Many have already linked The Long Tail in Wired by Chris Anderson, but I have to call attention to it as well. This is a brilliant article, IMHO, which pounds a nail squarely through the wood. The biggest, most successful businesses on the 'net are the ones which have exploited this, including eBay and Amazon, and Napster and its brethren, iTunes and Rhapsody and the like... There are doubtless other businesses waiting to be made out of the long tails in other markets.
Another thing to keep in mind; as there is more varied content available in each market, finding the content you want becomes harder. This is where referral services and reputation systems and reviewers and a whole ecosystem aimed at helping you find what you want comes in. Great stuff.
Final comment - pricing. The article opines that pricing for the long tail should be kept low. But I think this is a perfect opportunity to let the market decide. Since the incremental cost of providing goods is essentially zero, the price is related to the demand. A niche product may be very valuable to the small number of consumers which want it. Many models may emerge, including subscriptions, "channels" of varying content, usage-based pricing, etc. There is a lot of business model evolution left!