Monday, January 3, 2011

Pareto Principle and Ebooks

Quick summary:
20% of the customers buy 80% of the books. Those customers demand the greatest variety. If 'long tail theory' holds out, what the publishers put out could only meet half their demand (at best). So the most 'intense readers' must transition to ebooks for the variety.

This is to do a proper reply to a topic that comes up again and again on JA Konrath's blog.

Those that support the big6 ask, why do we need more variety?

The 80/20 rule is the Pareto principle . 80% of the market is met by 20% of the participants. In effect, the publishers supplied the 20% that was enough to meet 80% of the market demand. But wait... they had an imperfect filter, so they were supplying something less than the 20% of the content that would meet 80% of the market demand.

But then we get into Long Tail Theory. As the cost of distribution/content creation drops. The top 20% of the supply only controls 50% of the purchases. That is the theory that is driving Indie ebooks. For 50% of the market is 'up for grabs.'

Wait! 20% of customers are 80% of the sales too. The most likely customer to demand the variety will be the top 20% of customers. Ugh oh... (for the 14 AAP publishers). 80% of the market could go to ebooks as there will be no choice for over half of their content purchases! To

Will the theory be proven? We've seen this before. Crown Books crushed Indie bookstores by offering more variety. Borders and B&N then crushed crown books by offering more variety. How do you beat ebooks for variety?



  1. I was interested in your question over on Konrath's blog. I mentioned I think 33% will be where the change really starts to happen.

    I'm still interested - at what percent do you think things will really shift?

  2. MedrickImagination,
    20% has been the historical number for major shifts.

    Rogers did the research (on farm technology) in the early 1950's:

    Taking Rogers' graph, somewhere between 15% and 20% there is a much faster adoption of technology ('innovation').

    If the bar were 33%, we wouldn't hit that in 2011. :( However, the most common number quoted other than 20% is 10% market share for a 'tipping point.'

    This isn't exact science... But we're getting close in ebooks.


  3. Sadly, I wasn't aware of these things theories/numbers until today.

    I apologize, I thought the question was when people thought the Big 6 would really start to buckle down and do something about their dwindling market share. My guess was when they had lost 1/3 of the market.

  4. This is an interesting way to look at it. Anedotally, I know I read far more broadly and more frequently than most of my family.

  5. MedrickImagination,

    I apologize if I wasn't clear! My blog was started to put numbers and proven theory into ebook discussions.

    1/3rd of the market is a good number for when the Big6 will hurt. But that would be 1/3rd of the overall book market. Since Indie authors (including small publisher authors) are only in significant representation on ebooks, it will take 50%+ ebook market share for them to really buckle.

    Unless some of the speculation of the debt owed to them by Borders proves true...

    Thank you. There are a small number of people who represent most of the potential revenue in books.

    I haven't been responding to the rebuttals on JAs blog as what is the point. You either are satisfied with the current offerings or you want more.


  6. Interesting thoughts. I'd just been thinking of doing a blog post on the 80/20 rule, though I was going to talk about marketing. I suspect 20% of what we do gives us 80% of our sales. ;)