The money is in aggregation and filtering, that’s all?

VentureBlog: Where’s The Money In The Long Tail?: David Hornick writes of the decline of the use of the phrase “The Long Tail” in pitches to venture capitalists (thank the gods that is over!)….

None of this is intended to express any skepticism about the power of the Long Tail or the importance of the phenomenon. Long Tail economics are implicit in virtually every new media company I spend time with. But I think it is helpful for venture capitalists and entrepreneurs alike to focus on where the money is in the Tail. The real money is in aggregation and filtering and those will continue to be interesting businesses for the foreseeable future.

This is the case if you believe that creating a choke point between content creators and their audiences/communities. Granted, it’s a sort of reverse choke point, because they make getting to information “easier,” nevertheless we’re talking about being an intermediary. Getting between creativity or value and its customers, adding value by making the connection. There are other features and functions that facilitate direct connections, such as adding metadata processing capabilities, providing predictable structures for information so that it can be assembled by the user rather than by an intermediary, attention and influence analysis (disclosure: BuzzLogic, which I cofounded, is aimed at the latter) ad insertion and auditing (disclosure: Yes, I worked with Audible to make something that does ad auditing for audio programs), and transaction support, to name a few.

Long Tail economics are important, and they seem to dictate that the a lot of small transactions can be collected into a big, fungible asset. But doing so adds a lot of overhead to the small sales. That’s reality: Making money takes spending money. So, if that is the case, why bring intermediaries into a transaction if you are out at the shallow end of the tail? If they bring functionality you need, even if only offsetting costs, that’s a good reason. If they add marketing value, there’s another.

There is a tendency among investors to look for choke points and invest in them, because they can be collected into those priceable assets VCs want to sell. Valuable choke points do add value—Flickr would be one (it hosts and presents pictures in one place, making it easy to share and republish photos), but traffic passes through Flickr doing so—and to some degree any intervening service creates a choke point. Assuming that aggregation (gathering stuff) and filtering (hunting—and helping people hunt —for the right stuff) are the most profitable misses a lot of areas where the peer-to-peer market provides a more direct route. Is it too early for those P2P/one-to-one investments? I don’t think so, but, then, I don’t manage a fund, do I?

Just my two cents, since I have some money on the line in several of these areas: Content is a great investment, too, especially content that can change someone’s day, career or life; finding the ways to price and sell that content (through ads, too), is the big trick. Google has only scratched the proverbial surface with a single business model among many potential ones, and AdSense is still far from perfect.

I want my technology associated with content and I want my content associated with great technology.

UPDATE: Greg Linden is for filtering (I am, too, though along with lots of other functionality and business models). See my comments in response to Danny Ayers’ Search Personalization and Attention. The Long Tail is dynamic, communities are constantly refining meaning, which changes the filtering challenge.

Technorati Tags: , , , , , ,

Author: Mitch Ratcliffe

Mitch Ratcliffe is a veteran entrepreneur, journalist and business model hacker. He operates this site, which is a collection of the blogs he's published over the years, as well as an archive of his professional publishing record. As always, this is a work in progress. Such is life.