Hybrid vs Pure Digital Retailers breaking the Tyranny of the Shelf

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Hybrid retailers: Amazon.com, eBay, Nextflix, BestBuy

The online retailers of physical goods, from BestBuy.com's camera selection to Netflix's DVD library, can offer inventory hundreds of times greater than their bricks-and-mortar counterparts, but eventually even they hit a limit. By contrast, the companies that sell digital goods, from albums or songs on iTunes to TV shows or amateur clips on Google Video, can theoretically go all the way down the Tail, expanding the variety they offer to encompass everything available.


Pure Digital: iTunes, Rhapsody, YouTube

The only way to reach all the way down the Tail -- from the biggest hits down to all the garage bands of past and present -- is to abandon atoms entirely and base all transactions, from beginning to end, in the world of bits. That's the structure of the second class of aggregators, the pure digital retailer.

Tyranny of the Shelf
2 of the 3 forces of the long tail focus on the ability of the Internet to decrease distribution costs and how do-it-yourself tools from the PC desktop to Adobe Photoshop have reduced the cost of "manufacturing" products and services.

However, the other key cost item in retailing is the cost of inventory, that is, money that is tied up in keeping store shelves stocked with physical goods, in anticipation of consumers purchasing the goods. This is why key metrics in retailing have evolved such as inventory turns, indicating the number of times goods are sold then restocked in a given time period.

pg 96 The biggest cost to [book] publishers is the cost of returns from booksellers, which the publishers freely accept as a matter of industry practice.

The ultimate cost reduction is eliminating atoms entirely and dealing only in bits. Pure digital aggregators store their inventory on hard drives and deliver it via broadband pipes. The marginal cost of manufacturing, shelving, and distribution is close to zero, and royalties are paid only when the goods are sold. It's the ultimate on-demand market: Because the goods are digital, they can be cloned and delivered as many times as needed, from zero to billions.