The Impulse Economy Suppose you could offer someone an infinite number of purchasing choices, customized to their needs and with the ability for them to buy what they wanted the moment they heard about it. Sounds like a promising business opportunity, right? Welcome to the impulse economy… By Robert H. Reid Ask any bodega or supermarket manager to point to the store’s most precious asset, and odds are you’ll be waved to those few linear feet of counter space surrounding the cash registers. Scant as it is, this turf is highly prized by peddlers of tabloids, Altoids, and novelties who will pander, plead, and (literally) pay to secure a foothold there. There was a time when merchants only faintly understood the value of this and the rest of their shelf space. No more. These days they have it reckoned down to the penny. The rise of barcode scanners and such interpreters of scanned data as ACNielsen and Information Resources has allowed retailers to gaze deeply into the microeconomics of their businesses. From a supplier’s perspective, this insight has given retailers nightmarish powers, letting them charge towering rents for competitive shelf positioning. This power has gradually reshaped the dynamics of a large swath of our economy, transferring margin to retailers, squeezing manufacturers, and in theory, bringing consumers the trickle-down benefits of more efficient pricing and distribution. Most of us, certainly retailers, think of shelf space in purely physical terms. But there’s a less tangible kind of shelf space, media shelf space, that is just as central to our economy as the aisles in the supermarket. And just like the products at your nearby grocer, the media need to win hotly contested shelf space in order to reach the public. Television, for instance, has a fixed inventory of media space which dictates the range of content it can offer. TV offerings are limited by the number of channels – a handful in the days of broadcast, a few dozen now in the cable era – and by the number of hours in the week. Expanding shelf space inevitably brings greater variety – just think of what happens to the cereal selection when a corner store is knocked out to make room for a supermarket. When television’s shelf space expanded with the transition from broadcast to cable, the diversity of its offerings increased as well. There are now entire channels devoted to cartoons, science fiction, and classic films. None of these categories commanded much more than a sliver of television’s of shelf space in the broadcast era. Now they’re allotted hundreds of programming hours per month – entire aisles in television’s greatly expanded superstore. Like merchants working with cramped quarters, programming directors tend to appeal to broad, rather than narrow and refined, tastes when their shelf space is limited. No standard cable system is physically able to distribute all the national cable networks available to it in addition to local stations. So the cable subscribers lose out on access to dozens of stations that some might enjoy very much. Space is similarly tight in other mass media. More than 250,000 unique compact disc titles are in print, but the 80-odd radio stations of a typical large metropolitan area have an inventory of only 10,000 or so programming hours per week – and much of that is devoted to things other than music. The inevitable result is that the majority of published music gets no broadcast distribution in the majority of cities. The situation is similar for printed periodicals. There are thousands of these in the United States alone. But at any given newsstand, only a handful are on display. The positive side of this situation – from the distributor’s standpoint, anyway – is that scarcity creates value. Consider this fact: Radio stations in major urban centers can easily sell for upwards of $20 million, even when the acquired station’s format – and with it, its brand and its audience – is to be wholly dumped. According to Jack Messmer, Radio Business Report senior editor, “large-market stations typically sell for 16 to 17 times the station’s cash flow.” Usually, just a couple million dollars of the sale price covers the value of the station’s physical assets. The remaining value – the crushing majority of it – reflects the value of the station’s scarce Federal Communications Commission license; that is, its right to claim a slot on radio’s narrow shelf. Consider also the utter dominance the major television networks enjoyed in the days before cable. This stemmed from a number of factors – branding, marketing muscle, access to premier content. But the fact that viewers didn’t have many choices is just as significant. In recent years, cable and other innovations (the VCR, for example) have expanded television’s shelf greatly. The networks consequently have seen their ratings – and with them, their market share, mind-share, and influence – erode steadily. There will never again be a phenomenon like CBS in the ‘50s. Big shelf The shelf space of the World Wide Web is unlike that of any other medium in that it has no bounds. You make more of it – more shelf space, more Web – simply by adding something to it. If The New York Times posts a new two-page article to its Website, the Web’s shelf space – its media capacity – expands to fit the story. Anybody – not just established producers and program directors – can add to the Web’s shelf space. Not surprisingly, the Web’s infinite shelf has enormous implications for the media. It is no less significant to retailers. Jeff Bezos founded online bookseller Amazon.com in part on this premise. Bezos knew that there were more than a million unique books in print and that no shelf in the world was big enough to stock them all. For instance, Tattered Cover in Denver carries only 350,000 titles in its 40,000-square-foot store and is one of the largest booksellers in America. With shelving so cheap on the Web, Bezos can cram 2.5 million titles into his store, with infinite room to spare. When talking about online retailers such as Amazon.com, the notion and nature of shelf space begins to bend. The Amazon.com bookstore exists not on Elm Street but within the Internet, a global medium. In this regard, its shelf space is media shelf space, similar to Channel Four’s programming hours. But Amazon.com is a store, not a magazine article or a sitcom. Its shelf space is a product- bearing distribution channel, like the cereal shelf at the supermarket. Two fundamentally different types of shelves are starting to blend together on the Web, even as they are extending into tens of millions of homes, schools and businesses. This process lies at the heart of some of the Internet’s most awesome, and barely tapped, business potential. One result of these changing properties is that online media now enjoy a wealth of new ways to exploit audience attention that their offline ancestors never could have imagined. The media have been mining human attention – the ultimate finite resource – for centuries. Traditionally, they have done so in two ways: charging for access and selling impressions. Charging for access is straightforward. It involves offering people something fun or valuable enough to do with their spare attention that they’ll pay for it. Selling impressions involves carving out small slices of the attention that a media property draws and subletting them to sponsors. Media such as television and radio make a living from selling impressions in the form of commercials. Certain media, such as movies, books, and recorded music, make a living more or less solely from charging for access. Still other media, such as most newspapers and magazines, pursue a hybrid of both approaches. Between these standard points on the spectrum lie many mutant models. There are exceptions. One of the more dramatic is television’s Home Shopping Network (HSN), which raked in $1 billion in sales in 1997 by hawking a curious mix of merchandise directly to cable viewers. All day long, HSN’s on-air barkers pitch the items in its warehouses, viewers dial in to buy this or that specially priced doodad, and the cash pours in. HSN’s success vividly demonstrates the power that can result when the media’s ability to stimulate demand is coupled tightly with a mechanism for converting that demand into sales – in this case, an 800 number and a platoon of chirpy operators. In almost all other cases, there is no direct link between demand created in the traditional offline media and the fulfillment of that demand. This structural disconnect has huge ramifications. Today’s mass media are the world economy’s dominant agents of demand generation (with the likely exception of our biological drives). They make us aware of goods and services, and tell us where to get them. They reign as our arbiters of taste, fashion, and relevance. Put simply, they make us want to buy. But when offline media are involved, demand cannot be fulfilled within the context of its creation. I may fall in love with the new Bestie Boys song on my way to work. Hearing it may get me primed and ready to buy the new Beastie Boys album. But before I can do that, I must shift contexts entirely. I have to wrap things up with the radio, then find my way to a record store, or go online and track down that CD. Two things inevitably result from this gap. First, demand leaks from the system.