This week’s readings, “The Long Tail,” and “Free!” (by Chris Anderson) both address necessary shifts businesses must make to keep up in the digital age. Out with the corporate giants dictating consumer tastes and retail prices, and in with the consumer power of selection.
In “The Long Tail,” Anderson points out the most significant change in the commercial world: we have gone from a world of scarcity to a world of abundance. With media sites like iTunes, Netflix, or Rhapsody, consumers are no longer constrained by the options provided by record labels or video stores. While reading this, I kept thinking back to iTunes and how closely modeled their music store is to Anderson’s suggestions. When I look up an artist on iTunes, for example, the ‘Genius’ sidebar suggests artists that are similar to the one I am searching for. If I click on these similar artists, more similar artists appear, leading me further away from my original search, but keeping with my musical tastes. This is how ‘The Long Tail’ works. Rather than being exposed to only what is deemed ‘popular,’ we are able to look further down ‘The Long Tail’ and discover more artists or films that interest us.
Additionally, online retailers like iTunes don’t have the same problem as traditional retailers, who have to reserve shelf space for ‘hits’ that will sell enough to be worth their rental space. Digital media allows unlimited copies of all music/films/games to be available at all times, without occupying any physical space. This equalizes the value of ‘hits’ and ‘misses’. For example, when iTunes charged $.99 for each track (regardless of popularity), a track by CocoRosie was just as valuable as a track by Britney Spears. Now, iTunes has implemented a three-tier pricing strategy very similar to the one suggested by Anderson in this article, with the idea that pricing tracks that are less popular lower will boost the number of sales of that track.
In essence, where retail choices were once limited, now almost everything is worth selling. Since production, manufacturing, and distributing costs are sliced so drastically with digital media, even something that sells just a few copies is worth it. Anderson suggests executing this by 1) Making everything available, 2) Cutting the price in half, and then lowering it again, and 3) Help consumers find it.
Step 2′s suggestion: ’Cut the price in half…Now lower it,” seems like a precursor for the ideas put forth in Anderson’s article “Free!” Here, Anderson outlines how making products or services free to consumers is a successful business model, and suggests that this method will soon be seen from every company. Where giving products away ‘free’ to consumers was once a temporary gimmick, it has now become a legitimate business strategy. Let’s look at music again, for example. Artists who release their music for free are not making money off of music sales, clearly. However, their overall popularity increases and their music becomes more widely distributed, leading to bigger crowds at live shows, more endorsements or paid appearances, and other forms of revenue. So, by giving up one portion of their income (record sales), they are boosting all of their other income sources.
Companies like Google and Yahoo! have also employed this strategy, making their services and products free, and finding income from other sources. Since consumers are paying nothing for using Google, we are much more happy with it and more likely to use it than a paid search engine. Anderson points out that “The psychology of ‘free’ is powerful indeed,’ the second you charge anything for the service, no matter how close to 0 that amount is, it loses the positive association it had when it was ‘free’.
The ideas put forth in these two articles contrast radically to the ‘traditional’ business models of the previous decades. Rather than allowing popular taste to be determined by a few powerful companies, the consumers are provided with unlimited access and choice, leveling the playing field between ‘hits’ and ‘misses’. This increases the scale and amount of information available to consumers exponentially. Similarly, marketing products as ‘free’ and finding other ways to produce income will drastically change the business models of emerging companies. Proof? The companies that have embraced these concepts (Google, iTunes, Rhapsody, Netflix, etc.) have flourished, while others have faltered.
