David Hornik asks: Where’s the Money in the Long Tail?
It is certainly the case that in the aggregate, Long Tail content is extraordinarily valuable. The question for VCs and entrepreneurs is “for whom?”
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The real money is in aggregation and filtering and those will continue to be interesting businesses for the foreseeable future.
He points out that aggregators are building convenient one-stop shopping for people looking for topically-focused content, and derive economic value even when the content publishers do not.
David Beisel follows the money a little further:
…in the long run, the value of the network is not only determined by the number of nodes in it, but in the ability for the network to monetize those nodes.
…in calculating the value of a network, any equation describing it should contain a variable with the monetization rate (or proxied by the value to the user which can be monetized in the future). So while the number of nodes in a network surely is a fundamental (if not the majority, in many cases) driver of value, the value of the network itself to the user is also a very important component to the overall total.
Being the provider of a filtered view of online content is somewhat analogous to being an editor at a magazine or newspaper, a program director at a radio station, or an A&R rep at a record label. It usually doesn’t make sense to pursue some topics or styles as there’s either no audience, or a very low value audience, or an audience that’s too hard to reach.
Conversely, some publications do well on a very small base (financial newsletters and independent musicians come to mind). When the individual publisher (writer, musician, artist) develops their own audience, they are able to capture more of the value placed on their content by the consumers of content (readers, listeners, viewers) than when they are simply one of many aggregated content producers. People seek out their favorite writers in newspapers and magazines, talk show hosts on television, or musicians in local concerts. The content producers gain relative power over the distributors and a few can become their own branded media empire. (Think “Oprah”.)
From an investment point of view, it’s difficult to justify betting on any particular content producer becoming an online media star, for the same reasons aspiring writers/musicians/actors don’t get VC investment. (How are you going to know when you’ve got the next J.K. Rowling or Dan Brown on your doorstep looking for seed funding to write their book? )
In contrast, search, filtering and aggregation services can be built for specific audiences. The trick though is not just to find an audience, but to provide a service that is valuable over time to the audience, service provider, and content publishers. The Alexa Web Search Platform announcement this week is interesting not because it’s the best general purpose search engine, but because it may drop the effective cost of building some targeted filtering and aggregation services low enough to uncover some new interesting niches, in addition to the areas that are already being addressed by vertical search startups. Many of these niches may be profitable short term projects for a small team (or single person) but not durable enough to be investable, though.
Greg Linden adds:
Massive selection isn’t enough. To make the long tail accessible, irrelevant items should be hidden. Interesting items should be emphasized. Millions of poor choices should be reduced to tens of good ones. The value is in surfacing the gems from the sea of noise.
David Beisel has some suggestions:
Where’s my “social portal” for me as a skier enthusiast? Better yet, where’s the “About.com of social portals?” Or why isn’t About.com more social?
I suspect that someone will have that social portal for skiing enthusiasts in limited beta somewhere real soon now…
See also: The Home Pages of this New Era
