Thursday, July 27, 2006

‘Long Tail’-grating

In the absence of reliable quantitative data, it’s hard to make heads or tails out of the still-to-be proven theory that the Long Tail will revolutionize the economics of business.

My long-simmering skepticism about the concept rolled toward a boil this week when Lee Gomes of the Wall Street Journal published a compelling challenge to the theory originally propounded by Chris Anderson in his book, “The Long Tail: Why Business Is Selling Less of More.”

Chris’ theory is that a growing percentage of future revenues for companies will come from the sale of old and obscure stuff, as opposed to the popular products of the moment. Because it is enormously cheap online to sell things like klezmer Christmas CDs, Chris reasons, a merchant merely has to stock a few CDs, or better still, MP3s, and sit back and wait for someone to purchase the odd bit of obscuriana.

The problem with this intriguing theory is that there is no empirical evidence to prove it.

“In the book's main sections, Mr. Anderson writes that as things move online, sales of misses will increase -- so much so that they can equal or exceed the sales of hits,” writes Lee. “I was thus a little surprised when Mr. Anderson told me that he didn't have any examples of this actually occurring. At Netflix and Amazon, two of his biggest case studies, misses won't outsell hits for at least another decade, he said. None of these qualifications are in the book.”

By way of rebuttal, Chris blogs that Lee “stumbles over statistics and more, and in the end simply makes a muddle of what might have been an interesting debate.”

The dispute illustrates the main problem with the Long Tail theory: It’s impressionistic, anecdotal and the proffered evidence, such as it is, is vulnerable to highly subjective interpretation. In the absence of hard numbers, we are left with questions, not answers:

:: How is the potential profitability of selling misses offset by the costs of owning, financing and warehousing such things as klezmer Christmas CDs?

:: The Tail depends on customers being motivated and clever enough to seek out things like Christmas klezmer music. Is the marketplace efficient enough to guide buyers to sellers? I stumbled upon the klezmer verson of “The Nutcracker” on the way to something else. Are we to believe that efficient and profitable markets can be built on random consumer activity?

:: How much can be sold without hype? With all due respect to the independent taste and judgment of consumers, most things are bought because, thanks to the modern miracle of advertising, it suddenly becomes fashionable to do so. From Hula Hoops to hip-huggers to Hummers, it was marketing, not intrinsic consumer demand, that established the products as hits.

As a guy at ground zero who saw the several dot-bomb fuses lit in Silicon Valley, I heard many preposterous theories about how technology, the Internet and frictionless e-commerce were going to rewrite the laws of economics.

It didn’t happen then and, absent hard evidence, there is no reason to believe it is going to happen now.

Until further notice, count on the hits, not the misses, to keep happening.