October 23, 2013

On the importance of recognizing the 80-20 rule of thumb

Also known as the Pareto principle, the law of the vital few, or the principle of factor sparsity - the 80-20 rule originates from the beginning of the 20th century. The Italian economist Vilfredo Pareto observed how 80 percent of the land in Italy was owned by 20 percent of the population. He could also observe how 20 percent of the pea pods in his garden contained 80 percent of the peas. The 80-20 rule may first seem like a joke, but it's actually a very important rule to remember as a rule of thumb. It has been shown that:
  • 80 percent of your profits come from 20 percent of your customers
  • 80 percent of the complaints come from 20 percent of the customers
  • 80 percent of a company's sales come from 20 percent of the products
  • 80 percent of a company's sales are made by 20 percent of its sales staff
  • 80 percent of your profits will come from 20 percent of your trades
  • 80 percent of your blog's views will come from 20 percent of your articles

If we apply the rule to Apple's iTunes store, we can see that the rule is not 100 percent accurate. We can argue that 80 percent of the apps have never been downloaded once, and of the downloaded apps, 80 percent are free apps. In an earlier article, Lessons learned from two of iTunes's most successful games, it was saw that 60 percent of the apps in iTunes have never been downloaded once, and 90 percent of the downloaded apps are free apps.

The rule is closely connected to the fact that it's often impossible to achieve a 100 percent perfect solution to a problem you want to solve. Peter Norvig, who work as a Director of Research at Google, recalled the German saying about the perfect being the enemy of good.
We [Google] are out here to provide the solution that makes the most sense and if there's a perfect solution out there, probably we can't afford to do it. We're just going to do what's the most important now. You have to think how much is it going to benefit the customer if I go from 95 percent to 100 percent on this feature vs working on these ten other features that are at 0 percent. At Google, I think it's easy because we have this "launch early and often" philosophy. Look at all the software bugs on your computer. There are millions of them. But most of the time it doesn't crash. The bug-free software for the space shuttle costs $1500 a line.

Source: Wikipedia, Coders at Work