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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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The 80-19-1 Rule

Comments (20)

I expect that many of you are familiar with the Pareto principle (also known as the 80–20 rule.)  If you aren’t, the simple definition is that for many phenomena 80% of the consequences come from 20% of the causes.  Or – more practically – 80% of your company’s revenue comes from 20% of your customers, or 80% of your problems come from 20% of your customers, or 80% of your employee problems come from 20% of your employees.  While it’s overused, it’s a good rule of thumb.

I was in a meeting the other day where we were talking about the concept I described in my post “The First 25,000 Users Are Irrelevant” that built off of Josh Kopelman’s superb post titled “53,651” (which appears to need to be updated to 100K due to the ever increasing readership of TechCrunch.)  We were deep into a discussion about user generated content and how communities tended to grow.  I’ve had plenty of experience observing this at Judy’s Book, working with several new content companies that I’ve invested in, and closely following the discussion that made the rounds about the 1% rule as it applies to Digg (e.g. 1% of the Digg users generate most of the Digg’sresulting in Jason Calacanis offering to pay these 1% of Digg users to bookmark for Netscape.)

I get the 80–20 rule.  I get the 1% Rule.  But what about those other 19%?

It dawned on me that the gold is in the other 19%.  Maybe this is obvious, but here’s how I’m thinking about it.  Assume a web site content business (or social network, or bookmarking service, or something else along those lines) that incorporates user generated content (or user interaction) as a core part of it.  Apply the 1% Rule.  You’ve got your active users – these are the folks that are going to create content “just because.”  In some communities I’m part of that 1% and – when I think about why I participate as actively as I do – I always have some non-standard rationale or motivation (or – more abstractly – the behavior and motivation of the 1% doesn’t scale to the rest of the community.)

Now apply the 80–20 rule.  80% of the users are the site are simply going to be fly bys.  They won’t engage deeply – they are merely skimming / scanning content.  It’s nice to have them, but they are the consumers, not the contributors.

That leaves 19%.  This is the golden segment.  If you can figure out how to engage these folks, you win.  If you don’t, you’ll have a site driven merely by the 1%, which ultimately won’t scale.  While theoretically the law of large numbers should apply (e.g. as N (= number of users) gets big enough, life is good), I hypothesize that if you don’t figure out how to engage this 19%, you won’t drive growth in N that will get you big enough to have the law of large numbers effect deliver you to happiness.  There’s a virtuous cycle here – the 1% disproportionately seeds the activity of the site, the 80% consume content, and the 19% sit on the fence.  If you can get the 19% to engage, this drives more vibrant content, which increases reach, which increases N, which means the activity driven by the 1% and 19% increases, which drives more content, etc. 

Now – the 19% don’t have to contribute as much as the 1% (in fact, if you believe in the power law or are a long tail disciple – the sum of the contribution of the 19% probably equals the sum of the contribution of the 1%.)  In addition, the critical mass associated with the 19% gets you to a true 80/20 rule (vs. a 99/1 rule) – which – if you buy into the Pareto principle – has very powerful (positive) implications.

  • http://www.shmula.com Peter Abilla

    Pareto rules. When I was with Amazon, Pareto ruled the day in Fulfillment Operations, Software, and in everything we did. Good stuff.

    Here’s an example of the Pareto Principle as it relates to Customer Obsession. Here’s how to create a Pareto Chart in Excel. Here’s a beautiful Pareto Chart to show waste in an important Amazon.com process.

  • Bill

    Brad – good insight. This data could probably very easily be gleaned from any number of list-serve or forums out there. Take any popular forum topic, Macs, Palm OS, politics, etc… and you probably have your ‘usual suspects’ in the 1%, the folks who all know each other, etc…

    Then you have your 80% flybys – the ones who stop by a car forum to see if they should buy a particular model, the Windows guy who goes to a Mac forum to see if he should SWITCH.

