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