The phenomenon of Superstars, wherein relatively small numbers of people earn enormous amounts of money and dominate the activities in which they engage, seems to be increasingly important in the modern world.
The Atlantic today has a very thought provoking article titled, How the Music Industry Explains the Weird Economics of the App World which touches on the Economics of Superstars law proposed by Sherwin Rosen 30 years back. It applies the Superstar effect to the App Economy and confirms the validity of the effect.
The App Economy isn't merely delightful, it's also an economic juggernaut that's created more than 400,000 jobs and a multi-billion-dollar business where there was, very recently, nothing. That's the good news. The bad news is that in the App Economy, as in every hit-making business, there is the top 1% and there is everybody else. For a taste of the App Economy's inequality: Of the $6.5 billion that Apple has paid to app developers, only 25% made more than $30,000 and 4% made more than $1 million.
It's the Economics of Superstars law, applied to apps: In a crowded international field, small differences in talent can translate to huge differences in outcomes. The most popular photo app, Instagram, was bought by Facebook for $1 billion. The 10th best photo program probably isn't worth 1% of that figure, since networking effects will encourage users to cluster around the most popular apps. But the wealth is in the reach. Just as in music, where a global audience for the top artists vastly increases the number of markets where they will make money, the international market for smart phones (Apple sells more than 60% of its iPhones outside the Americas) means that the small number of big hits will find an audience around the world.
The Superstars were there yesterday also, but they did not make so much money, so what changed? Technology. Tech changed and that changed the way superstars are able to reach their audience in newer ways. From an older NYTimes article.
Pelé was not held back by the quality of his game, but by his relatively small revenue base. He might be the greatest of all time, but few people could pay to experience his greatness. In 1958, there were about 350,000 television sets in Brazil. The first television satellite, Telstar I, wasn’t launched until July 1962, too late for his World Cup debut.
By contrast, the 2010 FIFA World Cup in South Africa, in which Ronaldo played for Portugal, was broadcast in more than 200 countries, to an aggregate audience of over 25 billion. Some 700 million people watched the final alone. Ronaldo is not better then Pelé. He makes more money because his talent is broadcast to more people.