Back in 2006, Wired Magazine’s Editor Chris Anderson wrote a book called “The Long Tail,” a fascinating look at the future of commerce on the internet.
According to Anderson, in traditional “brick and mortar” retail, commerce is limited to physical shelf space and cost of storage; therefore, retailers have to limit the number of products they can offer. Under this traditional model, 20 percent of products make up 80 percent of sales. This is true for big-box stores, for movie studios and for record companies.
But today, with virtually unlimited, very cheap storage on the internet, retailers can offer pretty much any type of product — even if only a handful sell each year. That makes niche, or “miss” products just as profitable as “hit” products. Anderson explains it like this:
“With no shelf space to pay for and, in the case of purely digital services like iTunes, no manufacturing costs and hardly any distribution fees, a miss sold is just another sale, with the same margins as a hit. A hit and a miss are on equal economic footing, both just entries in a database called up on demand, both equally worthy of being carried.” ::continue::
Today, because of the boom in consumer electronics that enable anyone to create products, and because of this evolving open platform created by the internet, a new wave of consumer creativity is taking place — and in many cases, it is profitable.
The most incredible thing? Sales of niche products often make up a market that is greater than the so-called “hits.”
“Take books: The average Barnes & Noble carries 130,000 titles. Yet more than half of Amazon’s book sales come from outside its top 130,000 titles. Consider the implication: If the Amazon statistics are any guide, the market for books that are not even sold in the average bookstore is larger than the market for those that are.”
The Long-Tail of commerce applies for books, movies, music, and all kinds of goods.
“The average Blockbuster carries fewer than 3,000 DVDs. Yet a fifth of Netflix rentals are outside its top 3,000 titles. Rhapsody streams more songs each month beyond its top 10,000 than it does its top 10,000. In each case, the market that lies outside the reach of the physical retailer is big and getting bigger.”
This is not news to most people. Anderson has been writing about these trends for many years. But we are finally starting to see the so-called Long Tail manifest itself in the energy sector. Taken individually, renewables — the “misses” of energy — make up a very small piece of the energy mix. But in the aggregate, renewables including hydro make up a respectable 13 percent of electricity generation in the U.S. and 10 percent of our gasoline supply.
As we see solar PV, solar thermal, wind, geothermal, biomass, fuel cells, cellulosic fuels and many other technologies increase penetration, their collective power may soon rival those of fossil energies.
That still sounds like a pipe dream to some people. But if you asked a record executive in the early-90’s whether a bunch of teenagers recording a song in their bedroom could create a pop hit, you’d be laughed out of the room.
I would argue that renewable energy will be to conventional energy as the internet is to the music industry: A revolutionary and (if embraced correctly) complimentary service that will break down the wall between consumers and producers. This is the Long Tail of Energy.
The problem today is that the energy sector is still like a traditional brick and mortar retailer. We are limited by our aging and costly grid; we are focused on one-sized-fits all “hits” that may not be the most effective for local needs; and we fail to recognize the potential influence that consumers can have as producers.
So how do we create an open platform for more adaptable, innovative technologies to thrive? There is no simple answer to that question. Creating the Energy Internet to increase the Long Tail will not happen overnight. Putting in place the communications infrastructure, storage capacity and far-sighted policies needed to create such an ecosystem will be a laborious process.
But each step counts. And the first step would be to put a price on carbon.
Putting a price on carbon would be like creating the protocols that guide the internet today. It would create a set of rules upon which we can build the technologies and layers of policy that will enable the mixing and matching of a range of renewable energy technologies. It would also tell utilities, oil companies and independent power producers that there is a way of doing things that is less expensive environmentally, socially and politically.
People often ask me, “what is your favorite technology?” And I always respond, “All of them. Pick your application.”
That’s the beauty of renewable energies — there are so many technologies to choose from depending on the application. They are niche in a really, really good way. They offer so much choice along the Long Tail of Energy.
These niche technologies are already adding up to be a fairly sizable market share, and they are only growing. Soon policies will be in place that will enable an even greater explosion of innovation in this sector. The traditional energy companies would be wise to pay attention, lest they be bound by their “brick and mortar” ways.