Products That Don’t Scale

 
 The Internet has surfaced new niches offering a huge opportunity to come from the top focusing on the experience.

The Internet has surfaced new niches offering a huge opportunity to come from the top focusing on the experience.

...But Make Sense

The Internet has been arguably the most transformative technology this planet has seen so far. I don’t want to diminish in any way great achievements like the steam engine, electricity and other technologies that have built entire chapters of our history around them. But the change and the scale the Internet has brought to every corner of our society is unparalleled.

The first implication of software and the Internet as a medium, what it does by definition, is that it lets you scale your product or service almost for free. Additional copies cost zero. Distributing these copies cost almost zero, too.

Lots of business that relied on the creation and distribution of digitizable goods, saw the Internet as a transformative technology that was going to impact their business model sooner rather than later. Just think of media companies, printing the same copies over and over, or hospitality groups building hotels in every city of the planet.

 Hotel Tonight focuses on curation and presents a brief list of the most appealing hotels.

Hotel Tonight focuses on curation and presents a brief list of the most appealing hotels.

Because of it a new wave of companies built from scratch, without attachments to the old paradigm, have reaped the benefits of such scale in order to aggregate and commoditize certain goods. This has inevitably created winner-take-all environments were the biggest players got to dominate the market in a way it was not possible before. These environments also magnified the importance of network effects, because the more users get on board, the better the service become for the rest of the users.

A better end user experience has become the main competitive advantage a company can have in the internet age. Once you get to that point, you can’t argue with exponential growth, it’s totally transformative.

Obviously this winner-takes-all dynamics, has led to stunning valuations, because once the dominant player emerges, it takes over the whole market. The temptations and the incentives to build such high scalable business become inevitable. The media and the society, naturally, craves for the next Facebook, Uber or Airbnb.

The counterargument

Despite all mentioned above is true, I’d like to approach the situation from the opposite side. On one hand the Internet has allowed new companies to scale for free, take over entire markets and disrupt incumbent industries, like transportation or hospitality. But I’d argue that it has also provided new ways to uncover market niches and approach personalization in a way that was not possible before. 

 Trunk Club offers a subscription-based service that’s like having your own personal stylist on demand.

Trunk Club offers a subscription-based service that’s like having your own personal stylist on demand.

For example, Booking offers an unified space to find a vast (and sometimes confusing) catalogue of places to stay. They focus on scale, aggregating all the hotels at the best possible price. But look at Hotel Tonight, they are using technology the other way around. They focus on curation and present a brief list of the most appealing hotels just when you need it.

Internet businesses easily find ways to reap scale. But there’s also an equal opportunity when it comes to leverage technology to emphasize the emotional, taylor made experience. 

Same on retail, Amazon is perceived as the "everything store". They have an impossible catalogue of items on display, but despite their recommendation engine is pretty solid, it doesn’t have the best answer for "what you want to buy next". Instead if you are looking for clothes, companies like Trunk Club are leveraging technology to offer a customized experience, one that you could never get in the brick and mortar world.

Even companies like Canopy are building discoverability on top of the Amazon catalogue. The opportunities are endless, but the question remains the same: scale and aggregation vs. curation and discoverability.

The Internet has allowed for extreme targeting of customers. This has surfaced lots of niches that, while they might not be huge, they were not available before. New niches offer a huge opportunity to come from the top focusing on the experience. Products that don’t scale, but make sense.

As a society we’ve placed all the attention to the unicorns. The ones that have wiped out entire markets and have reshaped industries from top to bottom. But there’s also an untapped opportunity to use technology coming from the top and focusing on the experience.

Technology allows for extreme customization and also can be use to guess what you might want next. Targeting narrow verticals might not be attractive at first, because the market might be diminished as not big enough. But winning over a small market with a well suited product means trust and love from your customers, and that’s the biggest asset a company could have, beyond scale.

Moreover, narrow niches protect you from competitors, it keeps incumbents away because they might see the opportunity as not big enough, but also from other entrants, because of the deeper connection you can create with customers.

Maybe I’m biased and I tend to fall for customization and curated experience instead of scale, but I’m convinced that there’s still a lot of room to unbundle aggregation services and peel off every vertical and deliver a superior experience for customers.