How Products Win— A Habit Zone Theory
— — — This article serves as my daily thoughts on product— — — -
Author of Hooked introduced the idea of Habit Zone, that looks like the one below:
The idea of Habit zone is that, a successful product (one that’s able to retain users) lies somewhere within the region above the curve, whereas a product is most likely not habit-forming and unable to retain users if it’s below the curve.
In very simple terms introduced by the author, when a product enters Habit Zone, it has the ability to: 1. retain users 2. fend off competitors that are outside of the habit zone. However, I would like to offer a theory that expands and dive deeper on this Habit Zone idea.
My Habit Zone Theory
The simplistic nature of the original Habit Zone concept is that Habit Zone is uniform across users. However, I think it is important to make clear that, habit Zone is not uniform across users. It is important to think that every user has a unique habit zone, with unique usage frequency of a class of products, and unique perceived utility. The reason why the products you use are different from mine is mainly attributable to the fact that we have different habit zones. Frequency is not how frequently a product is typically being used. Instead it is how frequently a user uses it vs. competing products. Perceived utility is not how much better a product generally is vs. competing products, but how much better a user thinks of it vs. competing products.
An Illustration — Search Engine Case Study
Google Search today captures ~92% of search engine market share. For a hypothetical person named Nick who uses Google Search several times a day for years, Google has a high frequency score and is in his habit zone. The reason why Nick won’t switch over to Bing is because he uses it so often that he has grown very accustomed to everything about Google Search (# ads on top of the search results, UI design, features, etc.). Switching over to Bing means Nick would need to adapt to Bing’s UI, # ads typical shown on top of search results, etc., and Nick thinks it’s not worth the effort. It is less likely because he thinks Bing won’t give him similar results when he does a search query. (Bing’s search algorithm is actually different from Google’s, but the difference is not too perceivable for end users)
Therefore, if we look at the search engine market today, Google Search is almost unbeatable — ~92% users choose it over other search engines, and the reason is very much attributable to the first-mover-advantage of Google Search — but not exactly. In early days of Google Search, it had high perceived utility advantage vs. other crappy search engines, which created market dominance, but as search engine market matured overtime, the perceived utility advantage of Google Search shrink, and the majority of Google Search’s moat today is now frequency, not perceived utility. The other 8% users are the ones with different habit zones from the main stream users. Bing’s users are mainly captured through bundle sales (Bing is the default search engine of Internet Explorer and devices using Windows system).
Bing’s mediocre attempt at challenging Google Search
Bing was launched under the assumption of the effectiveness of bundle sales. But it turned out to be not as effective as Bing’s team thought it would be. Bing’s market share is ~3%, and +70% OS are windows. That indicates that most windows users ditch Bing in favor of Google Search. Only users that do not have Google Search in their habit zone would find themselves comfortable using Bing, but that’s really the minority. It is because Bing at its best, have around 0 perceived utility vs. Google Search, while almost everybody in the world has used more queries on Google Search than Bing in their lifetime. Given the ease of typing www.google.com, unless Bing is designed with a positive perceived utility vs. Google Search for some groups of users, Bing will continually see bundle sales as an ineffective way of retaining users.
Neeva’s brilliant attempt at challenging Google Search
If we take a look at search engine start-ups, the majority of them use “ads-free” as their pivot. Take Neeva as an example, Neeva charges a monthly fee ~$5, and creates a private, ad-free environment for users. For Neeva’s founders and investors, they think there would be a considerably decent size of user group that have very high perceived utility for privacy/“ads-free” feature, so that they would go through the painful re-adapting phase to switch from Google Search to Neeva. It is a brilliant start-up idea, even though it certainly will not take the entire market share away from Google. Most users might not think Neeva as a big deal, but there are plenty of people who value privacy and ads-free more than $5 — when their perceived utility of Neeva vs. Google Search outweighs their cognitive effort of re-adapting and $5/month, they are acquired and retained.
Illustration— Other Examples
- Direct messaging apps
WhatsApp, WeChat, Email…Arguably the class of apps with the strongest moat. For entrepreneurs who want to enter this market, they need to ask themselves: how do they come up with an app that offers a higher perceived utility than Whatsapp? The answer is almost impossible. WhatsApp’s perceived utility is most and only consisted of a very strong network effect. Users hate having multiple direct messaging apps, so Whatsapp overtime has created a super-powerful perceived utility advantage over its competitors. Combined with high usage frequency, it sits on the upper right corner of the habit zone.
2. Social apps that are fun
What sets this class of apps different from the one above is, as I pointed out, is whether it’s fun or not. Therefore, the perceived utility inside people’s head is not only a function of network effect, but in additional to that, how entertaining it is. That’s why apps in this category have weaker moat than the first category, because it is easier for start-ups and newcomers to create an app with higher perceived utility — it’s not network-effect-only anymore! When the perceived utility of a newcomer is substantial enough, it poses a threat to the existing players. Users download TikTok and spend more time in it because they think it has higher perceived utility than other mainstream apps, a lot of people became daily users even if none of their friends are on TikTok — it’s just more fun. Therefore, I think weaker moat and strong monetization potentials are key features for apps of this class, resulting in extremely fierce competitions.