When Economics of Scarcity Meets Economics of Abundance

James Heskett

An entire generation brought up to regard many things in life-including communication and most intellectual property-as limitless and free is coming of age. They will join generations of their elders who studied college courses on the economics of scarcity and believe that "there is no such thing as a free lunch."

The new generation of twenty-somethings lives in what Chris Anderson terms "the Long Tail," a term he coined in his Wired magazine column and that is the title of his new book. The "Long Tail" describes the region of the item "popularity curve" comprising the vast population of least-popular items, whether it is song titles, books, or little-known brands. Life in the Long Tail is a busy routine involving the downloading of anything digital from the Internet; paying for some things, such as iTunes, but sharing and trading many others; creating and maintaining blogs, some of which are more frequently visited today than network television shows; contributing and editing items on the ever-changing open-network encyclopedia, Wikipedia; and when watching television (rarely), doing it when and where it is convenient to do so, through such devices as TiVo and cell phones. It is a world where everything digital is available at all times. And because of the very low cost of maintaining and distributing inventory, everything is likely to remain available forever, enabling the occasional gem of intellectual property to survive "in print" or in circulation. It is a world of non-zero-sum thinking.

This is in stark contrast to many of the rest of us who actually read newspapers, watch television, go to the movies, and use the Internet for such mundane purposes as sending and receiving e-mail and making purchases of merchandise generally thought to be in what Anderson calls "the Short Head" of the item popularity curve. The Short Head accommodates hit recordings, the most popular fashions, best-selling books, and other products of a world taught to believe in the economics of scarcity based on a limited amount of retail shelf space, a limited number of television channels, and generally limited resources of all kinds-in short, zero-sum thinking.

Just what are the economics of "the Long Tail"? If so much is free, can money be made there? Because if there is no money to be made, many would regard this as a quaint set of beliefs held by people about to come face-to-face with the real world. Anderson describes three conditions critical to potential long-tail profits, all of which are provided by the Internet combined with creative new software and hardware: drastically reduced costs of creation, increased ease of distribution, and search devices employing "filters" and user recommendations that make all of what is available accessible and understandable to potential consumers.

In Anderson's view, all of these drive demand down into the tail, which he terms "a culture unfiltered by economic scarcity." In the Long Tail, money is made by such things as a ing inventory, producing to order, letting customers do the work, pricing creatively and flexibly to various customers, utilizing a variety of distribution methods, sharing information, trusting the market to do your job, and understanding the "power of free" combined with money-making services or products.

Does the Long Tail represent what some would call a "paradigm shift"? Who will the Long Tail benefit most: consumers, producers, or intermediaries? Is it limited to things that can be digitized, thereby excluding most products for which inventory carrying and other logistics costs for unpopular items are prohibitive? Does it warrant an entirely new field of economics scholarship? What are its implications for management education? What do you think?

Executive Summary

The "Long Tail," a term coined by Chris Anderson-and the title of his new book-describes the item popularity curve. Does the Long Tail represent a paradigm shift for business and consumer behavior? What are its implications for management going forward? Key concepts include:

• Chris Anderson first coined the term "the Long Tail" in Wired magazine.
• In a long-tail world, everything digital is available at all times.
• Anderson describes three conditions critical to potential long-tail profits, all of which are provided by the Internet combined with creative new software and hardware.

To read more: Chris Anderson, The Long Tail: Why the Future of Business Is Selling Less of More (New York: Hyperion, 2006).

About the Author

James Heskett is a Baker Foundation Professor at Harvard Business School.