Right now, someone is tinkering with a billion dollar secret — they just don’t know it yet. “What people aren’t telling you,” Peter Thiel taught his class at Stanford, “can very often give you great insight as to where you should be directing your attention.”
Secrets people can’t or don’t want to divulge are a common thread behind Thiel’s most lucrative investments such as Facebook and LinkedIn, as well as several other breakout companies of the past decade. The kinds of truths Thiel discusses — the kinds that create billion dollar businesses in just a few years — are not held exclusively by those with deep corporate pockets. In fact, the person most likely to build the next great tech business will likely be a scrappy entrepreneur with a big dream, a sharp mind, and a valuable secret.
Where are the Secrets?
I believe secrets about human behavior, which provide insights into the way people act even though they can’t tell you why, are levers for creating user habits and competitive advantage. These kinds of secrets are also relatively cheap to uncover but can be the basis of massive enterprises.
Once, only large companies had the resources to discover monetizable secrets. Throughout the twentieth century, companies like GE, Dupont, Chrysler, and IBM specialized in discovering the optimal form of physical goods and their insights lay largely hidden in the discipline of industrial design. For these companies, uncovering secrets required massive R&D investment to find the best way to create a better, cheaper, or faster product.
Today Facebook will sell shares in one of the biggest tech IPOs in history. New investors will gobble up the stock to get a piece of the global phenomenon famously started in Mark Zuckerberg’s dorm room in 2004. But while owning the stock will have quantifiable value when it trades on the open market, few buyers will be able to say truthfully that they understood the value of the company just a few years ago.
Ask yourself candidly, what did you think of Facebook the first time you landed on its homepage? Were you blown away? Could you see how it would fill a gaping need in the lives of nearly a billion people? If you’re honest with yourself, and you’re not Peter Thiel, your answer is probably, “No, not really.”
Don’t feel bad. Like many of the astoundingly successful web companies of the last decade, it was hard to appreciate the value of Facebook at first glance. But one person who “got Facebook” early on was Noah Kagan, who in October of 2005 joined the company as one of its first product managers. In 2006, Noah was the source for an analysis of Facebook written by Nisan Gabbay. The essay identified one of the most important reasons for the company’s ascent to Internet glory and offers a prescient description of opportunities still to come:
“The Facebook success story is most interesting to me because of how daily offline social behavior drove usage of the site. There are plenty of activities in our daily life that could benefit from a complementary online product … Facebook demonstrates you have a great Internet service if offline behaviors can drive nearly daily usage online.”
The truly great consumer technology companies of the past 25 years have all had one thing in common: they created habits. This is what separates world-changing businesses from the rest. Apple, Facebook, Amazon, Google, Microsoft, and Twitter are used daily by a high proportion of their users and their products are so compelling that many of us struggle to imagine life before they existed.
But creating habits is easier said than done. Though I’ve written extensively about behavior engineering and the importance of habits to the future of the web, few resources give entrepreneurs the tools they need to design and measure user habits. It’s not that these techniques don’t exist — in fact, they’re quite familiar to people in all the companies named above. However, to the new entrepreneur, they largely remain a mystery.
I’ve learned these methods from some of the best in the business and put together an amalgamation of them that I call “Habit Testing.” It can be used by consumer web companies to build products that users not only love, but are hooked to.
Habit Testing fits hand-in-glove with the build, measure, learn methodology espoused by the lean startup movement and offers a new way to make data actionable. Habit Testing helps clarify three things: 1) who your devotees are; 2) what part of your product is habit forming, if any; and 3) why those aspects of your product are habit forming.
Rather than using conventional feedback loops, companies today are employing a new, stronger habit-forming mechanism to hook users—the desire engine.
At the heart of the desire engine is a variable schedule of rewards: a powerful hack that focuses attention, provides pleasure, and infatuates the mind.
Our search for variable rewards is about an endless desire for three types of rewards: those of the tribe, the hunt and the self.
In advertising, marketers reinforce a behavior by linking to the promise of reward. “Use our product,” they claim, “and you’ll get laid”; it’s the gist of many product pitches from soap to hamburgers.
