I think the Internet makes two very different things common. I'm not sure what world any given business falls into:
1) The Internet is vast, and this tends to create everybody-wins. There is a virtually inexhaustible range of niches out there. Seriously -- one giant, flowing river of value creating. You are able to dip a bucket into it. You may not end up with your own private ocean (hello, Google) but you will also probably not die of thirst.
I honestly think that this is big, like Industrial Revolution big. Big like "bigger than all the hype about the dot com bubble" big. That was a bunch of PR-funded hype which collapsed in on itself. This is about creation of value -- huge, staggering amounts of aggregate value -- and cutting out a lot of the waste that previously prevented that from reaching people. Industries are being reinvented, and some are being created out of whole cloth.
2) The Internet is deep, and this tends to create winner-takes-most. At the top levels of any intellectual labor there is a step function difference in outcomes between #1 and #2, #2 and #3, etc. We talk about the Long Tail because it is new and exciting, but the fat head is still there. That fat head of SEO means, for example, that executing 1% better than the guy in the #2 spot more than doubles your revenues. By itself. The difference between being Google-successful and being Facebook-successful is several orders of magnitude, even though both of those examples made their founders rich beyond the dreams of avarice. The productivity difference between the best programmers and the worst programmers is widely rumored to be an order of magnitude: I think in the future, we'll see the pay catch up, outside the fairly narrow range of quants on Wall Street. (And the difference between the average programmer and the best day laborer is probably going to keep climbing, too. Returns on one of them keep increasing, you do the math.)
It is a great time to be alive for those of us who can leverage these trends. If I were committed to equality of outcomes, though, I would be terrified.
This is a very nice and pithy observation - you're basically arguing that it's a classic power-law distribution: a few huge winners, and lots and lots of small players - who traditionally would have been defined as losers, had costs stayed the same. But they haven't, so the long tail is full of (small) winners.
I'm going to update my original post with some variation of this... Thanks.
Regarding #1, I think you are right that there are a lot of niches which can be tapped and which will make one a moderate amount of money. But problem arises when tons of creative people choose a single niche (e.g. todo lists). Choosing a niche and executing well is important but what stops from other fishes having their lunch at your part of pond?
Regarding #2, do you think luck is involved there in getting to jump the step function?
Choosing a niche and executing well is important but what stops from other fishes having their lunch at your part of pond?
The pond is so vast and the river flowing into it is so wide that all the other fishes are welcome to anything they find in the general vicinity of me. I'm hardly starving. I also find time to publish a blog titled Tasty Worms Here and release open source swimming techniques. (Plus, although many people think my section of the pond is the size of a mud puddle if that, I think I'm probably, hmm, fourth biggest fish in these here parts? Maybe third. I don't spend too much time thinking about it -- too many tasty worms to eat, not enough time to worry about other fish.)
I don't believe in luck, and I think it lacks explanatory power. For example, the top 1% of iPhone apps rake it in next to the bottom 99%. If you were to ask me why, I'd talk very little about luck and very much about how the App Store is virtually designed to encourage churn and blockbusters, which exacerbates the Winner Take Most effect to the point where it gets almost absurd.
All great points, so I'll throw one more out there. Not all fish have the same tastes, needs, or swimming abilities. If the "niche" that you are filling is occupied by a huge number of fish, is it still a niche? ;-)