Product Design Mechanics #3: Addiction is not necessarily a bad thing – if you are the very designer who knows how to bake it into your product. Non-Transferable Assets is a PDM that gives you a structure recipe how to do it.
When I was in my teens, smoking cigarettes was still very commonplace. In Germany, and most other European countries, it was allowed nearly everywhere. Bars and restaurants were known for the thick greyish fog they were filled with; it was normal to come back from a pub crawl and expose all your clothes to a night of fresh air to get that nasty smell of cold smoke out of them. With mixed success.
Moreover, smoking was a very social thing. A big share of people smoked, and it was never hard to find fellow smokers, wherever you roamed. In fact, smoking was regarded cool and hip, though the bad consequences were known to everyone …
Today, these echoes from the past are hard to believe and even harder to imagine in our present days’ world. Few people would ever consider setting a foot into a bar bursting of smoke. Even for me, and probably for all those that have witnessed these old smoke-fueled times, it is a thing I could not imagine anymore. And I am happy those days are over.
However, I must admit that I used to smoke, too. Though I considered myself a sportive person, I also was one of them. One of the smokers. I stopped, many times, and then started again. The pattern was very similar, every time. I eventually stopped smoking when our eldest daughter was born, five years ago. The imagination of her seeing me smoke was so appalling that I finally got away from cigarettes.
The pattern of addiction
As said, my pattern of starting to smoke, over and over again, was always identical. It was smooth and silent floating into addiction. It started with one cigarette that I would smoke at a party. Well, one cigarette is not a bad thing, you can stop any time – that’s what I thought. The barrier to smoking just one cigarette was low. Just one. The next party came, the next merry moment of standing together with other smokers. Take another, one is none. Again, the barrier to smoking that one cigarette was low. And so it went, many times. One is none. The barrier is low.
However, in the back of my head something happened that was cumulating in a very nasty way: While every moment of smoking a cigarette felt unique and singular, a small thing to do, every single cigarette added up to my extent of addiction. It was slow, smooth, and silent because I did not feel the cumulative effect. I just sensed each singular cigarette.
Once addicted, there was no way back. You were stuck with it. You were locked in. You could not escape. It had to take the birth of my daughter to pull me away, once and (hopefully) for good.
Building up addiction in products
This pattern of building up addiction, in a slow and lingering way, finally leading to lock-in, can be harnessed in product design as well. This is where we meet Product Design Mechanics (PDM) again (for an introduction to PDMs, see my initial blog pos here).
The PDM that is the instrument of choice for conjuring up these addictions is called Non-Transferable Assets (NTA) … or rather that’s how I call them. Because I had not found any other existing name.
NTAs may be known to most of you from legal and finance matters, where NTAs refer to asset acquisitions. This one we contemplate, NTA as a PDM, is different and has nothing to do with these things. This one is a truly powerful edge in our product – if you manage to identify a situation where you can put it to use.
Let us start with an example for NTAs. Everyone knows Spotify, how could you not. In the early days (which still holds today), Spotify would allow for-free use as well as premium use. Premium users paid a fee of roughly 10 bucks per month and could use Spotify without limitations. Free use meant you didn’t pay a dime but were exposed to advertisements and fenced product features (e.g., you could only choose the band you wanted to listen to, but not a particular song … tunes were played in random order).
Before we talk deeper about NTAs in Spotify, I would take you on a swift digression into one thing I found remarkable about the before-mentioned advertisement in the free to use product: Everyone just hates advertisement. I have never seen anyone appreciate the interruption from the thing she or he currently loves to do. Which is – in the case of Spotify – listening to music. While Spotify still played advertisement, they added one twist that turned the whole perception of it upside down:
When an advertisement would interrupt your beloved music, Spotify would not just play the ad. They would announce it by saying “the next 30 minutes of music are served ad-free thanks to our sponsor Acme Corp.” … and then the ad of Acme Corp. filled your ears. Wow, thanks Acme Corp. for that! Thanks for allowing me to hear the next 30 minutes without interruption!
Interestingly, as mentioned before, basically nothing has changed. Before that form of positioning of ads as being messages from benign sponsors, an ad on Spotify would also only come in every 30 minutes. But now, your perception is changed. Now you are even thankful to the sponsor and willingly succumb to the ad that is added right after announcing that the next 30 minutes are ad-free. It is all about psychology and an effect in communication theory called framing.
But let’s get back from ads to our original affair: NTAs.
Spotify’s orchestration of Non-Transferable Assets
So, Spotify lay all sorts of roadblocks into your way to make you switch from free use to paid use. Of course, ads serve a double purpose: On the one hand, they would make free use a little less enjoyable than paid use; on the other hand, ads represent a means of monetizing the non-paying user. But indirect monetization via ads is a little less favorable than direct monetization via membership and monthly fees.
So, how could Spotify still make you, the user, switch? Obviously, interruptions by ads and the fencing of features – such as directly selecting the song to play – did not change everyone’s mind.
