The paradox of the web
The winner takes all dynamic of the web means that the rich get richer (Google, ebay, Amazon etc) yet at the same time the little guy is also doing well. He can now build stable niche businesses in a way that is only possible now every potential customer on the planet is only a click or a search away. (Notice the echo of Anderson’s Long Tail at play here.)
The rich get richer AND the poor get richer.
The loser is the middle guy.
For us in the venture industry I think this has two implications. First, more than ever we need to be investing only in the businesses that will be category winners. The middle guy is no longer enough of a winner for us (if he ever was). Second new businesses will emerge to help people navigate the long tail. This is not a new idea (Google does this with small advertisers, ebay is the same, as is Amazon, and many other web businesses) - but one that has a long way to go.
As more different types of business move to the web we will need new types of aggregators to help us find them. In fact, it might be the existence of the aggregator which brings the business to the web in the first place. Ebay did this for small traders, and UK startup Covestor is doing the same for the fund management industry.
Umair says the same thing in a different way when he talks about winners in the new economy being the companies that provide the fabrics which make it possible for all the little guys to do business with each other.
Postscript - it is interesting that the Long Tail theory has become so mainstream that I now find myself linking to Wikipedia instead of Chris Anderson’s excellent blog.
February 7th, 2008 at 4:32 pm
You’re just falling for the fallacy that the economy is a zero-sum game!
It’s the inefficient who are getting poorer.
February 8th, 2008 at 2:21 am
Steve Clayton has the best example of the longtail; “more than 95% of Apple’s iTunes revenue comes from music tracks that are bought only once.” Or something like that anyway. The fact that Steve works for Microsoft adds weight to the creative example.