Great blog post by Joe Kraus on how The Long Tail applies to software.
Ideas (music, search, books, films, software) are network phenomena, and the "natural" supply and demand laws for ideas should therefore be expected to follow network laws. The world wide web (and the presence of good long tail advertising models) reduces the friction in the model, making it feasible to market to the far end of the tail.
Patents increase the friction again, pulling us back into a mass market model for software. Good for the mass marketer, but bad for everone else: The market as a whole decreases in volume. And demand at the far end of the tail is not met by supply. This is yet another reason why the "patents increase innovation" argument is wrong. Not only does the continuous recycling of ideas that technology innovation relies on not take place, but entire microscopic markets for software aren't adressed by vendors.
This notion, that small aggressive competitors reach out to markets incumbents cannot ever hope to address is also completely consistent with the finding of "The Innovators Dilemma".