Digital Products are everywhere. And everyone drops the D-word these days. Digital is a Chameleon. It morphs into anything the public expects it to be. The iPhone is Digital. So is Spotify. E-Payments are digital. As are bitcoins and nonfungible tokens. “Smart” everything is Digital too. Amazon and Spotify are Digital. Your government services are Digital. You cannot escape from Digital today. You either work with Digital, or you take to Digital Media to rant against Digital. Either way, D wins.
But not everything Digital wins. Of the billions of apps, just a few thousands are rock stars. A few mobile phones have stood out and made enormous riches; many have bitten the dust. What separates the successful ones from the rest?
I have been thinking this over for a while. And even penned a few posts on the topic. However, this is my first attempt to put out a comprehensive summary of my thoughts. I have stayed away from data – I wanted the thoughts to take precedence here.
So what differentiates the Digital successes (apart from luck!)? And how they differ (and don’t) from their physical counterparts?
So if you are ready, let’s zoom ahead.
Digital Products are forgiving
Digital products and services organizations have one handicap, their customers don’t know them as trusted friends. Your corner store shopkeeper and you have a relationship built over decades. So she knows what you need and how you behave, and you do too. The relationship is way beyond transactional.
Digital Services don’t have that luxury. You don’t know the guys at Amazon. You buy from them because they are faster and cheaper – essentially, you have a transactional relationship. And this is a disadvantage for the Digital guys. Especially when you buy high-priced items. You don’t want to be holding a Counterfeit product and no one to talk to.
This is why you find that Digital services have used the highest value humans adopt. They are forgiving. They give you second chances.
Look closely at their ads, and here’s what they are telling you:
Don’t like the product? Just tell us, and we’ll pick it up for free and at no cost to you.
Worried about using an app? Try it free for 30 days. And Buy once you are convinced.
Want to trade in your old device? No worries, we’ll take you on your word and trade it in (no lengthy evaluations involved!)
You aren’t in when the delivery guy comes? No worries, we’ll return or hand it over with evidence to your neighbor.
This “no questions asked “accommodation” is a tool they use to build trust. And it works.
Think about the last ten big purchases you made online. Wasn’t this promised “forgiveness” a big reason to get you to buy without seeing the product?
Humans love second chances. And it’s especially appealing in our competitive world. So look for Digital products that are forgiving, and you’ll have a winner.
Digital Products have an inverse utility curve – things become more valuable over time.
Physical products lose value over time. Your new car is the best it can be at the time of purchase. A few years later, it’s lost its utility and efficiency. If you need the latest features or better efficiency, go for an upgrade.
Human relationships work differently – they have inverse utility curves. Over time, utility or perceived value actually increases. An acquaintance matures into a close friendship over time. As time passes, we learn to appreciate the nuances that make each individual special. Talk to a couple who has celebrated 25 years of togetherness. They’ll tell you they love each other now a lot more than when they first met.
Digital companies are taking a leaf out of the human relationship curve. Tesla upgrades cars over the air. Your vehicle keeps getting new features and gets more efficient over time. You buy Amazon for “one-day-delivery,” and they throw in music and video for free over time.
Look for companies that don’t just sell a product but invest in relationships, and you are likely to have another winner on your hands. Here’s a post that explores this concept in a little more detail.
Digital Products don’t penalize you for leaving or downgrading
When you rent out a house, you pay an advance. This effectively ensures that you cannot ask for a downgrade (a smaller apartment) or break your lease without the high cost. There are exit barriers that hold us to our purchases in the traditional business models. However, should you want an upgrade – chances are they will accommodate you.
Digital companies allow you to upgrade, downgrade or exit with equal ease. This is at the heart of the subscription model. Let’s say you choose to buy a Volvo subscription. Any month, you are free to upgrade or downgrade your vehicle, and your subscription is adjusted accordingly. There is no penalty. This is one of the game-changing things that Digital companies have ushered in. From software to products, we can downgrade or upgrade easily.
Digital Products sell you their version of your truth!
Personalization is the process where a Digital company creates a “mini-you” using proprietary algorithms. So you get a customized playlist for you on Spotify and Apple Music that soothes your soul. Your food apps tell you what you’d love to eat. Your fitness trackers tell you when it’s time to drink water. This is cool. They understand us intimately!
If you think about it a little more, you find the truth is a little nuanced. All these are their versions of “you.” Over time, as we get used to their diet of filtered, personalized choices – we tend to believe their version is “our” truth.
And the diet then shifts to what they have or can create. This is one reason Amazon, Apple, Spotify all make their own versions of customized playlists for you. And the next stage is when they start producing and owning content – so essentially, you are feeding on one exclusive source. This is why Netflix, Apple, and Amazon are spending so much money on their own content. They can get you hooked onto material they own that you’ll love to the exclusion of everything else.
