What are you Building Next ? : Part I - Retention
Part I : Weaving the Tapestry of Lasting Engagement
The Shifting Sands of Product Market Fit
In our previous article series, "The Allure of Innate Simplicity," we explored products in Innate Simplicity Quadrant that achieved remarkable success. Their triumph demonstrates a successful Product Market Fit (PMF). However, is PMF a permanent label for products? In a world where change is the only constant, certainly not!
An innately simple product can indeed lose its innateness and simplicity, as both qualities are relative. Relative to the new product that comes into the market. Consider the example of renting DVDs to watch movies—a relatively simple solution but that completely changed after Netflix entered the market with an even more convenient alternative. This illustrates that the characteristics of an innately simple product are relative and subject to change.
Consequently, products, like Blockbuster, lose their PMF and experience a significant decline or even cease to exist. Others may stop growing after reaching a certain point. These scenarios often indicate that a product has reached market saturation. This brings us to our current topic: "Product Market Saturation."
What is Product Market Saturation?
As briefly mentioned earlier, Product Market Saturation is the critical point at which a product's volume is maximized in a market, reaching a threshold beyond which it cannot grow or begins to decline. Various metrics can measure and validate this phenomenon, including Net Promoter Score (NPS), market share growth rate, conversion rate, declining customer retention, and increasing churn rate.
If your product's market share stagnates or begins to drop, it likely indicates that your product has officially reached Product Market Saturation. That is the very reason why you need to build next and becomes the core part of this article series “What are you building next”. There are only three ways to increase the Market share (Based on what I know and learned so far, of course ) that can help to sustain PMF and that is going to be the pivotal focus of this three-part article series.
Let’s dive into one of them in this Part I :
The Product Mileage Mirage
Imagine that you are running a rental car service that initially sets itself apart with vehicles offering exceptional fuel efficiency—45 miles per gallon. This unique selling point makes your service the preferred choice for customers. However, over time, the fuel efficiency of your cars declines to just 20 miles per gallon.
As a result, customers lose interest in renting from you, seeking more fuel-efficient alternatives. To stay competitive, you’re forced to consider the costly option of replacing your entire fleet. While expensive, it becomes necessary to maintain relevance in the market.
What happened here? By allowing your cars' performance to deteriorate, you diminished customer satisfaction. The once-superior quality that attracted customers has now become subpar, leading to warnings and eventual customer loss.
Lesson I : Reduce Customer Churn
The key lesson from this scenario is simple: The first rule to avoid Product Market Saturation is “to reduce customer churn”. Let me solidify this with a quote by Michael Boeuf: “A Satisfied Customer is the best business strategy of all”. Reducing churn is correlated to increased customer satisfaction. Thus,
Reducing churn is a fundamental way to sustain Product-Market Fit because it is co-related to increasing Retention, yet it’s often overlooked as companies move on to addressing other areas. So, how do you reduce churn? Let's explore this with Meta.
Meta’s mission has always been to "Give people the power to build community and bring the world closer together." With that mission in mind, they have consistently launched products that foster community building. Meta’s stock has grown by about 220% in the past five years, making them an excellent example to guide us through this process.
Taking Meta's first product, Facebook, we will analyze factors that contribute to reducing customer churn and how these factors play a key role in avoiding Product Market Saturation and sustaining long-term success. Let’s Begin, shall we?
High-Impact Feature Factory: Continous delivery and optimization
Yes, at first glance, you might think this is basic: Isn’t the goal of any product to build features? What’s so special here? The key is to continuously develop and deploy features that customers love while actively gathering feedback and optimizing each feature. Let me illustrate this with an example.Facebook, launched in 2004, has been part of our lives for two decades. As of 2024, it remains the most visited site in the world after Google and YouTube, and the most-used social media platform, with about 3 billion monthly active users (MAU) and 2 billion daily active users (DAU). Interestingly, only 33% of teens use Facebook today, as most prefer other Gen Z platforms like Instagram, TikTok, and Snapchat. Yet, Facebook’s user base continues to grow. Why?
Facebook excels at creating features that add value to their users, evolving with their mission. Initially, Facebook was a platform for sending friend requests and building connections. Today, it’s much more. It was the first platform to introduce a successful News Feed, and it has expanded to allow users to advertise products, set up company pages, play multiplayer games, and more. Facebook also introduced Messenger, its messaging platform, and even launched its own e-commerce marketplace, Facebook Marketplace, which is now the world’s second-largest marketplace (behind Amazon) with over 1 billion DAUs.
These are just a few examples of Facebook’s major feature releases, but what truly sets them apart is their “Product Operating Model.” Facebook consistently pushes feature updates, sometimes daily, and their product team continuously improves the user experience by fixing bugs and optimizing previous features.
