Thursday 10 June 2010

The 80:20 Principle and the Long Tail

I’m a big fan of the “80:20 Principle.” The principle basically suggests that a small proportion of causes are responsible for a large proportion of consequences; e.g. 80% of a company’s profits could be derived from 20% of its customers. In his book, Richard Koch writes about the 80:20 principle in both a business context and a lifestyle context, and encourages people to use the principle to maximise their effectiveness. He suggests that by concentrating on the few things that you are especially good at (where you fall into the top 20%) you can multiply your productivity (collectively the top 20% deliver 80% of the results, putting them a factor of 16 ahead of the rest).

When the topic came up in the book I am presently reading, it caught my attention. In The Long Tail, Chris Anderson writes about the growing importance of very niche forms of media. The Internet, due to sites like iTunes and YouTube, has become a platform for distributing media with zero marginal cost. This allows a much wider selection of books / songs / movies than is possible in conventional retail, so the “Long Tail” of the market demand curve can now be addressed.

As Anderson points out, this suddenly makes the 80% of books / songs / movies that would previously have been ignored by mainstream business channels really rather important. Entire livelihoods and subcultures have grown up around the niche content that can now be profitable. The global sharing of ideas has created new hybrid styles of art and music. Most importantly: the mass transfer of information is not acting as a homogenising force – rather it is allowing an immense level of diversity to flourish.

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