But online, feedback loops aren’t cutting it. Users are increasingly inundated with distractions, and companies find they need to hook users quickly if they want to stay in business. Today, companies are using more than feedback loops. They are deploying desire engines.
Desire engines go beyond reinforcing behavior; they create habits, spurring users to act on their own, without the need for expensive external stimuli like advertising. Desire engines are at the heart of many of today’s most habit-forming technologies. Social media, online games, and even good ol’ email utilize desire engines to compel us to use them.
Note: This post originally appeared in Techcrunch. I’m proud to have co-authored this post with Katy Fike, PhD. Dr. Fike is a gerontologist, systems engineer and Partner at Innovate50, a consulting firm helping companies create products and services for the 50+ market
As web watchers, entrepreneurs, and investors search for the next big thing, they’d be wise to focus on innovations that can be easily adopted by technology novices. A recent string of companies, including Groupon and Pinterest, have found success outside the early-adopter digerati by building products simple enough to be used by just about anyone. Designing with tech novices in mind can mean the difference between staying niche and going mainstream. Here are three principles for designing software for people Silicon Valley too often disparagingly calls “normals.”
What’s It For?
Don’t tell them “how it works” or “what it is” and certainly don’t tell them how wonderful your company is. Just tell them in big, uncluttered, blatantly obvious terms what your service is for. Novice users need to know when your service would be useful in their lives.
Take a look at Twitter’s homepage for new users. It says simply, “Welcome to Twitter. Find out what’s happening, right now, with the people and organizations you care about.” Same story at Facebook. “Facebook helps you connect and share with the people in your life.” Brilliant! Now the tech novice knows, in no uncertain terms, when and why these sites would be useful. Twitter is for knowing what’s happening and Facebook is for connecting and sharing.
The degree to which a company can utilize habit-forming technologies will increasingly decide which products and services succeed or fail.
Addictive technology creates “internal triggers” which cue users without the need for marketing, messaging or any other external stimuli. It becomes a user’s own intrinsic desire.
Creating internal triggers comes from mastering the “desire engine” and its four components: trigger, action, variable reward, and commitment.
Consumers must understand how addictive technology works to prevent being manipulated while still enjoying the benefits of these innovations.
Type the name of almost any successful consumer web company into your search bar and add the word “addict” after it. Go ahead, I’ll wait. Try “Facebook addict” or “Zynga addict” or even “Pinterest addict” and you’ll soon get a slew of results from hooked users and observers deriding the narcotic-like properties of these web sites. How is it that these companies, producing little more than bits of code displayed on a screen, can seemingly control users’ minds? Why are these sites so addictive and what does their power mean for the future of the web?
We’re on the precipice of a new era of the web. As infinite distractions compete for our attention, companies are learning to master new tactics to stay relevant in users’ minds and lives. Today, just amassing millions of users is no longer good enough. Companies increasingly find that their economic value is a function of the strength of the habits they create. But as some companies are just waking up to this new reality, others are already cashing in.
Recently, my mom came for a visit. She read my blog and discovered her son has a crazy habit of running barefoot. After some convincing, she begrudgingly accepted my rationale, especially after I showed her that a nice Jewish professor at Harvard said it’s ok.
But on one morning, as I was about to walk out the door, my mom stopped me with a tight grab to the arm reminiscent of my childhood. “It’s bad enough you run outside with bare feet but you look ridiculous running with these cheap shmatte gloves.” She always had an eye for spotting the quality of apparel and she correctly identified my Wal-Mart bargain bin gloves, which I bought for $2 per dozen.
“Why are you wearing these things?” she exclaimed. “You must be cold! Let me get you a nice pair of warmer gloves. You’re cold, right? Is that the reason?”
“No,” I said. “It’s not.”
She tried again. “It must be a fashion thing then. The kids are not wearing shoes on their feet but they’re wearing gloves on their hands.” This time she was sure she’d deduced the reason. “So at least let me buy you some nice quality gloves from Bergdorf. You want to be in with the times, I get it. Is that the reason you wear gloves when you run?”