The 80/20 Principle: The Secret to Achieving More with Less

by Richard Koch

1 One increasingly dominant reason why the 80/20 Principle works is the power of networks. 2 Networks also operate in line with the principle. In any given market or category, a very small proportion of networks will hold sway over a large proportion of activity or business in that market or category. 3 Networks and their members like market share concentration and monopoly, because this provides the greatest depth and reach of the network. Bigger networks are better networks. The bigger network matches supply and demand more efficiently and quickly, because it has more permutations of possible member matches and more data about each member’s predilections. 4 Having two or three networks with roughly equal size in the same category is unstable, because it is not in the interests of network members. They are best served by a near-monopoly, until innovation creates a new category—which itself will also inevitably lurch toward a few main networks, or one. 5 The influence of networks has soared since the 1970s, and especially since the invention and proliferation of online transactions. Networks are becoming more prevalent and providing an ever-growing proportion of commercial and social activity. This means that the old 80/20 benchmark is rapidly becoming too conservative as a way of describing the principle. Networks are not just increasing the incidence of the principle and making it pretty much ubiquitous, but also increasing the extremity of the principle.