There is much talk about the scalability of digital "businesses" but little is said about the empirical elements that generate this scalability. Many times we ask ourselves why a specific digital product experiences astronomical growth and a similar one does not. It may seem witchcraft; why does the flame sometimes ignite and sometimes not? Whether they are just born startups, startups in the "growth" phase, spin offs of companies already established or multinationals launching a new digital product, they all face the same unknowns.
In this post, I will try to determine some of the main success factors of digital scalability that has led to the success of most digital products we know today. Probably these digital products that we all know (Facebook, Google search engine, Netflix, etc.) have in their DNA all the success factors that I will comment below, but without a doubt, on a slightly more modest scale, digital products can be created with high scalability complying with only some of these factors.
Product / Market:
Successful digital product launches always meet a premise. They create a very specific product for a very specific target for a very specific market. They solve a very specific need for a specific target. These products become the leaders of a very small market where competition is reduced. They create monopolies in these small markets. It is from being the absolute leaders in a small market, that they begin their expansion. It's easy to see how great products like Facebook meet this success factor (started as a Hardvard social network), but most successful digital products have started the same way.
Technology:
That the digital product developed has a technology x10 times higher than the products already established in a particular market, is another proven success factor. This is the case of Google that created a search algorithm vastly superior to its predecessors. Nobody currently remembers Lycos, AltaVista, Excite or even Yahoo.
Network effects:
A product gains relevance and effectiveness as it is increasingly used by more customers / users. For example, Tripadvisor or Airbnb. The more users use Tripadvisor the better the product, the more it is enriched with the opinions that turn on it. The more customers use Airbnb, the more properties the company acquires, and therefore more customers will be able to use the product, and thus the wheel to infinity. Collaborative economy models are clear examples of the "network effects" law.
Economies of scale:
The marginal cost of creating a new copy of the product is 0. The software is a clear example, in a SaaS (Software as a Service) model, the marginal cost of a copy of the product for a new customer is 0. It requires a strong initial investment in product, but once you get an MVP that works in a specific market, your marginal production cost is 0. Dropbox, SalesForces and many others are examples.
Branding:
Some products get very high notoriety quotes among their customers. Currently, Digital Native Vertical Brands, known as e-commerce 2.0, are very popular. Normally they work from very sweet products that replicate previously existing luxury products, but reducing their costs abysmally. They create a powerful "story-telling" around the product and the brand, and in many cases they are surpassing the traditional brands that were born offline at the time. Away, Daniel Wellingthon or Warby Parker are some examples.
Most successful digital products generate great branding. Many times it is the success of the product that creates the branding, other times well-known awareness strategies manage to generate the branding; but without having a good product it is almost impossible to sustain it in the long term.
Importance of Engine of growth and KPIs:
Any digital product launch needs to know in a very detailed way what are the KPIs that will determine the success or failure of the product. The concept became fashionable after its mention in the book Lean Startup, but has been applied in any industry that has progressed. The engine of growth is the fuel that makes it possible for the digital product to generate new customers. Being clear about the winning strategy of the EoG is fundamental. Normally, lean strategies are applied to test which one works best and all are contrasted with the determined KPIs. If your EoG strategy is Adwords, you most likely need to show that every euro invested has a positive return, otherwise the long-term scalability will be unsustainable. In digital products there are different EoG (Adwords, SEO, WoM, SSMM, conventional media, etc, etc.) but almost all have as an essential partner the success of the product and the repetition of customers in the future. Some companies like Amazon have historically been able to have the best product, at the best price, sacrificing profitability but it has been possible thanks to the ability to raise funds in the Silicon Valley. It is dangerous to copy these models, since the European market is very different from the American one, and the criteria of different investors.
The Power Law:
It is essential to take it into account. 10% of companies make 90% of the multipliers of a market. An EoG strategy makes 90% of the income of a digital product compared to 10% of the rest of the 5 strategies you are applying. In a startup market, a specific sector during a specific period makes 90% of returns. And so on ...
In this post, I will try to determine some of the main success factors of digital scalability that has led to the success of most digital products we know today. Probably these digital products that we all know (Facebook, Google search engine, Netflix, etc.) have in their DNA all the success factors that I will comment below, but without a doubt, on a slightly more modest scale, digital products can be created with high scalability complying with only some of these factors.
Product / Market:
Successful digital product launches always meet a premise. They create a very specific product for a very specific target for a very specific market. They solve a very specific need for a specific target. These products become the leaders of a very small market where competition is reduced. They create monopolies in these small markets. It is from being the absolute leaders in a small market, that they begin their expansion. It's easy to see how great products like Facebook meet this success factor (started as a Hardvard social network), but most successful digital products have started the same way.
Technology:
That the digital product developed has a technology x10 times higher than the products already established in a particular market, is another proven success factor. This is the case of Google that created a search algorithm vastly superior to its predecessors. Nobody currently remembers Lycos, AltaVista, Excite or even Yahoo.
Network effects:
A product gains relevance and effectiveness as it is increasingly used by more customers / users. For example, Tripadvisor or Airbnb. The more users use Tripadvisor the better the product, the more it is enriched with the opinions that turn on it. The more customers use Airbnb, the more properties the company acquires, and therefore more customers will be able to use the product, and thus the wheel to infinity. Collaborative economy models are clear examples of the "network effects" law.
Economies of scale:
The marginal cost of creating a new copy of the product is 0. The software is a clear example, in a SaaS (Software as a Service) model, the marginal cost of a copy of the product for a new customer is 0. It requires a strong initial investment in product, but once you get an MVP that works in a specific market, your marginal production cost is 0. Dropbox, SalesForces and many others are examples.
Branding:
Some products get very high notoriety quotes among their customers. Currently, Digital Native Vertical Brands, known as e-commerce 2.0, are very popular. Normally they work from very sweet products that replicate previously existing luxury products, but reducing their costs abysmally. They create a powerful "story-telling" around the product and the brand, and in many cases they are surpassing the traditional brands that were born offline at the time. Away, Daniel Wellingthon or Warby Parker are some examples.
Most successful digital products generate great branding. Many times it is the success of the product that creates the branding, other times well-known awareness strategies manage to generate the branding; but without having a good product it is almost impossible to sustain it in the long term.
Importance of Engine of growth and KPIs:
Any digital product launch needs to know in a very detailed way what are the KPIs that will determine the success or failure of the product. The concept became fashionable after its mention in the book Lean Startup, but has been applied in any industry that has progressed. The engine of growth is the fuel that makes it possible for the digital product to generate new customers. Being clear about the winning strategy of the EoG is fundamental. Normally, lean strategies are applied to test which one works best and all are contrasted with the determined KPIs. If your EoG strategy is Adwords, you most likely need to show that every euro invested has a positive return, otherwise the long-term scalability will be unsustainable. In digital products there are different EoG (Adwords, SEO, WoM, SSMM, conventional media, etc, etc.) but almost all have as an essential partner the success of the product and the repetition of customers in the future. Some companies like Amazon have historically been able to have the best product, at the best price, sacrificing profitability but it has been possible thanks to the ability to raise funds in the Silicon Valley. It is dangerous to copy these models, since the European market is very different from the American one, and the criteria of different investors.
The Power Law:
It is essential to take it into account. 10% of companies make 90% of the multipliers of a market. An EoG strategy makes 90% of the income of a digital product compared to 10% of the rest of the 5 strategies you are applying. In a startup market, a specific sector during a specific period makes 90% of returns. And so on ...
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