Economics Of Online Distribution: Who Benefits From Long Tail Aggregators?

Online distribution now provides the opportunity or everyone to be an author, whether that be an online film maker or a new thriving jazz ensemble. With the help of customers themselves, specialized search engines, directories, and theme-specific content clearinghouses make it now easy to discover new books, songs, movies and other content previously inaccessible or very hard to find.

But who benefits the most from this new online distribution venues made possible by a fast growing number of content aggregators and filtering companies?

Photo credit: Jozsef Szasz-Fabian

If you, like me, have been closely following the recent writing, research and conversations centered around Long Tail economics, you may have run into this very interesting article by a venture capitalist (and blogger) who recently covered the topic on his own blog. While I have covered the broader Long Tail subject in breadth and depth in the past, my interest was caught again by the reading of this good article by David Hornik, who warned authors and indies not too get too excited about the potential of the Long Tail, as the true benefits emanating form it would all acrrue to those filtering and aggregating the Long Tail and really not to those making it up.

According to David Hornik,

"...the economics of the Long Tail are, to my mind, still often misunderstood.

I continue to hear funding pitches that talk about the Long Tail as a powerful enabler for content creators.

Companies are presented to me premised upon the increased value of Long Tail content for musicians and artists and film makers.

The fact that increasingly the likes of Amazon and iTunes make it possible for Long Tail authors or bands to sell a few books or records through legitimate, recognized channels is touted as the revolution of the artist.

Far from it."

Really?

That doesn't click with my experience.

Should we maybe consider questioning whether the definition of success and being adequately rewarded is the same for both traditional media companies or commercial artists and the new breed of independents and small publishers making up the emerging content long tails?

Photo credit: David Hornik - photo courtesy of Techcrunch.com

Mr Hornik further writes:

"Aggregated Long Tail content is extraordinarily valuable.

There are essentially two general classes of technology the will benefit economically from the Long Tail -- aggregators and filterers.

And while both aggregators and filterers rely upon the increasing volume and diversity of content to assure their value in the ecosystem, that growth of content will not have a material impact upon the value of any one piece of content floating somewhere in the Tail. The value will all inure to the benefit of the aggregators and filterers."

For those of you yet unfamiliar with this terminology, let me just add that aggregators are considered those online business entities whose goal is the one of aggregating as much content and sources on a specific content realm to become a one-shop solution for finding hard-to-get-to content. As Mr Hornik, rightly points out, such aggregation may be horizontal, as is the case with Amazon or Netflix, or vertical, as is the case with WantedList or GameFly (the Netflix of porn and video games respectively).

The advantages that aggregators provide is clearly one of saving customers the time and effort required in having to go to multiple retailers to find content they are looking for, whether this be movies, books, music or educational, business or research information. If Amazon alone can aggregate all books on all topics no matter how popular or old these are, then it is evident that the customer is truly enticed in shopping there, as whatever sHe needs in the realm of books, no matter how diverse, sHe can find there.

"As a result, aggregators are able to extract a disproportionate amount of value for the sale of each individual piece of content.

And while creators are likely to sell slightly more content as a result of the increased ease of salability, they will not likely emerge from the obscurity of the Tail merely because they are made available for sale on Amazon or iTunes."

Agreed.

But if you stretch this line of thought a bit further, and beyond what VC eyes can see, there is opportunity to see positive signals for the small publisher and independent author, be hir a musician, writer or videomaker.

The new emerging pro-am, micro online publishers and small online entrepreneurs of today and tomorrow have no need or craving to emerge from the obscurity of the Tail. That is their home, and belonging to that niche universe is what gives them value.

Given enough time and reach, through mobile communication, language translation tools and other means, those tiny vertical niches will have micro-audiences of hundreds of thousands if not millions, and given the much smaller infrastructure required by these long-tailers will make them potentially much more profitable than their traditional mass audience counterparts. Having little or very small and flexible management and publishing infrastructures, direct lines of business, no middlemen or big name intermediaries, does possibly revolutionize the economics of the numbers behind who is really successful. So, while it is true that Long Tail exposure will not push such "acts" into the mainstream, it is also true that the long tailer could enjoy much greater rewards, economically and beyond, with much smaller audiences. Something not possible within mainstream rules and options.

This is why, in my eyes, looking at aggregators and filterers with VC-focused eyes only, and with VC-tuned metrics, may leave some alternative viewpoints unjustly unexplored.

David Hornik writes:

"...while these different filtering technologies may make it slightly more likely that an end user finds his or her way to a piece of obscure content, it will not likely be sufficient to catapult an artist into the mainstream."

But is this the only way to look at these issues?

Consider the following:

a) These aggregation companies and filtering technologies do make it significantly more likely that I discover new content, authors, musicians and movies I would have not even considered listening before. Services like Amazon (for books), Pandora or LastFM (for music), Technorati (for independent news and opinion), Flickr (for images), Digg or Delicious (for grassroots-elected interesting online resources) are a slap in the face to those saying that these technologies do not help discover content and authors that are not part of the mainstream. They do. And in a major way.

b) The indie author, the small independent publisher or videomaker of the new generation has now started to understand that hir value is not in serving a mass-audience or in equaling mainstream content distribution schemes and revenue making approaches, but in developing a much smaller but much more loyal and passionate niche audience characterized by deeper common values, traits and characteristics. Niche audiences are in fact as or more powerful than hugely homogenized mass audiences. They are not as large in absolute numbers, but they are more prone to be loyal, to proactively support their favorite artists and to spend money across a multitude of services and products that those niche content authors make available for them.

This is why, I believe that the true beneficiaries of the aggregation and filtering are all the parties involved: the end user, the filterer, and the content author.

What do YOU think?