Heads you win, tails you lose

The Long Tail is one of the most commonly quoted models for business on the Internet:

The Long Tail or long tail refers to the statistical property that a larger share of population rests within the tail of a probability distribution than observed under a ‘normal’ or Gaussian distribution. This has gained popularity in recent times as a retailing concept describing the niche strategy of selling a large number of unique items in relatively small quantities – usually in addition to selling fewer popular items in large quantities. The concept was popularised by Chris Anderson in an October 2004 Wired magazine article, in which he mentioned Amazon.com and Netflix as examples of businesses applying this strategy. Anderson elaborated the Long Tail concept in his book The Long Tail: Why the Future of Business Is Selling Less of More.

More money is made by creators at the head than at the tail, according to Kevin Kelly, via Chris Anderson:

In pocket #1 of the curve, Seth talks in terms of a creator of a work. In pocket #2 of the curve, he also talks in terms of the creator. But then when he gets to the long tail, he switches away from a creator, to talk in terms of an aggregator of other creators’ work. Why is that? What happens to the creator? The creator is dropped when we get to the long tail “pocket of profit” because the long tail is not profitable for the creator. It’s profitable only for the audience and aggregators.

According to Seth Godin, pocket #2 has some real potential:

The reason you can make money in the niche pocket is that it costs far less to compete here. First, because there’s less competition and the competition is less fierce, and second because it’s cheaper and easier to reach your target market because they’re choosing to pay attention.

After seven years as an independent working online and participating in online content creation, I am starting to wonder how much room there really is in pocket #2 and if it’s just a (very) short extension of pocket #1. Jaron Lanier in You Are Not a Gadget, says:

The people who are perhaps the most screwed by open culture are the middle classes of intellectual and cultural creation.  The freelance studio musician, the stringer selling reports to newspapers from warzones are both crucial contributors to culture. Each pays dues and devotes years to honing a craft. They used to live off the trickle down effects of the old system, and like the middle class at large, they are precious. They get nothing from the new system.

If you’re not one of the recognized leaders in your field, can you make a living online or are you just part of the long tail, valuable only to aggregators and their advertising revenues? As a content creator are you providing the fodder that lets Google, Facebook and YouTube earn huge market valuations? Will there be a middle class in the networked economy, or only heads & tails?

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9 Responses to “Heads you win, tails you lose”

  1. Anne Marie McEwan

    This is a really thought-provoking post, Harold. Lanier’s comment on honing a craft really strikes a chord. In my own case, this is fifteen years worth and only now am I beginning to harvest this investment of time, effort and opportunity cost of income foregone while I get my story straight.

    You ask “Can you make a living online or are you just part of the long tail, valuable only to aggregators and their advertising revenues?”. I think we can.

    I am a content creator but am also well aware that I aggregate from other sources – mainly obscure, overlooked and (to my mind) useful academic research. As creator and aggregator, I try to give away enough that is valuable while keeping the really good stuff under the counter.

    But here’s the thing. I will not make my money online from producing content. It is by doing something with the content and in agreement with partners, their content, tools and methods.

    The added value is in the doing and in savvy choice of partners, tools and methods. That’s my plan anyway. Will let you know how it goes :-)

    • Harold Jarche

      Thanks, Anne Marie. That has been my approach as well – my blog helps drive the consulting business. There is no online revenue for me. But how much of my content is fueling the large aggregators as well as competitors & is this still a good business model?

      Seth Godin’s advice five years ago, which I’ve followed, was to be patient, persistent and keep your costs low. I’m starting to wonder about the patient part ;)

  2. Rob Paterson

    Harold
    This is a very provoking post – I think that so long as we aspire to be in the top 2% we will fail to meet our own needs.

    I am not sure but my gut tells me that the new starts with expectations – say an artist – if you want to be Picasso then you have to play the game. If you want to be “successful” in our field join Dachis or Altimiter.

    There is a complete fit to the corporate world needed to have “success’ of that type I think.

    But what if you want to make a living as an artist – the open source world suggests that you split your life into what pays and what gives you reputation. It also suggest that you get you costs way way way down.

    This is what my son is struggling with right now and I bet you and I.

