Frictionless Consumption: A New Lens for Early-stage B2C Opportunity Evaluation
The new logic is frictionless consumption
Roger Martin, named one of the greatest thinkers in management theory, declared in 2010 in his HBR essay that we are today in an age of customer capitalism. He explained that the only way to create shareholder value is to treat customer satisfaction as a priority. Faced with the high-growth motive, entrepreneurs need new looking-glass logic for launching successful digital products that make consumers’ lives better. They can use digitization to reduce and mask complications that arise in the way of consumers achieving their goals, and think about which technology-driven features can eliminate what consumers do not like about current interactions in the commercial sphere. What follows is that venture capital investors can use this additional lens for decision-making to make sure that their B2C portfolio company generates enough consumer value for rapid market adoption. In addition to looking into the team and the market, they are also able to judge a promising companies exactly by the potential of their product to remove the friction involved in consumers buying or accessing whatever they need.
Most of us don’t remember what life was like before the washing machine, the word processor or even airlines. We take for granted the effect on living standards these technologies brought, and how much easier they made our lives. While we don’t often have these major innovations come into our lives, we can learn from their impact to spot the next technological breakthroughs and hence ride the next wave of unicorns who build trillions of dollars of value by inserting digital tools in rather previously untouched aspects of life. Much like how the washing machine automated cleaning our clothes with our hands, or how the word processor simplified writing and erasing, or how the airlines enabled us to go from city to city in a fraction of the time while being taken care of by hostesses, the new wave of startups should aim remove the most friction from consumer journeys in new industries like health, food, finance, physical retail and others. The most valuable companies of the future will therefore be the ones that reach zero-friction.
The zero-friction economy
When we remove all friction from the economy is when we reach a state of abundance, a world where everyone can cheaply and easily use products that help them live as easily as possible. In this desired future state, frictionless consumption becomes a post-scarcity utopian concept that every consumer-centric startup should have in its vision. Building zero-friction experiences means the removal by design of both unnecessary clutter and cognitive effort so that higher experiential utility and well-being can be generated in the achievement of the consumer’s goal. Different sources of friction can be time, choice, intermediaries, unnecessary actions, complexity, uncertainty, distrust, distance, security, transportation, and cost. Throughout the product lifecycle, a startup should optimize their product towards simplifying every one of those aspects in the experience to the minimum. To do that, the entrepreneur can digitize an already existing physical experience, or they can choose to remove friction out of a digital experience using new technologies to create cleaner interactions.
To make this theory more practical, I will explain through an example of the cluster of digital services that in my opinion are the closest to a “zero-friction” today. Then, I will suggest a new way of thinking around an experience that we have almost everyday.
Music streaming apps like Spotify and Anghami made reaching the “I want to play a song” goal frictionless and instant. In Spotify, a user can today access any song at any moment from almost any device. We can compare that to a preliminary music experience before recorded music where the musician had to come to you, or more recently when you had to go to the store to buy the CD which only works with a CD-player that is plugged to a wall inside one of your rooms. What do you have to do today? Just speak the words “Play Hello by Adele” to your phone and it starts playing instantly. These services also learn more about you as you use them and start recommending new music you like without you having to ask anyone, to read blogs or even follow DJs. Furthermore, paying for these services became frictionless because you agree to a monthly subscription once and then forget about it.
Communication apps like Whatsapp and Snapchat on the other hand reduced all distance and effort between friends and family in the “I want to be with someone who’s not here” goal. It has become so simple to transcend our current surrounding and be with people we love through live video chats, or even better through readily accessible Snapchat stories — all for free. Facebook for example wants to take this value proposition further today with virtual reality, bringing people together in simulated environments so they feel that they are actually in the same place and stimulating the intimacy begetting from that.
While these three kinds of apps represent today the most widely used products and most valuable digital companies, the example I will suggest next is by no means a billion-dollar business, but solely an example of what might be (after all, if I had a billion-dollar idea, I would build it myself…).
Think of how the following experience enhances and removes friction from your regular restaurant visit:
- When you book a table at a restaurant on the following night, the restaurant sends you a link to their interactive menu by SMS or by email that can be browsed from home.
- You arrive to the restaurant on that night with friends and you can easily access the menu on your phone or on the table iPad while collaborating in real-time on orders with your friends through an app.
- Your application gives you recommendations based on what you previously got at other restaurants, based on what other people who have the same taste as you liked, and can even answer any question you have such as “What kind of Asian food with chicken is the best?” with the use of a chat bot.
- You can then order food on your device just by selecting products on the menu app at any-time before or while you’re at the restaurant and also see your total bill in real-time.
