Most of us are familiar with the 80-20 rule. But, let's start with a definition from Wikipedia: "The Pareto principle (also known as the 80-20 rule, the law of the vital few and the principle of factor sparsity) states that for many phenomena, 80% of the consequences stem from 20% of the causes... It was named after the Italian economist Vilfredo Pareto, who observed that 80% of income in Italy was received by 20% of the Italian population."
Okay, fair enough. But, doesn't it feel like in our world, technology & entrepreneurship, more than 80% of the value is created by less than 20% of the people? Wikipedia continues: "In software engineering, it is often a better approximation that 90% of the execution time of a computer program is spent executing 10% of the code (known as the 90/10 law in this context)."
Aha! There it is. The 90-10 rule. Much more accurate, in my view. In fact, I recently read that it is common knowledge among the police force in my adopted home town of Washington DC that 10% of the police produce 90% of the arrests.
So, if 90-10 applies even in a technology-light industry such as law enforcement, might the actual distribution be even more skewed in an industry where technology provides global distribution from the production of individual performers?
I was, unfortunately, not involved in the founding or funding of Skype. But, I would bet big money that at least 99% of the $4bn shareholder value that was created was created by less than 1% of the Skype team. I bet that the guy who wrote the core pieces of code central to the Skype value proposition that sparked Skype's explosive growth was probably written by 1-3 people in a compressed time frame.
Maybe 90-10 applies in software engineering at an old school software factory like Microsoft creating bloated programs like Vista with gazillions of lines of code. But, in the nimbler world of web software, don't you suppose that the 99-1 rule is in effect? I read somewhere that G-Mail was created effectively by one person. 99-1 indeed.
This raises all sorts of questions for our society of course. As trade gets more free and more global, and as technology barriers to distribution drop enabling individual performers to unleash such world changing products as G-mail and Skype... what will happen to the distribution of wealth in the USA and the world.
In the 1950s, America was an 80-20 country, maybe even a 70-30 country, where the muscle of America's manufacturing might powered an explosion of wealth and a growing middle class. But, as the percentage of shareholder value created in the USA continues to shift away from the farms and the factories and into the high tech and biotech labs... as we shift from an 80-20 country to a 99-1 country... what does that mean for the middle class? What does that mean for our political system? Questions for another day. In the meantime, let's say our holiday blessings that most of the 99-1 entrepreneurs in the world still reside in the USA or move here. The more Google's we create in the USA, the better it is for all of us. More tax revenue. More wealth creation in the pension funds. More property taxes for better schools in the Bay Area creating more Google-quality 99-1 entrepreneurs. And more immigrants moving here from India and Russia to create new Googles.
Let's embrace 99-1 not fight it... but let's also figure out how to distribute the gains in an "American" way. Fair, market friendly, and embracing equal opportunity for the next generation. Let's plow Google gains into better schools in East Palo Alto and East Oakland, not just Palo Alto. But, let's not fight the prevention of new Googles... or pretend that 99-1 isn't the new reality.
