Sunday, October 31, 2004

Google's Price Absurd, but Business Model Has a Long Tail: "(This is also my Sunday column in the San Jose Mercury News.)The bubble mentality has returned to one small part of the technology business: Google....Yet bubble-dom aside, it's equally clear that the Mountain View company is building a remarkable business. And it's possible that an investor with a truly long-term view could justify paying the amazing premium for the stock today....A hint of what's possible can be found in a recent article by Chris Anderson, the editor of Wired Magazine. In "The Long Tail" he argued for a new way of looking at economics in the entertainment industry. Make everything available at a low cost, and help people find it, and the need for blockbusters diminishes -- because there will be enough aggregate demand for the non-blockbusters to more than make up for the difference.(Via Dan Gillmor's eJournal.) It's interesting to see Zipf-like distributions finding their way into the general press. The intuitive application to markets has been pretty much accepted among people who deal with natural heavy-tailed distributions, like the distribution of English words. However, for the idea to be really useful, we need quantitative models that make specific predictions. For all I know, the situation could be pretty subtle, with only certain kinds of items leading to successful back-list markets. In particular, the effect of search and automatic recommendations in creating a market network would have to be analized. 12:08:03 PM