- You can use your device to directly re-order more food instead of having to call the waiter for getting the menu, then having to call them a second time to re-order.
- You can then give feedback easily on the device by rating dishes and leave reviews on specific meals that other people can see and base their decision on, similar to foursquare and Yelp.
- You automatically pay with the bank card stored on your phone after the app itself calculates and splits the bill with friends.
- The restaurant remembers your info and personalizes the experience next time and every time you are there again.
The value curve in this consumption journey would look something like this:
Frictionless technology from discovery to repeat usage
What technology has been able to do to date is to enhance many experiences that we used to have offline by taking them to cyberspace — experiences such as buying music, attending a physics course, or hiring a plumber. The trend towards the future is to create more seamless interactions across the consumption journey, by integrating emerging technologies along the lines of discovery, purchase, delivery and repeat usage. After mapping that whole journey, entrepreneurs can automate away the challenges to accessing the product value repeatedly and enable “instant gratification” for consumers directly after the need for the products become visible to people themselves or to the algorithms that are constantly scanning for consumption opportunities.
Discovery — Friction in the stages before adoption will make all the difference. If the effort needed to switch from the current solution is high, the consumer will never make the switch. The challenges involved in finding products, deciding on them, and being certain about trying them can be alleviated by smarter and smarter devices that can first understand user preferences, and second use the collective wisdom of other similar peoples’ preferences for personal recommendations. Today, marketers can collect and use data points from smartphones, home devices and sensors everywhere about potential customers that helps them understand not just who they are talking to but also why. Intent, behaviour, emotions, context can hence be used to personalize pre-usage touch points to provide exactly what the customer wants at the moment. Looking even further, virtual assistants and connected wearables will predict the needs of their users and order products, food and medicine with minimum interference from the user.
The big promise of smart virtual assistants like the one Google is aiming to build lies not only in personalization features, but also in the ways we interact with our devices and the world. Advances in both aspects are aimed to reduce the time spent to access solutions. For example, voice and chat bots are mainly a way for us to interact faster with our apps instead of writing on a keyboard or pressing screens — we can hence just ask our device what we want and it will give it to us in one answer instead of a thousand pages of links. A study by ComScore predicts that by 2020, at least 50% of all web searches will be conducted by voice. On the other hand, cameras in our devices and headsets like Microsoft’s HoloLens will be able understand the world around us through image recognition and will work with physical world prompts to recommend tools that may be useful to us in the moment. A camera app like Blippar or Google Lens can recognize restaurants around us on the street and recommend the perfect lunch for now. Smart mirrors can recognize our changing skin color and recommend dietary supplements to improve our health. Any brand or startup can already today use NLP-based APIs like IBM Watson’s and machine vision-based APIs like Clarifai to make their apps easier to use, and the products in the world more discoverable.
Transaction — As more purchases are made online, Amazon and others are pushing to build virtual stores where consumers can freely roam and discover using their headsets. Yet grocery and product purchases are not the only kind of experiences that are being digitized. VR enables us to instantly be transported into a different place without leaving our house — Put your headset, choose your destination and 10 seconds later you’re in Disneyland, Paris or at the Wall of China. But why stop at simulated worlds? Because customers increasingly want omni-channel experiences, physical stores are today adapting to higher technological expectations and adding product discovery tools and virtual fitting rooms to their retail stores. Cameras with smart vision enable face recognition, and smart sensor technologies enable product recognition so that customers can freely walk into the store and out with their purchase, making the whole shopping experience frictionless.
Following on that, the friction in payments will gradually disappear into the background and all transactions will become automated. Our bank cards are starting to be integrated with mobile operating systems with ApplePay and Android Pay so that consumers pay by just tapping our phone. In many cases today, transactions are done automatically in some mobile apps without the user’s input at checkout. In the future of retail such as the one described above, our phone will link automatically with sensors in the store and on the products to complete the transaction while on our way out. Furthermore, digital currencies will make it possible to instantly pay anyone or any business in whatever currency.
Delivery — The emerging technology that will quickly disrupt home delivery is the unmanned aerial vehicle (UAV), or the drone. As Amazon and some national post networks start testing drones and the technology gets better, I believe that networks of drones will enable any commercial seller to plug-in their desired delivery into those networks and get their products in the hands of customers as quickly and as cheaply as possible. While a drone can delivery a 2KG parcel within a 10 km radius costs for 10 cents instead of a ground transport delivery cost of $2–8, it can also fly at 100 Km/hour and evade any sort of traffic and ground obstacles. Drones can deliver anything from Amazon products, groceries, medical supplies in case of emergency, and even make hot food deliveries.