Enter Non-Transferable Assets.
Spotify would offer a three months period of free premium use. No fees during that time and all the joy of unconditional ad-free consumption of music, not overshadowed by product or content limitations. But how to avoid freeriding, i.e., users gladly accepting those jolly three months and then reverting to free use?
Playlists do the trick.
In those three months, users are encouraged to create all sorts of playlists, arranging their favorite songs according to their very taste and structure. Creating those playlists is labour-intense and requires considerable investment of time.
With every day, your playlists become ever more refined and sophisticated, and after three months you have created your own realm of sound.
And now your trial premium membership free of charge ends. And now you fall back into the basic free use membership. Your realm evaporates and the playlists become futile; your meticulously crafted manufacture cannot be used anymore. Now you realize how much you invested, and that this cumulated investment is of much higher worth than the mere ten bucks you are required to pay per month to stay premium. So you give in, you do not revert to the basic membership. You stay premium.
The playlists are Non-Transferable Assets according to its literal sense: they cannot be extracted out of Spotify. They cannot be put to any other use than the one within the premium membership (note that this has changed today and that there are certain hacks that can be exploited to carve playlists out of Spotify).
The communalities of Spotify and smoking
The mechanics of becoming locked in as a smoker and becoming locked in as a premium user for Spotify are very similar. They are soft and silent, gradual and lingering:
- The start is always easy and seemingly free of consequences: you take a cigarette at a party (and of course you tell yourself it’s “only one cigarette”); you start the three months free premium membership, with no obligations.
- Every single step is easy and not a big effort: the smoking of just one cigarette; the adding of one song to a playlist.
- But somewhere beneath, invisible to your mind, something piles up and cumulates: the addiction to nicotine; the investment of time and effort you made to create all these playlists step by step, one by one.
- At some point, the pile becomes big enough for you to realize you are locked-in: you realize that you are truly addicted and cannot simply stop smoking; you realized how much effort you put into all these playlists and that you would lose all of them if you switched back to where you came from (the basic membership).
Non-Transferable Assets are a powerful PDM as they work in dark ops mode. Until you wake up and find out you cannot turn back. You already are addicted and getting away from it would cost you more than living with it.
The chart at hand demonstrates Spotify’s mechanics at work:
With every song added to the playlist, each curation step and refinement, the switching cost back to basic become higher. Until, after three months, they are higher than the pain incurred from paying the monthly membership fee.
As my colleague Björn Sass rightly pointed out, Spotify has another NTA built into its inner clockwork: the personalization of Spotify to your taste. With every song you listen to, every tune you play to the fullest and every tune you skip, a model of your personal preferences is learned and refined. Made possible via collaborative and content-based filtering mechanisms that form the core of a plethora of recommender systems.
This personalized model of yours, reflecting your very taste, is also a Non-Transferable Asset. If you stop using Spotify and switch to, say, Apple Music, then you will lose this model, you give up this precious intangible ghost in the shell. Apple Music will have to get to know you from scratch, and you wander through a lengthy process of learning again.
Website builder tools have fallen in love with NTAs, too
However, NTAs are not confined to the world of streaming music. They can be injected into many products. For instance, a particularly fertile ground is the class of website builders, like Wix, Jimdo, Weebly etc.
These website builders are easy to use and help you create your own website in no time. No need for cumbersome coding HTML, CSS, etc. Just use the website builder. Of course, each website builder will charge you money. But you can start building your website free of charge, with some small limitations: not being able to host the website on your very own domain (just a subdomain of Wix or Jimdo); some advertisement for the website builder shown on your freshly built website.
All these limitations seem ok, the barrier for starting free of charge is just too low. So you start doing it, you use the convenient website builder and – in no time – your website is born. But then you want to do the fine-tuning and all the polish. A little here and there, many small investments are being made … piling up to a considerable amount of time and effort.
And now here you are: you contemplate the website of your dreams, brought to life by your very own hands. Let’s open it to the public, let’s put it to use. But wait a minute, wouldn’t it be better to host it on your own domain? And the advertisement shown on your website now hurt your eyes. and you realize you are already locked in, because the templates you created, the website you built … all this cannot be detached from Wix, Jimdo, etc. It’s invariably tied to the website builder, no way of exporting it to plain HTML. So now you have three choices:
- Accept the ads and the fact that your website can only be hosted (in free mode) under a subdomain of the website builder.
- Let go of your website and start your project anew somewhere else.
- Pay the monthly fee and get rid of ads and limitations regarding hosting.
We already said that option 1 is not an option. Option 2 certainly isn’t either, because you invested a lot into the assets (which is the website) and don’t want to lose it. So here we are, option 3 is the way to go. The Chief Revenue Officer of Wix & Friends will send you his smile and best wishes.
NTAs are often a data and access game
At XING Events, my former company, we put on our thinking heads and deliberately thought about how we could build a lock-in for customers into our product, the event management and marketing platform. Along the way, we had an intense look at NTAs as a form to build up a lock-in that would grow slowly and unobtrusively.
