Value, scarcity, and virtue signaling

Hey! Today we have three connected points related to scarcity, value, and virtue signaling online.

1) Goals of your startup and customers should align.

Companies often have misaligned incentives with their customer. Gyms earn money on people who purchase a subscription and never show up. Dropbox sells you 2TB of storage for a relatively low price, but they count on you not using this space. You can't pay for storage on demand. The business model where goals are misaligned is unsustainable in the longterm.

Duolingo has an opposite approach to teach you the language. Their gamification techniques push users to acquire skills faster and learn together rather than wasting time as they would do on Facebook. The founder of the company previously invented CAPTCHA and learned the lesson firsthand.

Metrics should help customers to achieve their goals, not the goals of the company. Limitations or possibilities should push people towards positive behavior. Strava, a social network for athletes, doesn't try to keep you starring on the screen. Their growth depends on you getting out and exercising more. The metrics of the company are aligned with the goals of the people. You have to move more and share results with your community to gain credibility. Strava reinforces positive behavior through social accountability. (See Proof of X (https://julian.digital/2020/08/06/proof-of-x/))

2) Your product value should be superior to be sustainable

I (NK) have conducted a simple experiment this week. I've tried to document everything that I have in my house and sorted the items by parameters: price, ownership, perceived value. More than half of the things belong to someone else. I rent the house with all the furniture, most of my printed books were gifted, designed by me, or borrowed. I have two plants that I got from a friend. I defined the perceived value: ~50% of the items got a score of 2/10. I could easily throw, sell or replace them. AirPods, Macbook, and old coffee mocha scored high.

Results for digital products were surprising: things that I own/rent online bring me a high value for a low cost. Anyone can host a website for free on Netlify or Vercel — it can be an online store that sells and ships worldwide and pays for a living. I pay only for things that passed the high bar because there is a free alternative for all of them. We can get an enormous value for a low cost or even free for the first time in history as customers. (See Aggregation theory (https://stratechery.com/aggregation-theory/)). As entrepreneurs and designers, we need to provide a superior value if we launch a product.

3) Scarcity doesn't work.

There are no luxury brands online yet. You can't find Tesla's of note-taking, Louis Vuitton of Zoom, or Michelin restaurant of Spotify. Internet scarcity doesn't work — people don't want to pay more for the same things to show the status. The reason is that the ownership of those things is not visible. No signaling — no fun. It's cool to be in a Clubhouse these days, but it won't last long.

There are examples of the app such as Superhuman or Hey (100$ /year email apps). Superhuman value is in the quality of the interface. Hey bets on privacy and gives you a fancy domain name. I'm skeptical of them being able to keep the ball rolling — cool domain is too little for 100$ app. A good team can replicate the product in weeks.

Limitations online are artificial. Your luxury Louis Vuitton bag could be well crafted from carefully sourced materials and *actually* cost more. Startups build an online product once and spend fewer resources on maintenance and improvement. Customer service works for enterprises only. Amazon is a prime example of it — low margins and unlimited distribution lead to lower prices for every part of the process. There are attempts to create a scarcity — NTF-Art is an example of it. They are still a work in progress and niche.

Let's connect all three points. Physical limitations don't exist in a virtual world — products that cost more but provide the same value don't last. We still buy expensive fitness-club subscriptions to show the status, but we don't do that online. We're ready to pay for high-value products only. As founders, we need to create superior products to compete. It's either winner takes all or nothing. Artificial limitations can facilitate growth and help customers achieve their goals. Instagram appeals to our FOMO, but it's not sustainable for the product. Robinhood sells the data of its customers to profit and recently started to leak. Great companies align their goals with the goals of the customers.

Any thoughts? We would love to hear them! For those of you in a Clubhouse — would you be interested in joining a public conversation? Let us know!