On the other hand, the technology that may potentially remove the need for deliveries is 3D printing as it will become possible for consumers to manufacture their own purchases at home. Home printers may become a one time cheap investment that churns out clothes to their owners for years. It will hence become much faster and cheaper to produce accessories, sunglasses, shirts and even full dresses. People will be able to download designs and customize them to their own style and measurements, making them more personal with a perfect fit.
Repeat Usage — The smart algorihtms embedded in devices and in the cloud will work together to optimize consumer experiences to their own needs and preferences. Applications will connect to wearables and other sensors that keep track of our lives to suggest products and content that know what we will need, even before we need it. This personalization is already clear inside apps like Spotify, Amazon and Facebook but will extend to every app we use. For example, I get 25 matches per day on Tinder but how do I choose which ones to go out with to? I have 200 restaurants on my Uber eats app but how do I choose which one will satisfy my current Sunday afternoon taste. The progress in artificial intelligence enables us to mine massive amounts of data, text documents, reviews, writings, videos and speech to find the right answer for customer questions such as “Where should I go this summer for a relaxed spot in the mountain side of a European country?” and other types of personal questions again and again based on previous behaviour, the wisdom of the crowd and the specific current context.
Another aspect of repeat usage automation is routine purchases, such as household items and grocery shopping that will happen without the involvement of the user. Digital services like Ocado will know that I order the same kind of cornflakes every week, and Alexa will know that my bedroom light bulbs need replacements before they proceed to deliver them to me in the same day. Similarly, previously manually manoeuvred products such as ovens and irons will either become autonomous, or will be taken care of by home robots that understand when they need to be used by connecting to our home service apps, our messenger apps, or our calendars where we input what time are our friends coming over. The more these services know us and everyone who uses them, the more useful they will become and the more these businesses will build data network effects that make them more successful.
Going beyond functional efficiency
The epitome of the tech startup world is the ability to integrate programmable code that propagates from device to device in milliseconds to orchestrate the actions of different actors in the physical infrastructure and deliver automated, speedy and efficient solutions to end users’ arduous tasks. Yet entrepreneurs and investors need to understand that reducing friction is not solely a matter of functional efficiency. Frictionless consumption also has contextual, emotional and economical constraints. Interactions in our daily lives do not only provide marginal utility in terms of time and effort, but customers do expect more from their apps. It’s never just “I want to play a song” but it’s “I want to play a song because I’m having a barbecue with my friends”, or “I want to play a song because I heard my favourite band released a new album” (This is a contextual consideration). It’s also “I want to play electronic music because it fits the identity I want to project” or “I want to play nostalgic Arabic music because I miss home” (This is an emotional consideration). It’s also “I want music to play music but I am not willing to pay more than $100 per year because that’s how much I spent on music in iTunes” (this is an economical consideration). And it’s not only “I want to ride an Uber from Dubai to Abu Dhabi” but it’s “I want to go from Dubai to Abu Dhabi, but I have to be there in 20 min” (This is a contextual consideration, and this brings the importance of introducing flying cars and Hyperloop). It’s also “I want to ride an Uber back home tonight because I feel safer than in the tube” (this is an emotional consideration). Finally, it’s also “I want to go to Abu Dhabi, but I am not willing to pay to arrive there much sooner more than 200AED on top of a regular cab drive” (this is an economical consideration)
The importance of the economical constraint
To that last point, the maximum value you can create is at the edge of your customer’s willingness to pay. Almost all consumer businesses look at the customer lifetime value to decide on expenses and costs to acquire him or her. Entrepreneurs have to be weary of solving for consumer “wishes” that don’t already have cost-efficient solutions today, because they are the hardest to build companies around. Not every friction killing app is a successful business. For example, the digital answer to “It’s raining…I wish I had an umbrella” might neither be a realistic nor economically viable business because there’s a “But I am not willing to pay more than $10 for it”, which is why it is hard to build a business in that problem space. Yet if done right, these companies can gain a lot of attention and maybe even create new markets. “I want to go on a trip to see space” is what both SpaceX and some VR startups aim to make it easier for consumers to do, rather than by them becoming professional astronauts. While the profit motive and the high-revenue growth motive are always in conflict, the great businesses are the ones who can balance this trade-off or sustain themselves in high-growth mode until a profitable business model is apparent. Reaching zero-friction is not an easy task, but the most successful business will be the ones that can do that in an economically viable way.
By Jad El Jamous,
June 14th, 2017