    The 19% are those that probably lurk a lot but are not known or active personalities in the medium. They are the silent masses, and like you said – capture them, gain their involvement, or at the least – get them to become your word-of-mouth advocates and you are on to something big.

    Some data from some of the bigger forums would be very interesting here….

  • http://bobllama.blogspot.com Keshava

    This sounds a lot like the breakdown between “Innovators” and “Early Adopters” – the 1% are the real innovators that will hack your service to get it to do what they want, and they will live and breathe the service if it offers them something new. But in the end, they are not a critical mass. It’s the early adopters (19%) that are willing to try something new, but it has to be something that works out of the box – and it’s this group thats key to eventually developing and capturing a mainstream market. The numbers a bit off from what I’ve read other places, but they are close, no?

  • http://nsidc.org Mark A. Parsons

    I think you may be on to something, Brad. Coming from a science rather than commercial perspective, I have some of the same concerns. I have a proposal in to develop a tagging system to help people find and describe polar data from IPY and elsewhere. While the proposal hasn’t been funded (yet) I am concerned about getting a critical mass of active participants to make the system useful–the 19%. Clearly it will take a bit of promotion and demonstration of clear benefit to the users. One approach I want to emphasize is it’s value as a tool that could help research teams collaborate. That might provide some incentive for small groups to contribute ostensibly to benefit themselves, but also to benefit the broader user community.

    Nick Carr has been ranting a bit about the hype around social software. I referred him to your post. It would be interesting if you did anything to change his mind.

  • http://www.deviant-abstraction.net Nicolas Toper

    Isn’t what you describe simply the part after early adopter (1%) and late adopter (80%)?

    What you describe is simply the growth phase of the product (cf. all product lifecycle diagram).

    By the way, your blog is excellent.

  • Dave Jilk

    Isn’t this just Crossing the Chasm / product diffusion curve? 1% are the lead users/visionaries/innovators who do things for their own random reasons – 19% are the early adopters who need some proof and a good reason.

  • http://www.feld.com Brad Feld

    It might be the Crossing the Chasm / product diffusion curve, but I think there are different dynamics. The product diffusion curve is more about linear adoption of a product or service (and the X axis it time.) The 80-19-1 dynamic doesn’t actually need an X axis of time – in fact, the 80-19-1 split may hold constant over time! So – it’s analogus, but I think it’s different. I guess Geoff Moore will need to weigh in.

  • http://www.disruptivethoughts.com Fraser

    I think you’re right Brad. Two key components of the chasm/product diffusion curve don’t need to hold in the 80-19-1 situation: increasing timeline / adoption of service.

    This is an interesting thought… the motivation for the 1 % seems to be well understood. The motivation for the 80 % seems to be well understood.

    Anyone have examples/cases of a situation where the 19% is well understood? (even in hindsight?)

  • anon

    I watched a company dedicate itself 100% to the 80/20 strategy regarding its retail dealer base. Soon, due to a lack of customer service, the 80 was gone. When parts of the 20 started going, because they were now part of the 80, there was noone to take their place.

    Strategies regarding a focus on visitors/retailers/advertisers/customers may be nice guidelines but you have to see them as just that. 80/20, particularly in a startup, takes away focus from what is really important, building and defining your brand and market. If you make assumptions about your 1%/20% you may never even know what playground your playing in.

  • http://www.feedburner.com Dick Costolo

    I think this is an important insight and it’s different than crossing the chasm for a couple reasons. It’s basically an extension of long tail thinking, if you will, in which you acknowledge that it’s not the head or the looooong tail, but the meaty trunk of the curve where you can really make hay. Crossing the chasm says “ok, we’ve got these early guys, now how do we add to our service offering to go mainstream”, but 80-19-1, says “ok, we’re offering a full suite to the entire market and making hay off the 1%, but now how do we use the same suite of services to embrace the 19 percent that could really drive a ton of value if they used/licensed/shared our stuff N times as much”.

  • http://www.forbesontech.typepad.com jim.forbes

    Brad,
    great post, good insight. I’m linking.