And we found one that would perfectly match these requirements: we designed a lead pool that contained the XING profiles (XING is the German version of Linkedin, a professional social network platform) of people that attended events which were managed over our XING Events platform.
So, with every event the organizer did on our platform, that lead pool would grow and flourish. The lead pool would allow the organizer, in a GDPR-compliant way, to contact the people in the pool via the XING social network platform in certain intervals. Soon as the organizer stopped using XING Events, she or he would lose this ability of contacting the lead pool on XING. The more events the organizer managed over XING Events, the harder it would be for her or him to walk away.
Mosts NTAs in digital products can be built around three types of assets:
- Data (as is the case for the Spotify playlists)
- Access to users (see the XING Events example)
- Artefacts (see the website builders like Wix)
In a way, software like SAP or Salesforce can be seen as examples for built-in NTA mechanics as well: In order for these software pieces to properly work in your company, they require a high extent of customizations over time. With each customization and adaptation of the software, with each new script, the investment you make piles up.
At some point, it becomes nearly impossible to rip, say, Salesforce, out of your technological landscape. You would lose all these customizations in one go – for if you switched to, say, Microsoft Dynamics, you would have to build up these customizations anew.
The role of inertia for NTAs
In a way, one could even say that inertia leads to non-transferable assets: the know-how and expertise you build up while using some piece of software. Your familiarity with a tool, its user interface, its (key) shortcuts and all other efficiency boosters you got acquainted with and acquired over time.
Another tool may be similar … but, then, why switch? It may be similar … but the good old saying “same, same, but different” may apply here too: Even tools that are 90% similar may involve considerable switching cost, because, oftentimes, the devil is in the details. Tiny nuances and subtle differences require un-learning and re-learning.
Experience and familiarity as non-transferable asset has been cleverly exploited by Microsoft in the 80s and 90s:
First of all, they had a special school and university program where they handed out Microsoft products at big discounts (or even for free) to students. Who did have low purchasing power anyway, so Microsoft would not miss out on too much revenue. The rationale was that this way, students would easily opt for Microsoft, boosting new user acquisitions.
These students (at school or university) are the future white collar workforce, Microsoft’s sweet spot target group. Soon as they would leave their alma mater, they’d be so used to Microsoft products they’s never want to miss them. And would not like to switch to something else. The NTA has been successfully built up, and the pain of now having to pay for these products would be lower than the gain from staying with a product you know and love.
Piracy can help, too
In fact, Microsoft has gone one step further in those two decades that saw the massive rise of personal computing: Back then, software piracy and pirate copies of games and software applications was a big issue. After all, there was no such thing as a cloud or means to require users to register the software licence they just bought. You buy a software on a disk or CD-ROM and then use it. Or you just copy that software from your friend or colleague. That’s piracy; a concept that rarely exists in that very form today.
Microsoft was badly hurt by privacy, as one can easily imagine. Nevertheless, legend goes that – to some extent – Microsoft would tacitly accept privacy. Why? Because they knew that privacy would help to distribute their software products rapidly and broadly.
And since (business) applications in the 80s and 90s were also subject to network effects (“if your buddy uses Microsoft Word, then you will likely use that, too, in order to be able to exchange docs with her”), this would help distribution spread virally … and also incur higher revenues already now for Microsoft:
Suppose there is a group of five people that collaborate together intensely. Two of them got a pirate copy of Microsoft Word. The other three do not have a text production software yet, but are willing to pay rather than to steal. Which product will they most likely opt for? You got it, Microsoft Word.
Even more, these two people that own a pirate copy now might later switch to a paid copy, too. E.g., when they enter the workforce (piracy was clearly more common in younger age groups, when money to spend was scarce) or when they found that more became at stake for committing theft of intellectual property (because they had founde a family).
Both moves, giving freely to students as well as tolerating piracy to some degree, are clever moves of Microsoft, creating NTAs in people’s minds.
Exploting your customer’s own organic growth
Atlassian, famous for collaboration tools such as Jira or Confluence, have taken NTAs one step further, by following their customers’ organic growth in a smart way:
With Atlassian, you’d get to use 10 seats of your product, say Jira, for free. That is ok for most smaller startups. And it definitely helped to make sure that Jira was spread so quickly, though no Dollars would be incurred so far. However, startups grow – at least the more successful of them. And surely they’s grow beyond the need to go for 10 seats only.
By that time, however, your development crew has gotten acquainted with Jira, they have deployed and customized Jira to their very needs. They have mapped many SCRUM sprints to Jira and stored hundreds of user stories in there … you would not want to go to the length of moving all this to another system. So you willingly pay the extra seats.
Here again, the cost for switching are much higher than the premium you might pay for the Atlassian tool suite versus other lower-cost tools that offer similar services.
To conclude, Non-Transferable Assets are a strong tool to build up an effective lock-in. It is always worthwhile to think about how they can be baked into your product.
Take the time, it is well invested.
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