Wednesday

"The lesson: pull consumers down the tail with lower prices," said Chris Anderson.

This was the central statement that clearly illustrates Anderson's theory behind the "The Long Tail" model for online business.

I think consumers and businesses are already aware of the current "free" model where a product is given for free in exchange for the purchase of a separate product or service. Or the "free" model where content is given away while the premium services and additional content is for a price.

So, the question for businesses is whether or not to continue in the "free" veins of models or attempt to implement a strategy more closely resembling the "The Long Tail."

It is easy to see (after Anderson breaks it down) why posting everything, as companies such as Netflix and Amazon have done, is economically sound and how the lower end of the tail can generate large percentages of profit. This theory only works for markets that the product can be sold in a digital format; and as such I think his theory only applies to limited markets.

As Anderson explains, the cost of uploading an obscure, French documentary made in 1975 is practically free for a company like Netflix. Thus, even if only 2 customers select this DVD to rent, Netflix sees profit. The main principle guiding Anderson's theory is that the cost of uploading, hosting, or posting infinite amounts of digital content is so minimal a company should post anything and everything it can and let the product find its niche.

As such, this theory only seems to apply to markets in which the product can be "bought" and "sold" digitally; so music, picture, and text. The other biggest challenge for a company attempting to implement this strategy is breaking into the markets of already-established companies.

The "bubble" video details the boom and and subsequent collapse of '90s internet companies; the "dot coms." The one thing that this era produced was a technological "natural selection." The weakest businesses and those that had the poorest business models and those that did not establish a connection with the customer or the customer to the information were weeded out.

Only the strongest companies with the ability to survive and evolve out of this avoided bankrupcy.

This allowed those select companies to establish a brand name with exponential value and a dominant hold on their marketplace.

Anderson compared Blockbuster to Netflix as an example in one of his articles to illustrate how a company that primarily sells a physical, popular product can miss a large demographic of people that Netflix reaches.

Let's say that Blockbuster listens to this advice, attempts to create something similar to what Anderson suggests. Are customers going to automatically switch to Blockbuster's new service or trust Netflix, which already has established itself and charges pretty low rates? ($7-$10 a month)

I think the one area that could potentially have the most to gain is in the music industry. Because of the IPOD, Apple has had a near monopoly on this market with Itunes. I think the first company that can successfully challenge Itunes in this area and implement some of Anderson's strategies could potentially be very lucrative.

More information on Chris Anderson, his Long Tail theory, and his new book "Free" can be found here at his blog.