Wednesday, August 4, 2010

The 80-20 Rule

The 80-20 rule, also known as the Pareto Principle or the law of the vital few, goes back to Vilfredo Pareto who, in 1906, observed that 80% of the land in Italy was owned by 20% of the population.  He also observed that 20% of the pea pods in his garden contained 80% of the peas.  The so-called law has become a common rule of thumb in business and management. E.g., "80% of your sales come from 20% of your customers;" "80% of your productivity come from 20% of your staff;" or "80% of your problems come from 20% of your personnel."

The rule, as it were, has applications in a many other areas. The United Nations, in 1992, produced a report, which showed that the richest 20% of the world's population controls 82% of the world's income. There's nothing magical about the 80%. It's simply the case that, where there are a large number of resources, events, products, or whatever, they will be shared unequally and that inequality can be represented by a number between 50 and 100. If 50% of the land is owned by 50% of the population, the land can be said to be equally distributed. If 99% of the land is owned by 1% of the population, the land is unequally distributed. Most systems are characterized by an intermediate imbalance around 80%.

The 80-20 rule came to mind because of some comments about ebooks and the state of publishing.  A contributor to an online discussion group asked if there was any advantage to an author in getting an agent and getting published by a traditional publishing house now that any author could publish his or her book on Kindle or iPad. The questioner implied that the book publishing industry is dead or nearly so.

On Monday, Helen Ginger, in her Straight from Hel blog referenced an interview with the CEO of Penguin who made exactly the opposite claim, He said the direct-to-consumer model does not work; that authors still need publishers.

So which is it? Have ebooks spawned an era in which every author's work will share the marketplace with every other book, or will authors continue to need agents and publishers to be successful?

Some people who comment on the current state of publishing compare the industry to the state of the recording industry. The arguments go as follows: The book publishing business better wake up or it will go the way of the recording industry. In some people's minds the big record labels are all but dead and music distribution is in the hands of indie publishers and artists.  The reality is different. According to figures from the Recording Industry of America, a handful of music producers account for 80 to 85% of music sales with the indies fighting for the remaining 15 to 20%. In other words, the disparity between the vital few and the rest of the players is still great.

But could ebooks be pushing the publishing industry towards more equitable distribution? That remains to be seen. Dan Poynter gives a few telling statistics on the Para-Publishing website.  According to Poynter, small presses and self publishers produce 78% of all book titles, and, therefore, big publishers produce 22%. When it comes to sales, industry watcher Andre Schiffrin, says that six publishing conglomerates control 80% of all book sales.  In other words, 22% of titles are getting 80% of sales and 78% of titles are fighting over the remaining 20%.  The large publishers are getting the largest piece of the pie.

Industry figures are hard to come by and often contradictory. Schiffrin's figures are from 2007. A lot has happened since then. Ebook sales have increased exponentially, The iPad and Kindle have made it easier for authors and independent publishers to sell directly to consumers. Is it working? I just went to the iBook store and pulled up the top ten best sellers. Nine of them were published by big publishing companies. Four of the top ten were published by, you guessed it, Penguin--the company that says the direct-to-consumer model doesn't work. Apparently, it works great for the big publishers, not so great for the indies.

I am not anti-ebooks or self-publishing. My first book was published in 2001 as an ebook by a small publisher and is still available in the Kindle store. I'm planning to self-publish a short story collection soon. But my latest work is represented by an agent who is trying to get it published by a big publisher because I want it to be one of the 20% of titles that are dividing up 80% of the sales.

So in answer to the question about whether or not an author needs an agent, I say it depends on how much of the sales pie you want to share and how many you are willing to share it with. Keep the 80-20 rule in mind. Eighty percent of book sales are controlled by twenty percent of the titles which are published by large publishers.  I don't foresee that changing anytime soon. Do you?

Mark Troy


Helen Ginger said...

Another thing this model also shows, I believe, is that the big publishers are not taking as many risks with new writers. The ones agents and big houses do take on (like you), they believe they can sell and make a profit on. Perhaps with just about all books being readily available to the public, big houses are narrowing their books down to a niche - those books they feel will be big sellers.

Straight From Hel

Mark Troy said...

Yes, I think that's something that's been going on for a few years, now. They're giving up titles in favor of more market share.

Morgan Mandel said...

Cover all the bases, that's my motto. They're all good ways to go these days.

Morgan Mandel

Mark Troy said...

I agree with that, Morgan.

Mark W. Danielson said...

Great post, Mark. I agree that the big publishing companies are focusing on a limited groups and genre. Right now, vampires and chic lit are in right, but that will change as the buyers' interest fades. All we can do is create our best work each and every time.

The Daring Novelist said...

One of the things that all those industry stats overlook, though, is the size of the used book market. Most high-volume readers buy a lot of used books - partly because of price, and partly because what they're looking for goes out of print and doesn't get distributed well.

And the people jumping to buy Kindles tend to be high-volume readers. We don't have a statistic on just what proportions there are, but we can safely say that the industry figures ignore the used book-buyers in the bunch.

That's a really large unmeasured area. And some say it's a larger group than the market for new.

I do know that an awful lot of Kindle users are price sensitive, and at least some have taken to reading indie books, which tend to be priced lower. And the authors, because they are earning a 70 percent royalty, are doing better on their "20 percent" than authors who get about 8 percent royalty on their "80 percent."

That 20 percent of the authors published by the big publishers are not fighting for 80 percent - they're fighting for a whole lot less. (And 80 percent of what they are fighting for is going to twenty percent of the twenty.)

Not that I think traditional publishing is doomed or that authors should flee like rats from a sinking ship. Traditional publishing will change, but it's still a viable industry.

I'm just saying that the Pareto Principle is extremely vulnerable to manipulation - via what you do and don't include - and so while it is good for developing strategies in your niche, it's lousy for proving a point. You can almost always prove the opposite point by shifting the parameters around.