The Long Tail: Coming Up Short.

The Long Tail is a beautiful intellectual construct. Beautiful, therefore right. Who wouldn’t want to see it succeed? Chris Anderson coined the term back in 2004, in a Wired magazine article. A skillfully marketed book followed, which turned out to be a bestseller (i.e. the the Tail’s profitable head). When the concept began to gain currency, we all experienced an epiphany: visions of soon-to-be revealed bonanzas lying in our stashes of books, music, or for us journalists, news material buried deep in the bowels of our web sites.

Five years later, doubt is setting in. Fact is: very few businesses have been able to extract money from the Long Tail. Of course, as Anderson predicted, when entire inventories become accessible online, some of the lowest selling items in catalogs do get their Day in the Sun. But, when it comes to converting exposure into cash, the result is a pitiful rounding error. Last week in Oslo, friends and I were discussing the Long Tail theory’s impact on the news business. It turned out everyone around the table shared the same suspicion. One such doubter directed me to a recently released research paper by two Wharton scholars. To challenge Anderson’s theory, Professor Serguei Netessine and his student Tom F. Tan pored over Netflix data.

For Monday Note readers outside of the US, Netflix is a (some say The) DVD rental company deploying a huge physical delivery system (2 million DVD sent each day, $300m a year in postage fees). For Anderson, Netflix is the Long Tail’s poster-child: a vast inventory made easily accessible thanks to the internet, with users smartly rating forgotten gems. Three years ago, Netflix launched the Netflix Prize, a crowd-powered contest aimed at improving its user ratings recommendation algorithm by 10% (quite a leap, actually). $1 million would go to the winner. To feed the math-freaks, Netflix opened its data vault, a boon to the Wharton scholars who hungrily dug into the 200-2005 numbers. Their study is called “Is Tom Cruise Threatened? Using Netflix Prize Data to Examine the Long Tail of Electronic Commerce,” (full text here , presentation  here). The key finding:

“The Wharton researchers disagree with Anderson’s theory and its implicit challenge to the Pareto principle, or so-called 80-20 rule, which in this case would state that 20% of the movie titles generate 80% of sales. Anderson argues that as demand shifts down the tail, the effect would diminish. Using Netflix data, Netessine and Tan show the opposite — an even stronger effect, with demand for the top 20% of movies increasing from 86% in 2000 to 90% in 2005″. More

How Wired does it: the “quant” way

I always considered Wired as the most inventive magazine of our time. It is always interesting, sharp, and fun to read. And its journalistic grasp is wide. Stories can be quite nerdy, which is fine since they are always carefully edited to remain readable by “the rest of them”. At times, editorial choices look not wired but weird when the magazine runs a story about a team of ship salvagers or profiles the structural engineer that built the Burj Dubai skyscraper. For having met the original founders of Wired, Louis Rossetto and Jane Metcalfe, back in 1993, I thought the magazine was still run by a kind of instinctive, passion-driven journalism consistent with the early days’ DNA. I was wrong.

Chris Anderson, the editor-in-chief, runs Wired on left-brain side. I visited him few weeks ago in San Francisco. The original HQ of the magazine remains the same, in the (former) industrial district of the city, where buildings have still high-ceiling and cinders-blocks walls. Anderson’s office is not filled with journalistic personal memorabilia, it’s all about data, charts, graphs on the walls and market reports on his desk and table. The guy is a data freak. “If I had the opportunity to run this magazine the same [quant] way as a hedge fund, I would do it without hesitation”, he tells me. Anderson’s editorial decisions are fact based. Months before an edition of Wired hits the streets, story pitches are circulated among staff members. They rank each project by vote. A passionate discussion ensues, in which Chris and his close staff will argue to include a pitch that ranked poorly or will kill a story they consider irrelevant. Once the table of content is set, three possible covers stories are market tested with various headline, graphics, etc on no less than 6000 panelists. In the background, Wired also relies on tons of surveys performed by the incredible sharp research department of Condé Nast, the magazine’s publisher. Each month, Anderson receives five centimeters of analysis of previous issue: story-by-story analysis, time spent by the readers, appreciation of content, length, graphic environment (very important).

This analytic approach to journalism has a lot to do with Chris Anderson professional background. He is a trained physicist who has worked in Los Alamos National Laboratory, before jumping into scientific journalism in Nature and Science. Then, he spent seven years at the Economist in London, Hong Kong and New York, as a tech editor and finally as the US bureau chief. (Anderson coined the term “long tail” — he even registered the brand, he’s now working on a book about the free economy). How does that translate into business? Well, Condé Nast is privately held company and does not releases figures. Wired is grossing about $50m, for a unknown profit (if any). But it is a hell of a brand — that allows other Wired Media entities to do very well. Today, Wired remains the perfect example of how a well crafted print product can make dollars and sense, even though it is a virtually free — a subscription costs $10 a year on the US market and its content is fully available online.