A lot has been written about defensibility and moats in businesses. Strategists talk about barriers to entry (resources, patentable technology and processes, expertise, capital) in certain businesses and why it is usually difficult for new entrants to disrupt incumbents.
But one of the lesser-explored areas of defensibility is building products which have a high exit cost for users. But what is exit cost?
Exit cost is the real or perceived or emotional cost faced by a user while leaving a product or switching over to another product. Good products have high exit costs. Great products have such exorbitant exit costs that users never leave them (leading to insanely high long-term retention and LTV). Poorly built products have zero to low exit cost.
Let’s look at a few examples of products that have high exit costs and build our way towards a framework of exit cost.
The world of invest and express
In the world of gaming, we call a category of games “Invest and Express”. These are games where users invest their time, energy and creativity (and money) and use the game as a form of self-expression. Take a game like Farmville. Its most dedicated users spent a lot of effort in keeping their farms neat and organized. They took pride in the fact that all their crops were harvested in a timely fashion. They used the gameboard as a means of expressing their creativity.
Minecraft users took this much further.
Users invest their time in building out great avatars (skins) and improving their stats in many online games (and used to do it in RPGs like D&D all the time).
An invested user is not leaving your product any time soon. But “invest and express” doesn’t have to be limited to the world of gaming. Pinterest comes to mind instantly – well-curated mood boards, massive time spent creating collections – all invest and express.
Essentially, by allowing users to invest and express – you are giving them ownership. One doesn’t easily discard things one owns. What part of your product do users own?
The village stays together
When it comes to one-to-one messaging there are a lot of apps that are better than WhatsApp. However, in the last decade, no messaging app has been able to displace WA (apart from WeChat in China, there is no geography where WA isn’t the most important messaging app). Sure – Snap, FB Messenger, etc have carved out their own space, but WA is the real king of messaging.
The reason for this is simple – your high school group.
While individuals will try out new messaging apps for one-to-one communication – the ephemeral nature of Snap, the privacy offered by Telegram, the easy connection to FB friends (whose phone numbers you might not have) – it is difficult to move entire groups to new platforms. The 84 people in your college hostel gang, the residents’ group from your apartment complex, that large family group you usually avoid (with those pesky aunts and second cousins) – how will you move all of them to a new messaging platform?
Network Effects are very well described. Any product that becomes better with every new user who starts using the product is said to have strong network effects. Netflix’s recommendation engine becomes better as its subscriber base grows. Online games become better as more people play because matchmaking can happen faster and you can be slotted into teams based on your proficiency level.
But the strongest builder of network effect is your social graph. Slack becomes more useful when your entire organization moves to it. Jira (and other Atlassian products) truly increase an organization’s efficiency when adoption hits critical mass.
What part of your product is utilizing a user’s social graph? What other network effects exist in your product?
It is all Prime, baby!
Recurring revenue models. Subscriptions. The world of enterprise and SaaS is built on the backs of these. However, no subscription model has come close to Amazon’s. Prime now accounts for 78% of all US households. With each passing year, Amazon adds more and more features to its subscription offering (same day shipping, videos, music, etc) without significantly increasing the price (more value, same price).
Prof Scott Galloway talks about “rundles”: recurring revenue subscription bundles. It is difficult to exit a product with a well built and valuable rundle. Are you seriously going to unsubscribe from Amazon Prime? People rarely leave the clubs they have joined.
Getting the user to commit to a recurring payment is in itself a massive barrier. Once the user subscribes to a recurring fee – cancelling a subscription is rare. In countries like India where credit card penetration and adoption is low, entire startups are being built around alternate recurring payment mechanisms.
Can your product benefit from a recurring revenue model? Can you build a true rundle? Can users join your club?
Fitting in matters
Do you want to be the only one left out of a conversation?
Human beings bond over stories. Water cooler conversations over last night’s episode of GoT or the latest superhero blockbuster are a way for people to feel like they are part of a tribe. We want to be part of the zeitgeist. Kids feel this pressure perhaps the most. You don’t want to be the only pre-schooler who doesn’t watch Paw Patrol or Peppa Pig. And you definitely don’t want to be the only parent at school whose kid doesn’t fit in.
Clearly great content plays an important part here. But there are products with really strong storytelling behind their marketing machinery which have also excelled in creating this strong exit cost. One word: Apple.
A brand built around uniqueness, standing out and fighting the man is now one of the largest companies in the world with over 1.4 Billion active devices across the globe. Storytelling has played an enormous role in Apple’s success. And however much you may argue about the superiority (perceived or real) of their products, the fact is that you don’t want to be the only designer on a team of designers working on a Windows machine.
Does your product tell a strong story? Will users feel like they are missing out/ not fitting in as a result of exiting/ not using your product?
Humans love to commit
We are pavlovian creatures. Give us a task and we’ll do it. Give us a journey to go on and a bunch of quests along the way and we will all feel like Campbell’s heroes. Throw in a few rewards – and we will be satiated.
The truth is that once humans have committed to something (a relationship, a person, an action) they hate to feel the guilt of abandoning it. Good learning apps – Duolingo, Khan Academy Kids – do this really well. Good teachers have figured out the power of making a student commit to small actions.
Dropbox used this beautifully in its early days: get a new user to create their first folder and add a file to it. That’s it. That one simple action got the value proposition of Dropbox across to its users and solved their leaky bucket problem.
What are the simplest actions/ tasks that you can assign to your users to help them commit to your product?
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So let’s look at the framework of building products with high exit costs:
Help a user:
- Own a part of your product
- Bring their village along
- Join a valuable club
- Fit in
- Commit
Good products usually use a mix of the above. What other examples of high exit costs have you seen in products?