Monday, March 10, 2008

The Long Tail and FREE

By now most people have probably seen the Wired front page article on FREE - Chris Anderson's new book.

He was also recently on the Charlie Rose show. (I have to confess I had no idea who Charlie Rose was before I watched this - he reminds me of a slightly more animated and intelligent Larry King).

FREE is turning into an interesting debate. Mostly because everywhere Chris goes, he seems to scare the hell out of traditional businesses. It's fun to watch.

It occurred to me the other day (as no doubt it has occurred to many people) that the Long Tail thesis and the FREE are intertwined to a large extent.

As digital distribution models push the cost of a digital goods or services to almost zero, the likelihood you are going to find and try them rise - dramatically.

Amazon utilizes significant economies of scale to store and catalog books, CDs, etc. and lets you search this inventory for free. If the associated costs of storing and cataloging all those products wasn't essentially zero at the margin, it couldn't deliver the service (or it would have to charge you significantly more for the products).

The same economic fundamentals letting you search Amazon's inventory are also responsible for Google's success, the sweeping changes in music consumption and the changes to come for movies and TV - huge economies of scale that push marginal cost to a negligible amount.

Neither FREE nor the Long Tail exist without this.

It really is a new business model. Which is why people find it so scary I guess.

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