The business world, especially in the technology industry, power has shifted from the business to the consumer. A primary reason for this is due to consumer businesses losing their informational edge. 30 years back, consumer companies such as P&G had the distribution power to place their products all across the country. Today, the internet and e-commerce has destroyed this moat that these businesses enjoyed for so many decades. Consumers control the shelf life at the e-commerce companies.
What does the shifting of power mean for businesses? Amazon (and Jeff Bezos) has publicized the key to winning in this new era — customer obsession. The idea is to gather rapid feedback from the consumer and iterate your products (and in some cases, the business model itself). This loop has to be performed at a fast pace to be ahead of the curve and competition. Almost every technology company, including Google, Facebook, Whatsapp, give tremendous importance and power to the user.
Why does this loop work? Over time, the iterations helps build a stick user base (in very successful business this leads to a winner take all industry structure). Better customer experience increases the engagement and stickiness of the user base, eventually leading to higher life time customer values and business profitability. However, this profitability can erode away quickly with user churn. Hence, the customer experience has to be held steady using quick iterations of the loop. And this might be only way to win in the new era.
While this shift may seem obvious in the B2C world. What is going on the B2B world? Do B2B companies have the flexibility to be respond slower to customer feedback or set higher prices?
Looking back 30 years, old B2B companies relied on their sales force. A competent sales force, followed by strong after sales support were the key to winning. It was extremely difficult to compete against an IBM or Cisco. However, the internet is slowly changing this power distribution between the seller and the buyer. The buyer (or consumer of the product or service) is gaining power. While the informational edge of the seller is still higher in the B2B world, it is eroding. In the next 10 years, it likely that these B2B companies will function very similar to a B2C company.
However, in the B2B space, it is easier to extract money from a business if a return on investment case is clear. For a consumer facing company, this is much harder since consumer’s buying patterns tends to include emotions as well.
Moving to specific businesses, how different is Slack from Whatsapp?
While Slack was built for businesses, the product has a lot of consumer-y touches. If one knew nothing about Slack, it would be very difficult to say that the product was meant for a business or consumer. Further, the company uses the user-feedback iteration process, much like the B2C companies, to fine tune the product every day. Nevertheless, since it is a B2B company, Slack is able to extract money from businesses.
Is this sustainable?
Unlike the Whatsapp ecosystem where it network effects are very obvious (every user needs whatsapp to communicate and with scale it becomes difficult to beat the virtuous cycle), Slack’s network effect are unclear. Slack is an intra-company product. Unlike Microsoft products, where excel sheets and word documents are both intra and inter-company, Slack’s product is not. In other words, switching costs for businesses out of slack are currently very low. Of course, with enough businesses using the product, Slack will become profitable. However, the sustainable advantage from a network effects standpoint is uncertain. In order to make the business a single homer (i.e only use Slack), it has to increase the inter-company usage. Currently, the company has launched the Shared Channels feature (as mentioned in the business insider article below) but not something they are focused on. However, this might become the key to building long term competitive advantage.
If so, how can the company build a competitive sustainable advantage? The answer is similar to every other SaaS company. Make the switching costs high by embedding the product deeper into the system. How does Slack manage this — they store the chats and retrieval of that data for the users become critical. Once the users use the product long enough, it becomes extremely hard to move out since all the old data is contained in within the Slack ecosystem, thus making the business a single homer.