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The rise of the niche March 27, 2007

Posted by Steve Field in Uncategorized.
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If the 20th century was all about mass media, Chris Anderson says that it will belong to the niche.

The first part of The Long Tail (a book by Chris Anderson which stemmed from an article he authored as editor of Wired magazine, which has a blog bearing the same name) is about the economics of aggregate niche marketing. To understand the power of the collective sum of niche audiences, Anderson first looks at the economics of “hits” and “misses.”

When storage and sales space is a factor, businesses will inherently gravitate towards items that will sell in greatest volume (because they appeal to the greatest audience). This is an economy based on “hits;” only the most popular movies will be picked up for mass distribution, only the most well-backed CDs will be stocked on Wal-Mart shelves, and only the most popular DVDs will be carried at Blockbuster.

When shelf space isn’t an issue, then things change.

This is the great “why” to the question “why is digital media important for business? Because online media fundamentally shifts the way that people find, choose and purchase goods. Space isn’t an issue with digital products — the binary elements that make digital work are virtually unlimited and universally adoptable. This means that in an online marketplace, there is a nearly unlimited opportunity to distribute goods.

Anderson identifies three forces that shape online economics:

  1. Online economies democratize production. By digitizing, consumer goods become more easy to distribute, injecting more goods into the marketplace. This effectively extends the long tail
  2. Online economies democratize distribution. Online sales communities are open to anyone with an internet connection — and unlimited by geography. The availability of consumers has an upward force by creating more access to goods and flattening the tail.
  3. Online economies have the power to connect supply and demand. With “recommendation” tools, such as the ubiquitous feature on Amazon.com, online stores have the ability to direct attention to goods that are available that reflect the shopping preferences of consumers. This effectively uses “hit” preferences to make consumers aware of “niche” availabilities.

In my opinion, this last point is the most important, because it illuminates an important part of the Long Tail that Anderson has yet to address in this week’s readings (though I suspect he might in the second half of the book). In order for a Long Tail economy to work, a collection of niches is not enough — there must also be universal “hits” to link users through recommendation services to comparable niches.

Overall, it is important to note that niches, while once neglected, have become a powerful economic force in a digital economy. The sum of these small-audience product, in terms of dollars, can be just as great, if not greater, than the hits.