Eric Clemons, a professor at the Wharton School, is an aficionado of Dogfish Head World Wide Imperial Stout beer at $160 per case. How did Dogfish Head find a customer like him? They didn’t. He found them. Clemons was not always a connoisseur of rare beers, but after trying Victory Hop Devil beer, the top-ranked India pale ale at the time, he learned of Dogfish Head, as well as Victory’s Storm King Imperial Stout and other niche beers, through the Internet. Clemons notes that he “would never have bought the Dogfish Head without the reviews on ratebeer.com and without the chain of experiences with ever-more interesting beers along the way.”

For most of the past century, companies of all types strove to introduce products and services that were blockbuster hits and could capture the mass market. Bigger was better. But now dozens of markets, from beer to books, music to movies, and software to services of all types are in the early stages of a revolution as the Internet and related technologies vastly expand the variety of products that can be produced, promoted and purchased. Though based on a simple set of economic and technological drivers, the implications of this are far-reaching for managers, consumers and the economy as a whole.

Early discussions of Internet markets focused on how “frictionless commerce” would lead to fierce price competition online. However, while consumers certainly do benefit from lower prices online, our research indicates that they derive far more value from another important characteristic of Internet markets: the ability of online merchants to help consumers locate, evaluate and purchase a far wider variety of products than they can via traditional brick-and-mortar channels.1 (See “About the Research,” p. 68.)

Consider the market for books. Amazon.com and other Internet retailers sell nearly all of the more than 3 million books in print. A typical brick-and-mortar store, however, stocks only between 40,000 and 100,000 unique titles. One might argue that consumers don’t really care about the remaining 2.9 million book titles. However, the data paint a different picture. We analyzed Amazon’s sales patterns and found that 30% to 40% of sales are in books that wouldn’t normally be found in a brick-and-mortar store. (See “Share of Amazon Sales Above Rank 100,000,” p. 69.) Moreover, we found that the consumer surplus created by providing access to these relatively obscure book titles exceeds $1 billion annually.