While this has heralded the successes of these companies, I believe this will change. Jack Dorsey talked about having unlimited algorithms that customers can choose for their feeds. Essentially, customers become masters of their own data, unlike today, where Twitter decides what we see. Zoho and hey.com don’t track their customers – that is a major USP for them.
But in the proprietary algorithm world, there’s one more leading characteristic:
Digital Products are walled gardens, after all!
One of the things we have been told is that Digital is inter-operable. And that is what makes it pervasive. USB cables, headphone jacks (ok, let’s not get started on Apple’s take here), microprocessors, memory cards are all standardized.
Take a look beneath the App hood, and you see a different story. There’s no way you can play a movie from Amazon Prime or Netflix on any other service. An audible or Spotify audiobook can be listened to only within their App. Each is a walled garden. You cannot isolate the content from the service itself – or convert it legally to play elsewhere. Contrast this with DVDs. You could buy a universal “Good, Bad, Ugly” DVD and play it on any DVD player of your choice. Now the same movie cannot be transferred even if you own it across services. And to further silo things, each of the companies invests a tremendous amount of money in exclusive content. So where you had a Hollywood movie earlier that everyone watched, today you have a Netflix movie, an amazon series, and so on.
Ecosystems are in play too. The various walled gardens provide access to “Digital boxes” to share revenue. So you can access Amazon Prime movies on Apple TV. The interoperability is a revenue-sharing model, not a consumer content share thing.
This, too, I suspect, will change. Digital fundamentally loves to be remixed and shared – two characteristics have been suppressed to make the business model work. Fundamental traits are bound to find expression at the right time. My bet would be on those companies that go toward setting content free.
Experimenting in action. Digital companies are also making things up as they go!
One of the things that’s wonderful about Digital services and products is that they experiment in public. Earlier, when you bought a DVD, it came with its reference guide. It stayed that way until there was a significant firmware update. Now, every time you open an app or your updateable device, experiments get loaded onto it. In a certain sense, you are a beta tester for them and have participated in thousands of their A/B tests already. Menus change, features change, downgrades (to see if people will drop off) – all happen as tests.
The great thing about this is that if you are attentive, you can see the minds at work. And that is fascinating.
As you sit today, you have helped social media, productivity apps, and lifestyle apps get smarter. You share mistakes on kindle books, and they get fixed. And in return, you get highlights from a thousand other people. There is a hive mind at work, constantly refining, trying new ideas, discarding stuff that doesn’t work. And each one of us is part of that,
Betting on companies that build in public is an ingredient of success.
Digital Products need a helping hand from physical economy
All successful Digital products are used by humans and also created and delivered by humans. Even something so ubiquitously digital like Netflix needs tons of people to build and our help as beta testers to make it work. If we didn’t participate, the product would just not move ahead. And there are tons of physical equipment (even the cloud needs physical servers!). Without a robust physical component (people, tools, infrastructure) – Digital never wins.
Products that have sufficient physical resources – people, infra, etc. are the ones to bet on.
Digital companies trade in two currencies – your money or your data. Money is the cheaper option in the long run.
Many Digital products advertise themselves as “free.” This means we don’t have to pay any money to use them. Instead, they use our data and productize us for making money with others. We provide all the content and demographic data that Facebook needs to attract advertisers, for example. The other option is where we pay to use an app. This is a simple two-way transaction. I pay and use a service. My data isn’t shared, I don’t get advertisements, and overall, life is less noisy.
In the long run, I feel choosing this second option is a better bet. Mainly because the transaction is transparent on both sides. You pay some money and get a service. When we hand data over, there is an absolute risk – we don’t know what it will be used for. In many cases, it may even extend beyond the app creator to the ecosystem they work with (think about the infamous CA episode).
Try Zoho or hey.com – you pay for their services, but they don’t track you and are non-intrusive. You’ll have a very, very different experience, I promise.
Solon continues to rule
Nassim Taleb quotes Solon to explain that we can never declare something as a success where there is still time to overturn the results.
“The observation of the numerous misfortunes that attend all conditions forbids us to grow insolent upon our present enjoyments, or to admire a man’s happiness that may yet, in course of time, suffer change. For the uncertain future has yet to come, with all variety of future; and him only to whom the divinity has [guaranteed] continued happiness until the end we may call happy.”
Fooled by Randomness (p. 33). Penguin Books Ltd. Kindle Edition.
While we can celebrate mini-successes, remember Digital also follows Solomon’s rule. So we can never ever declare somebody a winner. Only time will tell. It’s harder in Digital because of the volatility we see in the success metrics.
Take bitcoin and NFT spiraling rates. Are these due to the assets’ intrinsic value or because of the construct (artificially limited supply)? Only time will tell. So patience is vital when looking at Digital winners over time.
So bet on those that have a strong product – time will set them up for success. Big wins in the short term are not necessarily reflective of sound, long-term bets.