The Power of Sticky Products and the Curse of the Network Effect

The Power of Sticky Products and the Curse of the Network Effect

Introduction:

In the world of technology, creating a product that users can't seem to let go of is the ultimate goal. This article explores the concept of sticky products, using Facebook and Evernote as prime examples, and sheds light on the challenges faced by marketplaces with the expectation of completeness. By understanding the dynamics of accruing benefits and mounting loss, as well as the limitations of network effects, companies can devise strategies to create successful and sustainable business models.

Sticky Products: Fueling Engagement and Loyalty

Sticky products, as described by Sarah Tavel, use the data created by users to enhance their overall experience, making it increasingly engaging and harder to abandon. These products offer accruing benefits, meaning that the more users engage with them, the better their experience becomes. Leveraging a combination of explicit and implicit actions is key to creating strong accruing benefits. Additionally, sticky products generate a sense of mounting loss, as users become dependent on them or invest valuable resources, such as time or followers. The fear of losing these investments makes it difficult for users to leave the product.

The Curse of the Network Effect: Expectation of Completeness

While network effects can lead to exponential growth and engagement, they do not guarantee a viable business model. Marketplaces that aim to provide a complete range of options can struggle to monetize effectively. The expectation of completeness can hinder revenue generation, as users expect all relevant results without limitations. This challenge is particularly evident in local marketplaces, such as event listing sites, where the inability to monetize can hinder growth. When faced with the need to collect fees from organizers, Zvents found it challenging to justify the request, as it risked compromising the completeness of their platform.

The Google Approach: A Viable Solution

Google, despite facing similar challenges with the expectation of completeness, managed to build a successful business model. By organizing "the world's information," Google caters to a vast market, allowing it to monetize a proportionally small amount of the value it creates. The sheer number of users and their interactions with the platform enable Google to generate revenue through sponsored placements. However, this approach may not be feasible for niche marketplaces or industry-specific platforms.

Alternative Strategies for Monetization

For marketplaces that cannot rely on the Google model, there are alternative strategies to consider. One approach is to facilitate the transaction itself, as seen in companies like oDesk, Etsy, and Uber. By positioning themselves in the middle of financial transactions, these platforms can justify taking a cut, offering convenience and security as added value. Another option is to cater to a very large market, similar to Google, where the volume of users compensates for the inability to monetize a complete range of offerings. Both approaches require careful consideration and adaptation to specific market dynamics.

Actionable Advice:

1. Focus on accruing benefits: Identify ways to make your product experience improve with each user interaction. Leverage explicit and implicit actions to create a sense of value that grows with usage.

2. Assess monetization challenges early: Understand the expectations of completeness within your market and plan for effective monetization strategies. Consider facilitating transactions or targeting a large market to overcome these challenges.

3. Prioritize user engagement and loyalty: Invest in building a product that becomes integral to users' lives, creating a sense of mounting loss if they were to leave. This can be achieved through identity integration, fostering a community, or providing unique value propositions.

Conclusion:

Creating a sticky product requires a deep understanding of user behavior, leveraging accruing benefits and mounting loss to fuel engagement and loyalty. While network effects can be powerful, the expectation of completeness can hinder monetization efforts. By learning from successful companies like Google and exploring alternative strategies, businesses can overcome these challenges and build sustainable models.