May 29th, 2006

The Long Tail of Revenue 2.0

by Scott Karp

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If the “long tail” is the organizing principle of web/media 2.0, why shouldn’t we expect revenue distribution to follow the same pattern, with a handful of companies (i.e. Google, Yahoo) controlling most of the revenue and the remaining online players fighting over the crumbs? When Google found a way to monetize the long tail through AdSense, it became the “head” of a new long tail. We shouldn’t mistake long tail economics to mean that everyone will get a share of the wealth.

I started thinking about the long tail this week after Publishing 2.0 cleared the (completely arbitrary) bar of 500 blogs linking in:

Publishing 2.0 Technorati

The number of sites linking here seems both large (after only 5 months of blogging) and extremely small, if you consider that Technorati is tracking 41.4 million blogs. But that was still enough for Publishing 2.0 to break into the (also arbitrary) top 2,500 of Technorati.

If you base the math on 41.4 million blogs, Publishing 2.0 is in the top 0.006% of all blogs based on being linked to by only 0.001% of all blogs! That’s some wacky math.

Out of curiosity, I graphed the number of sites linking to the top 50 blogs in the Technorati Top 100, and sure enough, it follows the long tail pattern:

Technorati Top 50 Links In

Again out of curiosity (and too much time on my hands), I graphed a few other online rankings — unique visitors to the top 50 US sites and the top 50 online advertisers — sure enough, long tails:

US Unique Visitors Top 50 Sites
SOURCE: comScore

Spending By Top 50 Online Advertisers
SOURCE: TNS Media Intelligence

The one ranking list I most wanted to graph was the top 50 sites by revenue, but of course those data aren’t available. Even public companies like News Corp don’t disclose the revenue of large online properties like MySpace (although I wonder whether MySpace would even be in the top 50 by revenue).

But if you could graph the top 50 sites by revenue (including advertising, fees, etc.), I bet you would find another long tail, with Google, Yahoo, etc. at the head.

Long tail economics means that companies can make a lot of money off the tail, but it doesn’t mean that the tail itself can make any money.

This is of course why Web 2.0 long tail companies have only one strategy — get bought by the head. But unless this beast is going to eat its own tail, that strategy will work for a lucky few, and the rest of the tail will toil on in service to the head’s profits (see AdSense).

Web 2.0 has democratize the Web in terms of voice but not in terms of dollars.

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Topics: Business Models | Google | Media Economics | Web 2.0

  • Hi Scott,
    Perhaps more than 500 blogs would link to you if you had a blogroll beneath your "browse by categories." Personally, while I know that you link to others in posts, it was a tough call to add a link to your blog from my own knowing that you had no means of reciprocating, even if you ever wanted to.
    Just my $0.02,
    ~G~
  • I think even "making a decent living" from "a relatively puny long-tail payback sort of equation" is extraordinarily difficult. Low barriers to entry cut both ways.
  • Mathew, a "decent living" is fine if you're just looking to quit your day job and aren't particularly ambition. But I'm guessing that's no much consolation to the armies of Web 2.0 entrepreneurs looking to grow a business, not to mention the Old Media companies hoping to salvage their businesses by moving online.
  • But Scott, isn't one of the benefits of Web-based media that the costs (and of course the barriers to entry too) are so low? Therefore it should be possible to make a decent living even from a relatively puny long-tail payback sort of equation. No?
  • Bennett -- I'm with you up to the point where the trickle down of profits becomes a river -- the long tail phenomenon suggests that, structurally, it will always be a trickle.

    Unless of course you're a believer in supply-side economics.
  • Excellent analysis. The IAB/PWC Internet Advertising Report for 2005 fills in your missing piece - top sites by revenue:
    "On-line advertising remains concentrated with the ten leading ad-selling companies, which accounted for 72 percent of total revenues in the fourth quarter of 2005, up from 71 percent reported for fourth quarter of 2004.
    "Companies ranked 11th to 25th accounted for 14 percent of revenues for the fourt quarter of 2005.
    "Companies ranked 26th to 50th accounted for 10 percent in the fourth quarter of 2005." http://www.iab.net/resources/adrevenue/pdf/IAB_PwC_2005.pdf

    The next question to ask is whether these top sites are capable of generating enough new ad inventory on their own to accommodate the growth in demand. Many in the industry are betting that they can't do this alone and that the wealth will continue to trickle down and eventually become a steady stream and then a river. Certainly the big media companies have finally caught on and are racing to catch the runoff as it leaves their stagnant offline businesses and finds it way online.
  • "that strategy will work for a lucky few, and the rest of the tail will toil on in service to the head’s profits "

    Yup. And that's one big reason for blog evangelism - the favored few need a large crowd chasing dreams.
  • I guess it should be no surprise given these calculations that splogs are so prevalent. Thanks to automation, it is as cheap to generate many different splogs as it is to generate one splogs. More splogs = more profit.

    Or you simply live off peer production - the labour of the many who don't know what they should be getting paid. Oh look, it's AdSense.
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