The Backlog: Product Principles; The Share of Wallet Problem

A few thoughts on product management fundamentals and the "share of wallet" problem

Hey there! I occasionally send it out two shorter posts on topics that I’ve been thinking about it, but aren’t long reads. These posts will be titled The Backlog (I’m a PM after all). They will be more evergreen and foundational in nature. Onto today’s post!


Customer Development and Product Discovery

This is deceptively simple advice. I’ll expound on it. If you’ve built a good product that solves a need, you will hopefully have done a few things that make marketing it easier.

If you’ve done good customer development and product discovery, you will have learned about customers perceive their problem or need. Why does it need to be solved? How soon? Who else helps them makes sense of this problem or need?

Good customer dev and product discovery will also unearth how and where customers look for solutions to their problems or needs. Is it Search? FB group? Family friend? The group chat? Instagrams hashtags?

During this phase, you may learn about substitutes to your solution that a customer may have tried. Are they still using it? Why or why not? What initially attracted them to these solution? branding, positioning, customer testimonials?

Now you understand:

  • the customer’s problem and the perception of it.

  • how they look for solutions.

  • substitutes to your potential solution and what got them to try them + why the substitutes failed or worked for them.

As you work through your potential solution and its viability, you’re equipped to effectively reach potential customers (new and from customer dev), position your solution and brand it appropriately. Hence a good product makes marketing somewhat easier.

Product Intuition, Data and User Feedback

Intuition then data. In that order. With that said, product intuition, data and user feedback loops are all necessary. Data and user feedback should validate or invalidate your product intuition. Think of this framework as product checks and balances.

Don’t get cute or hung up on your intuition. Humans are highly susceptible to self-deception and motivated reason. Course correct, course correct, course correct!

View your data and user experience through a lens of moments. These moments create a path that guides your customer or user to success using your product. These moments are levers for growth that you can pull. These moments can also serve as failure moments in need of iteration.

User feedback is most useful when it helps user get to the “success” moment faster and in a more delightful way. Secondarily, user feedback is useful if it helps highlight a failure moments.

Finding Product-Market Fit

Focus on one market at a time and build a concentration of user engagement, success and, yes, failure moments. This concentration will produce invaluable learnings that can be used in future markets.

Product-market fit and distribution are different things. You need both to succeed. P-M fit will make your distribution more efficient. Distribution will deepen your P-M fit and make your product better because you get more at-bats. More at-bats *break* your product in a good way.

Most successful startups have a challenging demand curve. They don't have product-market fit. There is nothing wrong with this as long as there are investors (private and public) willing to subsidize the business's operations.


The Share of Wallet Problem

A few years ago, Ev Williams, founder of Medium and Twitter, wrote an interesting piece on this website titled The Rationalization of Publishing. In the post, Ev made some thoughtful arguments about subscriptions and text content bundles being the future of publishing. He even suggested that there might be a Netflix-level opportunity for text content:

There won’t be a Spotify of publishing — with literally everything you want. But there will be a Netflix and Hulu and Amazon, etc. — each with a substantial amount of things you want.

In my gut, I just don’t think the mass appeal for a text content bundle is as high as many tech folks believe it is. I don’t think most people will pay for text content at the same volume or rate as entertainment (i.e. TV and music), because IMO, most people view text content as a less valuable medium than TV and music — valuable being defined as worth paying for based on your personal needs and preferences. And when people have other expenses they have to pay for, paying for a text content bundle will be hard to justify.

Since a text content bundle doesn’t exist today, the money for a text content bundle has to come from somewhere else in the monthly budget for most people. That means the bundle price has to take share of wallet over something else. Basic needs (food, shelter, utilities) aren’t being reduced for a text content bundle. Neither are the various insurance products consumers pay for nor their car payments and student loan payments.

For most people, any left over money post-bills and necessities is used for escapism (tv subscriptions, music subscriptions, going out, hobbies, etc.). For techies/knowledge workers, there’s an over-indexing on self-improvement and autodidactism through paid text content that doesn’t extend to most consumers. My theory is that most consumers don’t value text as highly as other content for the reasons above.

Most consumers went along with the grand ad-supported content bargain years ago because it was indeed a bargain, freeing up money for other more valuable expenses. Exchanging attention for free content is a great deal, especially when the alternative is a cost that could be spent on something you value more.

This trade-off affects the amount of quality text content folks can access, but it’s a trade-off most people have been willing to make in order to spend money on and consume the things they actually care about like experiences that align with their worldview. Not what they should care about like quality news and correct information. Should is often a fantasy, a mirage, a self-deception of how things actually are.


An Aside on Incentives for Content Subscriptions

Again, the highest value consumers, those with abundant discretionary income and business expense accounts, will probably pay for a text content bundle because it fulfills some status and identity needs that are connected to and shape their professional lives. It’s the reason why the Information and Stratechery’s subscription businesses are highly successful. I’m dubious of such success for a subscription-based product for categories like local news.

The incentives that drive someone to subscribe to the Information or Stratechery are fundamentally different than the incentives for subscribing to local news. The Information and Stratechery subscription are driven by work performance and professional identity. Work performance and professional identity have distinct outputs that can be somewhat measured and, therefore, justify the cost of the Information and Stratechery (i.e. expensing them). Local news is fundamentally about the local community and your (and your family’s) connection to it.

The value of local news (instrincally valuable for sure) cannot be measured in the same ROI way as Stratechery or The Information, making subscription monetization challenging. This is the same for almost all non-business news and opinion media, which is why ads have been the dominant monetization strategy for so long.

The Athletic is the exception that proves the rule, because while The Athletic’s coverage is focused on specific geographies and specific teams, modern day fandom is becoming less tied to geographies and cities and driven more by a fan’s affinity for teams or individual players. The internet’s rise has hastened this geographic disintermediation while forging stronger bonds within niches and tribes. I’d bet that many of The Athletic subscribers follow sports teams and players in cities they no longer live in or have never lived in.

Focus on Depth, not Breadth

I don’t think the total addressable market of customers willing to pay for a text content bundle is as high as many in the tech industry think. In my opinion, the more realistic opportunity here is not getting more people to pay for a text content bundle; it’s finding the people who already are into or would be into certain text content subscriptions and creating a simple and delightful bundle product for them. That may mean less subscription businesses overall, but more profitable subscription businesses over time. I know that’s not what many want to hear.

Consumer tech companies would be best served by understanding that direct to consumer goods and services must have a business model that solves the “share of wallet” problem. Having a great brand can influence a shift in share. So can a great user experience. A great user experience and brand are the means to that end, not the ends themselves. The underlying needs and incentives must be present in potential customers. I’m not sure I see that level of consumer need and incentives that would drive mass market adoption of subscription bundles.