This article in Wired has a great account of the contest for the Netflix Prize. In late 2006, Netflix offered a US$1m prize for anyone who could come up with a movie recommendation algorithm that performed 10% better than its own. So far, the prize is unclaimed, although the leaders are close on aroud 8.75%.

The Wired article is mainly a profile of one of the contestants, Gavin Potter, who was a solo late entrant and quickly beat some of the bigger teams. He’s currently ranked eighth with an 8.14% improvement. He makes an insightful comment:

“The 20th century was about sorting out supply,” Potter says. “The 21st is going to be about sorting out demand.” The Internet makes everything available, but mere availability is meaningless if the products remain unknown to potential buyers.

I’ve said the same thing before, although far less eloquently.

What Potter is saying is that in the past few decades, quite a lot of business progress was made on the supply side of things — just in time, outsourcing, supply chain management etc. Now the Internet has released shelf-space constraints and opened up the fabled long tail of demand. However it’s not enough just to have a million products in your catalogue, you also have to have a way to match consumers with products as effectively as possible. This matching is a crucial aspect of a business like Netflix, and is the reason why they’re willing to pay a million dollars for a ‘mere’ 10% improvement in matching quality.

(HT: Seth Godin)