CAMBRIDGE, Mass., December 12, 2005 — While conventional wisdom has it that holiday shoppers are drawn to the Internet by lower prices, an MIT Sloan School of Management professor has found that the ability to use the web to easily find products — especially niche items Ð is nearly ten times more important to consumers than price alone. MIT Sloan Professor of Management Erik Brynjolfsson also found that the Internet has meant new virtual life for obscure books and other products that otherwise collected dust on physical retail shelves, unknown and inaccessible to would-be buyers.
“Google is at $400 a share in part because it makes products so much easier to find,” said Brynjolfsson, who is director of the Center for eBusiness at MIT Sloan. “Consumers tend to be less price sensitive if they are able to find a special niche product. People do save money by going on line, but when we compared lower prices to greater choice, we found that the value to consumers of having the extra choice was 10 times greater than the value from price alone.”
Brynjolfsson and his team found, for example, that that obscure book titles, which conventional bookstores are unlikely to even stock, made up about 40 percent of Amazon.com's book sales revenue in 2000. Similarly, while “top 40” hits account for the the vast majority of CD sales and what is played on radio, the online music provider Rhapsody streams more songs each month from below its top 10,000 selections than it draws from those top hits.
“Relatively obscure products end up getting purchased as a result of the ability to search things on line,” said Brynjolfsson. “The recommender systems that are used as part of such search results are also improving as the filtering technology keeps getting better and better. This win-win situation for both retailers and customers is resulting in an economy with a lot more choice and product variety.” So while a physical book store can't afford to keep on its shelves titles that may sell one or two copies a year, “Amazon can maintain a virtual book shelf with space for 2.5 million books,” Brynjolfsson noted.
This trend has reversed the traditional retail standard commonly known as the 80/20 rule, under which a small proportion (about 20 percent) of a company's products often generated a large proportion (about 80 percent) of its sales. “The Internet seems to have significantly changed this balance, and we think this trend will get more and more important over time,” said Brynjolfsson.
Besides such benefits to consumers and retailers, the Internet's ability to locate and maintain obscure items is also providing a boost to authors and others who could not otherwise find a home for their works, said Brynjolfsson. “We're going to see an explosion of creative talent. Markets that used to be limited to people who could sell relative blockbusters can now also focus on narrower niche audiences for particular products.”
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