The Costs of Long Tail Businesses

Kevin Laws writes that “when individual transactions are very small, non-monetary costs dominate.”

Chris Anderson of Long Tail fame recently posed a question in a post on the economics of abundance: what happens when it costs almost nothing to produce and stock one more item?

One surprising result is that non-monetary costs dominate the transaction. Most of you are familiar with monetary costs – pay $0.99 to download a song from iTunes (or $0.10 from AllofMp3). However, as the monetary costs fall, the most important impediments to a transaction are non-monetary: search costs and psychic costs.

It is not enough for a company to aggregate lots of small things. Reducing search costs by matching content to users is critical for Long Tail businesses.

Psychic costs measure the stress of having to think about a transaction.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.