Yahoo! Finance and The Week The Trend Desk

This summer -- ahem -- we're all going to get a lot of tail. Long tail, to be exact. Next month marks the arrival of one of the most hotly anticipated books of the year: "The Long Tail: Why the Future of Business Is Selling Less of More," by Chris Anderson.* What is the long tail? If you look at sales data as a "power law" demand curve, with a huge curve up for the hits, tailing off quickly -- but continuing on at a low level.... That's the Long Tail.

The book, based on a widely-circulated Wired article, argues that niche markets are becoming more valuable than mass markets. As online retail and distribution create essentially unlimited shelf space, companies no longer have to aim for only a few big hits. Instead, they can offer something for everyone and make their money by aggregating their "misses."

Books are a good example. A typical Borders store, Anderson says, can cram in about 100,000 titles. That's a lot of books, but only a sliver of all the titles available. Online booksellers, though, face almost no physical constraints on what they can offer. For example, Amazon.com's total inventory is 3.7 million books. And -- here's the kicker -- 25 percent of Amazon's sales come from outside those top 100,000 titles.

Ditto for music. The albums in a typical Wal-Mart store have about 55,000 song tracks. But online music seller Rhapsody offers 20 times that number. Forty percent of Rhapsody's sales come from the 1 million+ "unpopular" songs rather than the 50,000+ most popular tunes.

When shelf space is endless, Americans' tastes turn out to be more eclectic than anyone imagined. Indulge me as I hold up one more gleaming nugget of data. According to New York Times business columnist David Leonhardt, Netflix offers about 60,000 DVDs, way more than the few thousand you'd find in your corner video shop. How many of these Netflix titles rent at least once a day? I guessed about 10,000. The answer: More than 35,000.

As I've thought about Anderson's theory, I've realized that the companies that benefit from Long Tail economics go beyond online book, music, and movie retailers. Google (GOOG), Yahoo! (YHOO), and eBay (EBAY) are Long Tailers. So are drugstores like Walgreen (WAG) and CVS (CVS) and office supply outfits such as Office Depot (ODP) and Staples (SPLS) that combine an online presence with brick and mortar operations.

Indeed, I bet that before long, we'll see a few Long Tail mutual funds -- and Long Tail ETF's -- comprised of companies that are flourishing from the new economics of abundance. Which means this summer is the time to look at your own investments and make sure that you, too, are getting riches from niches.

* Full disclosure: Anderson is the editor-in-chief of Wired, to which I am a regular contributor. I had no involvement in his book and have no stake in its success or failure.

The Digital Barter System

Before cash and credit, there was barter. Og gave Zog some saber tooth tiger meat. In return, Zog cleaned Og's cave. Those kinds of trades mostly disappeared when money and markets made exchange simpler and more efficient. But now something strange is happening: Barter is coming back -- with a digital twist.

Earlier this month, veteran entrepreneur Bill Nguyen launched la la, which allows music fans to trade CD's they have but don't want for those they want but don't have. Users sign up (for free), list the CDs they want to trade away, and then search for CDs that other la la members hope to unload. Traders mail the disks to each other in pre-paid envelopes -- and pay 49 cents for shipping plus another dollar for la la.

Peerflix does the same for DVDs. Say Mrs. Trend Desk and I want to get rid of our copy of that awful "Stepford Wives" remake. We could set up a free Peerflix account and stick the title on our "Have" list. Then we could compile a "Want" list of DVD's we desire. Peerflix assigns a value -- in Peerbux -- to each movie. Then we can spend and receive those Peerbux by trading with other members. Peerflix gets a dollar for facilitating each transaction. Think eBay meets Netflix at a swap meet.

These types of companies are growing like kudzu. You can find specialized sites like Bookins for trading books -- as well as sites like Zunafish, Swapthing, Barterbee, SwitchDiscs, and Swaptree for trading a variety of products. All of them, of course, extend the Long Tail even further -- so that the available shelf space includes the shelves in our homes.

The business models vary. Some, like Swaptree, rely on advertising revenues rather than per-trade fees. Some, like Peerflix and SwitchDiscs, create their own internal currencies. (SwitchDiscs users collect SwitchBucs.)

And some seem to have larger ambitions. La la contributes 20 cents of each dollar to the Z Foundation, which provides health and dental insurance to musicians so that the artists (indirectly) benefit from the cash-free exchange of their creations. Making nice with the industry can't hurt a company that has broader aspirations in the music business.

Which business model will prevail? Beats me. But keep on eye on these fledgling ventures. One of them will no doubt become the NYSE for trading stuff.

A Different Kind of Currency Speculation

Alvin and Heidi Toffler, authors of the groundbreaking books "Future Shock" and "The Third Wave," would call Peerbux and SwitchBucs "para-currencies." Like frequent-flier miles, such digital tender is part of "a jungle of substitutes that have some or all of the characteristics of official currencies but aren't."

In their latest work, "Revolutionary Wealth," the Tofflers speculate that new technologies may take para-currencies beyond airline upgrades into the realms of political expression and social engineering.

For instance, one bank in Malaysia has offered a debit card to "Muslim customers that disallows use in massage parlors or nightclubs." From there, it's a short step to "boycott cards," debit cards that would prohibit purchases from companies that don't abide by certain environmental or labor standards.

Or consider the potential for changing behavior. The Tofflers write that "parents may give their children cards that cannot be used to buy candy, alcohol, tobacco -- or fast food." People trying to lose weight who fear being tempted by a Chalupa Supreme "may get help from a pay card they themselves can program to block any payment at Pizza Hut or Taco Bell -- or all fast food vendors. Make a resolution, quit carrying more than a dollar's worth of cash and let your card help stiffen your resolve."

It's been said that money changes everything. Now the same might be true for para-currencies. Indeed, that could become their very point.

February Follow Up: Yellow in Your Gas Tank, Green in Your Portfolio?

In the post-Valentine's Day edition of The Trend Desk, I wrote about long-term investment possibilities of ethanol. Well, over the last four months interest in fuel made from cornstalks and switchgrass has gotten hotter than that bag of popcorn cooking in your office microwave.

Two weeks ago, VeraSun Energy, the second largest ethanol producer in the U.S., went public. The company raised about $420 million and experienced a one-day price pop reminiscent of the sock-puppet era. Not bad for a 200-person company headquartered in South Dakota.

Now two more ethanol manufacturers -- Hawkeye Holdings and Aventine Renewable Energy, the nation's third and fourth largest producers -- have filed for IPOs. Meanwhile, one of the few existing publicly-held ethanol pure plays, Pacific Ethanol, has seen its share price double in the last year.

Is there a speculative frenzy going on? Probably. Does that mean ethanol is a bad investment? Not necessarily. If this country is shifting, even a little, from imported fossil fuels to homegrown plant fuels, there may be big opportunities for those who hang on for the ride. So save those Peerbux and invest accordingly.

Want to suggest a trend, share a tip, or trade me for Paul Simon's "Graceland" album? Send an e-mail to dantrend@danpink.com. I read every e-mail and respond to most.