    Best,
    Jim Forbes

  • http://earlystagevc.typepad.com Peter Rip

    No,it is not just chasm/diffusion curve stuff. The real driver here is the marginal economics of the business. The 80% largely do nothing to contribute the business — they don’t click on ads, buy stuff, whatever. They are window shoppers in the retail mall. The 1% are the most frequent users who register, enroll in loyalty programs, repeatedly add comments, author new content, whatever. They bear the bulk of the new customer acquisition cost because they respond to most of the marketing and retention programs you put in place.

    It is the mining of that next tier that determines the ultimately profitability of the business. Ech of *those* customers are positive contribution margin players. Therefore, get *them* to buy/create/contribute and you drive up profitability from breakeven (on the 1%).

    It’s all about allocation of the volume-insensitive marketing costs.

    Good insight, Brad.

  • http://www.ajira.com Nari Kannan

    Brad:

    You are on to something very illuminating here. This may explain a couple of things about blogs also. To the question, “Are blogs reliable as a generator of traffic?”, your 80-19-1 rule offers a very good yardstick. 80% of the people will not know about blogs and may not care. The 1% of bloggers are hard core and will spend a lot of time on many blogs. Blogs that are successful are the ones that can attract the 19% population. Those that attract this population successfully, like political blogs (probably the only ones that can do this!) will be successful. Others may be partially successful in that they attract may be 7 or 8 % of this 19%.

    The problem with many social networks are that they hover between 1 % and 5 to 6% with no hope of reaching the 19%. “Walking Dead” so to say!

    Good stuff, Brad! You may be on to something that applies to many Web 2.0 pheonomena!

    The interplay between the “Long Tail” and the 1-19-80 may also be interesting. Social Networks, Blogs etc seem to be “Affinity based” where similarity is what counts and the 1-19-80 rule seems to apply. The Long Tail seems to apply in cases where “dissimilarity” rules – like online sales of niche products.

    Interesting!

    Nari

  • http://journals.aol.com/valeski/one#Entry1169 jvaleski

    Love the thinking; well said. I had some related thoughts recently.

  • http://www.leafar.eu leafar

    You should have a look at wikipedia stats.
    If you want I made a study on them, when working on Metcalfe vs Reed so to use contribution as an example.
    Very good post and definitely a huge subject for crowd sourcing.

  • http://www.condomman.com/articles/condom-use/advantages-of-buying-condoms-online/ cheap condoms

    i really love the thinking. the motivation point is really interesting

  • http://www.condomman.com/articles/condom-use/advantages-of-buying-condoms-online/ cheap condoms

    "Are blogs reliable as a generator of traffic?", your 80-19-1 rule offers a very good yardstick. 80% of the people will not know about blogs and may not care. The 1% of bloggers are hard core and will spend a lot of time on many blogs. Blogs that are successful are the ones that can attract the 19% population. Those that attract this population successfully, like political blogs (probably the only ones that can do this!) will be successful

  • http://www.condomman.com/articles/condom-use/advantages-of-buying-condoms-online/ Cheap Condoms

    There’s a virtuous cycle here – the 1% disproportionately seeds the activity of the site, the 80% consume content, and the 19% sit on the fence. If you can get the 19% to engage, this drives more vibrant content, which increases reach, which increases N, which means the activity driven by the 1% and 19% increases, which drives more content, etc.

  • http://intensedebate.com/people/Cheap_Condoms Cheap_Condoms

    The problem with many social networks are that they hover between 1 % and 5 to 6% with no hope of reaching the 19%. "Walking Dead" so to say!

    Good stuff, Brad! You may be on to something that applies to many Web 2.0 pheonomena!

  • http://intensedebate.com/people/fiwedding fiwedding

    It's a difficult thing to listen to feedback from your initial users, the first 25,000, and do the opposite of what they recommend. You alienate your "support base" etc etc. Tough situation.

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