Is the Internet Altering the Way Business Will Work?

Chris Anderson, the editor-in-chief of Wired Magazine, was recently interviewed on Moneytalk, a money talk show hosted Bob Brinker.  The interview was about Anderson’s new book, entitled “The Long Tail.”  The main idea from his book, according to the interview, is that the world economy is shifting from selling a lot of one thing, to a smaller amount of many things.  In other words, a wide variety of niche markets are developing in place of one large “mass market.”

An example that Anderson uses in his book is the iTunes music store.  We all take online music stores for granted now, but just five years ago, if you wanted to buy a CD, the easiest way to do it was to walk into a music store and buy it.  The problem with that is that you’re going to only have the most popular CDs on sale, and lesser known bands who don’t have many marketing tools available will be ignored.  Today, however, it’s just as easy to buy a CD from a not so well known artist named Ben Kweller as it is from the band Green Day, which is regularly played on radio stations.

This doesn’t simply apply to music.  It applies to books, news, clothing, shoes, and more!  Today we are able to buy so many different things just by sitting down at the computer than we were able to in the past by searching store by store.

Anderson points out that the Internet is really the main reason that the economy is acting this way.  He claims that people have always had interests that are more diverse than the market, the only difference is that today, people are able to act on these interests because the internet makes so many more products available.

I totally agree with Mr. Anderson, and I believe that for consumers, this is a fantastic occurrence.  In effect, it’s basically inching the market closer and closer toward perfect competition.  Bands have to compete with every single band on the planet, not just bands who have good marketing, making them work harder to gain fans.  The internet also allows any start up company to hop in the ring and try to sell a product - forcing the incumbents to work harder to maintain their position, and thus giving consumers a better quality product.

For producers, this is a mixed bag.  Producers who are able to adapt to the changes of technology, and can utilize the internet to claim more market share, could see some gains.  Startup firms also have a much better chance of staying afloat, because the internet makes it so easy to sell a product worldwide.  However, this increase in competition will drive down profit margins significantly, because as more firms enter a market, profits tend to fall.  The firms that will hurt the most are the incumbents who control a large market share in a particular industry whose product can be sold over the internet, and firms that refuse to adapt to technology.

Thanks to Rob K. for sending me the Moneytalk Interview.  I highly recommend purchasing The Long Tail, as I will be doing so in the near future.