Cottage industries are the future for the information age
Trying to predict the future of IT is like throwing a dart in the dark – once in a while you hit your target. However, there is one trend related to the Internet that I’m certain will continue for the foreseeable future – the success of the “Long Tail” economic model in allowing increasing numbers of everyday people to make money from the Web, even as the economy continues to stumble.
The Long Tail Theory was developed several years ago by Chris Anderson from Wired magazine, who wrote a best-selling book advancing the theory that the Internet is going to fundamentally change consumer buying habits. His theory was that online commerce will allow larger, basically unlimited, assortments of products to be made available.
This would be a major shift from the limitations of brick-and-mortar stores, where space constraints limit the number of on hand products to just the top-selling items. Now, the consumer is free to buy whatever niche product they want via Internet commerce, without being limited only to what is stocked in the store. Of course there are still items that are more popular and outsell other products. But at least everything is available for purchase.
Not only is the consumer free to buy niche products, but people with unique insights or expertise – in babysitting, dog training, driving, golf, fitness, coaching, business development, or what have you – can develop an e-book or blog and have a shot at making money on the Internet, thanks to the Long Tail. The same can be done by home-based software developers.
This new economic model is evolving and will continue to bring more people into money-making opportunities on the Web, thanks to the growth of affiliate marketing.
It works like this: product publishers, the people who write e-books, software or video games, have long been able to set up a Web site and sell their products to visitors. In some cases, their products might catch the attention of one of the giant online retailers and gain distribution there. Affiliate marketing, however, allows dozens, hundreds, or even thousands of affiliate sites to feature a publisher’s product. Each additional affiliate increases the size of the distribution, thus increasing the number of potential buyers for the product. This is the essence of affiliate marketing.
Revenue is generated for both the product publisher and the affiliate through a pay-for-performance revenue sharing model. Affiliates choose which products to promote, and know up-front the amount they will make when a sale takes place. Commission rates for affiliates vary, depending on the rate set by the product publisher.
At ClickBank, one of the largest retailers for buyers and sellers of digitally delivered products and services, the commission rate can be as high as 75 percent. Since everyone involved in the sale is paid based on a percentage of the sale, there’s no up-front marketing cost for the product publisher or inventory or stocking costs for the affiliate. This system is a low-risk way to promote and ultimately increase sales on virtually any product.
Because of the low entry cost, it opens up the market for smaller blogs and Web sites to have a chance to make some money, even if it isn’t a full-time profession.
Affiliate marketing is growing and continuing to gain traction. Amazon founder Jeff Bezos notes that affiliate marketing is simply a “step in the ongoing migration of the $4 trillion global retail economy on to the Net.”
There are a number of factors driving this trend. The first and most obvious is the continued rise of Internet commerce in all forms. Consumers are simply becoming more and more accustomed to buying and selling products online, and that trend shows every indication of continuing and rapidly growing.
The second is the penetration of high-speed Internet access in the home. More than half of all American homes are now wired for broadband, so it’s easier than ever to not only shop and browse online, but also to purchase materials that once had to be shipped but can now be downloaded. Some analysts project broadband access and Internet commerce to grow even more rapidly outside the US.
Taking all of this in mind, throwing my dart into the dark of the future, I think it is clear that a growing number of people will be involved in selling their own intellectual property online and getting involved in e-commerce. n