    The thing that you, I and James all know is that no matter how ghastly our rewards are we can’t go back and take the King’s Shilling.

    So what do we do?

    Build our own organizations – food – education/kids.

    Will we get the corporate world to see us and what we know as valuable – never!

    Dachis will get paid handsomely for the pretense – but I could not do that work.

    Every day, as I work with people who are on the other side of the line I see the gulf widening.

    I am rambling H but you have got me going!!!

  3. Virginia Yonkers

    Two things have happened to the world economy over the last 3 decades which has impacted business models: the networked economy and the deregulation of businesses allowing for a rebirth in big business and mega-businesses’ monopolies in industries.

    Personally, I think what you have described in terms of the “scraps” of business for the niche market is a result of deregulation, not the networked economy. If anything, niche marketing is only possible in our big business dominated world economy BECAUSE of the networked economy. Just think, you can now find a niche market in France which would not have been possible in the late 1800’s/early 1900’s, the last time big corporations had such a hold over the economy (think of the Suez Canal Corportation).

    I have done some research in the past on entrepreneurship, and what you describe is pretty typical for entrepreneurs. Their psychological make up is one of having a high tolerance of ambiguity, risk takers, and a high level of self-efficacy. In other words, it takes a certain personality to stick with self-employment.

    As safe guards for a level playing field for all businesses (including the small business or niche market provider) are dismantled, it is harder to compete with the large companies. Rather than develop their own niche markets, they buy out those companies that have put the time and energy into creating a new niche market or product, thus eliminating any potential competitor before they can get too big.

    Interestingly enough, the one area that I do see the networked economy having the greatest impact is in higher education and formal training programs. In conjunction with greater power going to larger corporations, these educational institutions can go out and find specialists at the lowest pay for short term assignments. As an adjunct, I am competing with a number of other adjuncts who might live in areas with a lower cost of living and can deliver training at a lower price, through elearning. So it is a result of the networked economy, but also a corporate model that is allowed to take advantage.

    • Harold Jarche

      Your last point reminds me of my previous post on Automated & Outsourced, Virginia. Complicated work just gets outsourced to the cheapest source of labour. If institutions see adjuncts as doing merely complicated work (replaceable cogs in the machine), then of course they will go with the least expensive option.

  4. Seb

    The more I think about it, the more I think only two options remain to make middle-class money or better.

    1- take the King’s Shilling, as Rob says, and work in the old culture – receive few, but sizable, amounts from a stash controlled by few people, through a good connection with one of these people. High-end consulting is technically part of #1: even if you’re not directly on the customer’s boat, you depend on its engine to move your own boat.

    2- exploit innovative technology to operate an enterprise that scales up to deliver value to large numbers of low-paying customers, and thus receive a large number of small amounts through a large number of relationships with customers.

    In both cases you can expect to face competition. #1 is mostly social/political; #2 is mostly technological/creative.

    In the long term, I think #1 is like staying on a chunk of ice floating in warm water. There is less and less room as the old culture melts down, and people will inevitably get shoved out as budgets shrink.

    #2 is an open field. It’s the Wild West, where the rules are not very clear and the territory itself appears to be limited only by our imagination. The name of the game is to find a way to make it work in the ecosystem you’re living in.

    There is volatility and uncertainty in both markets. Assured comfort is out for the foreseeable future.

    I find that knowing how to get the same quality of life out of less money is indeed a form of personal wealth – you could say that it improves personal productivity on the spending side.

    I recently learned about a physicist who retired at 33, after saving 3/4 of his salary for 5 years. His secret? He simply figured out how to live on much less money, thereby turning his modest savings into a retirement-worthy pile of money. (Not having kids surely helped, too :) If you’re curious, his site is here: http://earlyretirementextreme.com/

  5. Daniel Lemire

    I think that consulting is not great. We have this image of the high paying consultant who comes in, takes the big money for no work, while the day-to-day employees suffer, do the real work, for a small pay.

    I think that’s because most employees can’t count. If you are paid a salary of 20$/hour, you think that the consultant who comes in at 80$/hour is making four times your salary.

    But that is not true, of course. The consultant at 80$/hour may only have billed 10 hours in the week, while he spent the result of work on accounting, marketing, networking, training and so on.