80/20...cracked!

Thanks to all your smart and insightful comments, I've discovered the source of my 80/20 conceptual problem: I'm an idiot.  Although many of you were gently pushing me in the right direction, it was Jakob Neilsen (comment 15) who put his finger on it. I'd somehow forgotten that the 80 and 20 are supposed to be percentages of different things.

The conventional definition is that 20% of products make up 80% of revenues. But when I suggested that this would evolve to a 50-50 rule--that the money in markets of the future will be roughly balanced between hits and niches--I'd changed the definition. In the new formulation, both term refer to revenue. Doh!

One of the best bits of advice many of you gave was not to take 80/20 too seriously. Its power is in its universal resonance and familiarity, not the absolute accuracy of its numbers. I'll keep that in mind as I continue work on the chapter and I thank everyone for helping me clear this up.

Comments

[Loïc]

Hi, sorry to use comments but I don't have your email.

Would you be interested to speak in Paris here ?

http://www.socialtext.net/loicwiki/index.cgi?internet_2_0

Check the speaker list. I would love to have you talk about the long tail !

[fling93]

Here's a better link to Jakob Neilsen's comment. By the way, you should make the comment permalinks visible. Right now you have to view the page source to see the anchors.

[Robert Young]

I'm a bit confused about thing whole 80/20 concept, particularly when pricing is factored in. Allow me to illustrate my confusion by way of an example...

I used to work at a major consumer online service. At first, we charged users on a metered basis per hour for access. The result was that 80% of our revenues were derived from 20% of our users.

Then, we changed to an all-you-can-eat flat-rate monthly pricing plan. And with that, 80% of our revenues came from 80% of our users... 1:1.

If you've already covered this issue in a prior posting, please forgive the redundancy... but am I missing something here?

Thanks.

[LeegleechN]

to Robert Young: that would assume that all products are going to sell equally. That's obviously untrue assuming they can be purchased seperately.

[chris anderson]

Robert,

The 80/20 rule applies to cases where products or customers are different. Some will be more popular or heavier users than others, and the "powerlaw" demand curve that results can be generalized as 80/20. But in your case, the move to flat fees made all the customers the same. That's why you ended up with a totally flat demand curve and the 80/80 effect you noticed.

[Robert Young]

Chris & Lee... thanks for the clarification.

Coincidently, I stumbled across this post at Ventureblog that was also helpful...
http://www.ventureblog.com/articles/indiv/2005/001204.html

Thanks again.