Inclusive and Extractive Institutions – The Wealth and Poverty of Nations: Why Consumer Product Metrics Are All Terrible

Inclusive and Extractive Institutions – The Wealth and Poverty of Nations: Why Consumer Product Metrics Are All Terrible

In the quest for sustained economic growth, the role of political and economic institutions cannot be overlooked. According to Acemoglu and Robinson, inclusive economic institutions are those that allow and encourage participation by the majority of the population in economic activities that make the best use of their talents and skills. These institutions are characterized by secure private property, an unbiased system of law, and the provision of public services that create a level playing field for economic exchange and contracts.

On the other hand, extractive institutions remove the majority of the population from participation in political or economic affairs. While some individuals may hold economic power and rights to private property, the majority of the population is left without any agency. Throughout history, societies built on extractive institutions have experienced stagnant economic growth. Even in cases where short-term economic growth has been achieved, such as in the USSR, it does not lead to long-term stability.

Countries that have achieved sustained economic growth have done so by gradually developing inclusive institutions alongside economic progress. These institutions ensure that large portions of the population can actively participate in the political and economic systems of the country. By enabling individuals to make their own decisions about their work lives and including them in economic activity, these nations create a foundation for long-term growth.

While inclusive institutions play a crucial role in economic development, it is equally important to understand why consumer product metrics often fall short. When analyzing the success of a product, metrics such as signup rates and user engagement are commonly used. However, these metrics can be misleading.

For instance, a typical product may see 90% of potential users refuse to sign up, and of those who do sign up, over 90% become disengaged and inactive over time. Mobile apps may show better engagement metrics but have lower upfront conversion rates. This discrepancy can be attributed to the fact that traffic to mobile apps is often driven by word of mouth, resulting in higher signup rates. However, a significant percentage of users, often over 90%, are not engaged on a daily basis.

To improve engagement and frequency, it is important to tie the product into someone's pre-existing behaviors rather than asking them to adopt something new. By understanding users' existing habits and incorporating the product seamlessly into their routines, companies can increase the chances of sustained engagement.

Additionally, it is crucial to create a sense of community within the product. Many users do not know anyone else using the service, resulting in a lack of personal connections. This necessitates the need to backfill the feed with content from one person or impersonal content. Creating a dynamic news feed becomes particularly challenging when considering the fact that only a small percentage of users will actively contribute content.

The struggle to create a successful consumer product is evident in the low signup rates and lack of user engagement. However, understanding the importance of inclusive institutions and their parallels in product development can provide valuable insights. Just as countries need to include broad swathes of their population in economic activity, consumer products need to tie into users' existing behaviors and foster a sense of community.

In conclusion, to achieve success in both economic growth and consumer product development, it is crucial to focus on inclusivity and engagement. Three actionable pieces of advice can help in this pursuit:

1. Develop inclusive institutions: Just as countries need inclusive economic institutions to foster sustained growth, consumer products need to integrate seamlessly into users' lives and routines.

2. Tie into pre-existing behaviors: Instead of asking users to adopt new habits, find ways to incorporate the product into their existing behaviors. This increases the likelihood of sustained engagement and usage.

3. Foster a sense of community: Creating a community within the product enhances user experience and encourages continued engagement. Backfilling feeds with relevant content and enabling personal connections can contribute to a healthier and more dynamic user experience.

By implementing these strategies, both nations and consumer product creators can strive towards long-term growth and success.