The 98 Percent Rule

This book began with a quiz I got wrong. One of the things I do as the editor of Wired is give speeches about technology trends. Because I started my career in the science world and then learned economics at The Economist, I look for those trends first in hard data. And, fortunately enough, there has never been more data available. The secrets of twenty-first-century economics lie in the servers of the companies that are all around us, from eBay to Wal-Mart. Although it’s not always easy to get the raw numbers, the executives at those companies swim in that data every day and have a great intuitive feel for what’s meaningful and what isn’t. So the trick to trend-spotting is to ask them.

Which is what I was doing in January 2004, in the offices of Robbie Vann-Adibé, the CEO of Ecast, a “digital jukebox” company. Digital jukeboxes are just like regular jukeboxes—a big enclosure with speakers and blinking lights, often found in bars—with the difference that rather than a hundred CDs, they have a broadband connection to the Internet and patrons can choose from thousands of tracks that are downloaded and stored on a local hard drive.

During the course of our conversation, Vann-Adibé asked me to guess what percentage of the 10,000 albums available on the jukeboxes sold at least one track per quarter.

I knew, of course, that Vann-Adibé was asking me a trick question. The normal answer would be 20 percent because of the 80/20 Rule, which experience tells us applies practically everywhere. That is: 20 percent of products account for 80 percent of sales (and usually 100 percent of the profits).

But Vann-Adibé was in the digital content business, which is different. So I thought I’d go way out on a limb and venture that a whopping 50 percent of those 10,000 albums sold at least one track a quarter.

Now, on the face of it, that’s absurdly high. Half of the top 10,000 books in a typical book superstore don’t sell once a quarter. Half of the top 10,000 CDs at Wal-Mart don’t sell once a quarter; indeed, Wal-Mart doesn’t even carry half that many CDs. It’s hard to think of any market where such a high fraction of such a large inventory sells. But my sense was that digital was different, so I took a chance on a big number.

I was, needless to say, way, way off. The answer was 98 percent.