly because of tight integration with the iPod music player. Microsoft originally took the open market approach, betting on 3rd party vendors for music players and music stores, built around their digital rights management infrastructure. Based on the success of past flat-fee subscription based models this approach was promising but the 3rd party vendors failed to provide value-added products/services. Out of frustration, Microsoft has recently taken the proprietary iPod/iTunes approach with their Zune player/store. The barrier to entry in “The Long Tail of Music” is the enormous cost. The costs are just different than those facing HMV or <fill in the name of your favorite bricks-and-mortar music store>.

RIM’s Jim Balsille recently said that music on cell phones will once again change the online music landscape.

Apple has done us an enormous favour by saying you should expect music on your cellphone, [but] I think it’s 10 if not 100 times harder to do the communications aspect onto an MP3 player than to do the mass media player onto a communications framework. I think we’ll absolutely nail it before some new entrant comes even close. You know, everyone’s brave in the locker room. Let’s get it done.

It is unclear whether this will come to pass but what is clear is that the delivery of online music is still very dynamic. What hasn’t changed is the same fundamentals that govern every company/market: minimize costs while maximizing value to the customer.