Strong B2C business models have moats, bars, alerts, and habits. Moats keep your competitors out. Bars keep your customers in. And alerts remind them to keep coming back until they develop a habit. Here’s how it fits together:
The most dramatic moats are in winner-take-all markets and are built from user activity, which means they grow stronger as your business scales. Good examples are marketplace liquidity (ebay, tinder), meaningful social graphs (twitter, linkedin), and content businesses (slideshare, youtube).
In less mercenary markets, moats aren’t so important. For example, there are lots of project management tools which can co-exist even though they’re basically identical and have no defenses built into their business models. But there’s no winner-take-all dynamic, so there’s not a good reason for their users to leave once they’ve inputted all their project data. Switching costs are high and the products are similar enough that everyone mostly just sticks with what they’re already doing.
If you need to defend yourself with a moat that comes from user activity, then you need your users to stick around for long enough to create it. That’s where bars come in.
Bars come in two forms. The hostile version are prison bars, where your customers are trapped (gym contracts, monopolies). The friendly version are drinking bars, where they are happy to remain by choice (amazon prime, world of warcraft). Happy bars tend to work by either over-delivering value or by having all your friends there. Hostile bars are attractive in the short-term since; assuming you can get away with it, throwing people in prison and taking all their money is obviously easier. But history has shown that disruptive innovation will eventually destroy your prison, free your captive customers, and leave you with a ghost town. With that in mind, happy bars are probably a better source of lock-in.
Happy bars eventually want their customers to come back every day without making a conscious decision to do so. In other words, they want customers to develop a habit. This starts by using alerts, reminders, and other calls-to-action to keep new users at the bar for long enough to form a habit. For example, when you first joined LinkedIn, you were brought back every few days by an email telling you that someone wanted to connect. Eventually, if all goes according to plan, you developed a LinkedIn habit triggered by being handed a business card. They even acquired a card scanning startup (cardmunch) to makes this habit loop smoother.
If you can get a bunch of happy users into the habit of showing up to your bar and bringing their friends–who collectively form a moat–then your business is in a good place.Read More »