The 80/20 Rule

If you're lucky enough to make money with a business on the web, you'll have a lot less people to thank than you think. A good rule of thumb is that a small number of your customers will generate the large majority of your revenue. Consequently, the large majority of your customers won't ever really care about you that much.

There's a good chance you're already familiar with this as the "80/20 Rule", an idea credited to an early 20th century French-Italian polymath named Vilfredo Pareto. An expert in sociology, economics and philosophy, Pareto made a famous observation in 1906 that 80% of the property in Italy was owned by only 20% of the people. Over the past century this idea has stuck and become influential in a number of different fields of study. In the software world Quality Assurance engineers use it to chart service issues by severity, noting which ones are taking up the most of their resources. Mixing economics with sports, UC Bakersfield professor David Berri analyzes box score data to describe basketball, pointing out that 80% of a team's wins can be attributed to 20% of its roster (i.e. three guys on a roster of 15). In both cases a wealth of data often points to the same general 80/20 rule.

This kind of thinking works especially well on the web where visitors every move gets captured in exhaustive server logs and transaction receipts for analysis. Amid all that data, patterns begin to emerge if you know how to look for them. With practice you begin to develop a nose for where all the productive activity is. This is a sociologist's and an economist's dream. As web designers and developers we should recognize this bonanza of data for what it is and adopt some of their thinking and their tools for making sense of it.

Old school usability guru Jakob Nielsen took up this idea when thinking about online communities in an article "Participation Inequality", reframing 80/20 as the 90:9:1 rule. He maps to these three segments and names them Lurkers (90%), Casual Participants (9%), and Fanatics (1%). Yahoo!'s Bradley Horowitz's wrote about the same idea in his influential article, "Creators, Synthesizers, and Consumers," and drew the different levels out as a pyramid. Horowitz points out that in the case of Wikipedia, 2.5% of its registered user base is responsible for over 50% of the site's content. That's an amazing figure when you consider both how valuable that content is to their service and that we're only talking about a percentage of registered users, not the millions of Nielsen's "lurkers" browsing the site every day.

It's this top of the pyramid that could end up driving most of your business. If your site is about community content, these are the folks who will produce your most valuable input. Have this in mind when imagining that enormous traffic spike in your site's near future. Not all that traffic will stick and drive business. Funneling the right people into that sliver at the top and then nurturing their experience may be the key to your site's success.