Recently I saw a great little talk by Cory Ondrejka on the long tail of innovation. (He followed up with a blog entry.)
For those not in the know, “long tail” is one of the current buzzphrases of tech punditry. The term was coined by Chris Anderson in a famous Wired article. The idea is that in markets for creative works, niche works account for a surprisingly large fraction of consumer demand. For example, Anderson writes that about one-fourth of Amazon’s book sales come from titles not among the 135,000 most popular. These books may sell in ones and twos, but there are so many of them that collectively they make up a big part of the market.
Traditional businesses generally did poorly at meeting this demand. A bricks-and-mortar book superstore stocks at most 135,000 titles, leaving at least one-fourth of the demand unmet. But online stores like Amazon can offer a much larger catalog, opening up the market to these long tail works.
Second Life, the virtual world run by Cory’s company, Linden Lab, lets users define the behavior of virtual items by writing software code in a special scripting language. Surprisingly many users do this, and the demand for scripted objects looks like a long tail distribution. If this is true for software innovation in general, Cory asked, what are the implications for business and for public policy?
The implications for public policy are interesting. Much of the innovation in the long tail is not motivated mainly by profit – the authors know that their work will not be popular. Policymakers should remember that not all valuable creativity is financially motivated.
But innovation can be deterred by imposing costs on it. The key issue is transaction costs. If you have to pay $200 to somebody before you can innovate, or if you have to involve lawyers, the innovation won’t happen. Or, just as likely, the innovation will happen anyway, and policymakers will wonder why so many people are ignoring the law. That’s what has happened with music remixes; and it could happen again for code.