When a product consistently offers new features, iterates on existing ones, and enhances the overall user experience, all while delivering high-value, delight-inducing features like Live Video and Marketplace, it significantly reduces churn, keeps users engaged, and contributes to sustaining and growing Product-Market Fit (PMF).
Enhancing Onboarding Experience
While product features are crucial for achieving Product-Market Fit (PMF), there’s another significant factor that impacts customer experience (CX) — the onboarding experience. This begins the moment a customer is introduced to your product and continues until they start using it and experience the features they’ve heard about. Every touchpoint in the user journey is essential to prevent churn.
Let’s explore this with an example. Think about how you first heard about Facebook. Most users joined through word of mouth — friends raving about how cool it was. While word of mouth is a great way to build customer interest, other methods like catchy ads, referrals, and paid growth can achieve the same. The point is, that Facebook created curiosity and excitement, making people eager to join.
When I first saw the Facebook site in 2010, the experience was unique. Though I wasn’t familiar with UI back then, I now realize that its design offered a great user experience (UX). The simple email-based login process made onboarding easy. Since then, Facebook has continuously improved the process. Now, you can log into other Meta apps using your Facebook ID, use express login if you’ve previously logged in on the same device, and enjoy gradual authorization, allowing you to create an account quickly and complete additional details later.
The key takeaway: Facebook enhanced its overall CX by continuously improving its onboarding experience, which played a critical role in reducing churn.
Many companies treat onboarding as an operational task, missing opportunities to integrate technology into the process. However, any company can become technology-powered by leveraging technology to drive efficiency in every aspect of the business. That’s why Airbnb is a tech company, not just a vacation provider, and Robinhood is a tech company, not just an investment manager.
Leveraging Technology to Solve Problems Efficiently
A key principle for building great products is using the best possible technology to solve customer problems. Whether you’re creating new features or enhancing user experience, employing the right technology ensures you deliver the best possible experience. If not, customers will turn to competitors who can, leading to churn.Let’s examine Facebook as an example. In 2006, Facebook launched the first successful newsfeed, using machine learning to rank posts based on user preferences. This was well before machine learning and AI became mainstream, but Facebook identified the most effective technology to meet the need, providing a superior user experience.
Another recent example is Facebook’s integration of the Llama 3.2 LLM (large language model) into its search experience. This technology enhances search functionality by allowing users to search not only for people, events, and pages but also for conversational queries using social media data. Additionally, Meta AI's live translation feature enables users to chat with people in different languages seamlessly, breaking language barriers and enhancing the social interaction experience.
By addressing customer problems through cutting-edge technology, Facebook ensures relevance, reduces churn, and strengthens Product-Market Fit (PMF). When customers see their needs being met efficiently, they are far more likely to stay with the product than otherwise.
3 Ways to Reduce Customer Churn
Failure Corner
Let’s take a moment to visit the failure corner to emphasize the importance of the lessons we've learned. Everyone remembers the meteoric rise of Clubhouse. Launched in April 2020, it quickly grew to 10 million weekly active users by 2021 and was valued at $4 billion. Not to mention, it had high-profile endorsements from entrepreneurs like Elon Musk and Mark Zuckerberg. However, by 2023, Clubhouse had lost 60% of its users and laid off 50% of its workforce.
From a product perspective, Clubhouse failed to release features that aligned with its core product goals. The platform became a source of controversy, with cases of bullying, harassment, and racism, including antisemitism, surfacing. There are other reasons for their downfall, which you can explore in more detail through the sources cited in this article.
The key point is this: despite its initial success, Clubhouse failed to consistently deliver features that customers loved. It didn’t leverage technology effectively to enhance user experience—users didn’t receive proper notifications for conversations they had signed up for. Additionally, there was no real verification system, which allowed fake users to infiltrate the platform, diminishing the user experience. In essence, Clubhouse failed to excel in the key areas we've discussed today: building impactful features, enhancing onboarding experiences, and using technology to solve problems efficiently—all of which led to increased churn.
On the other hand, companies like Twitter and Spotify understood the core value of this product. They developed similar platforms, such as Twitter Spaces and Spotify Greenroom, focusing on delivering a better user experience and leveraging technology effectively.
Final Thoughts
The example of Clubhouse reaffirms that Product-Market Fit (PMF) is not a permanent achievement. While Innate Simplicity can make a product seem stable, it is relative and can change quickly, as demonstrated by the rise of competitors like Twitter Spaces and Spotify Greenroom. However, As we observed through the example of Facebook, Product Market Saturation can be avoided, and PMF is something you must continuously work toward.
The first step towards sustainable PMF is reducing customer churn. The levers you need to pull are:
Engineering: Become a master in feature development.
Operations: Build the best onboarding experience throughout the entire customer journey.
Technology: Leverage cutting-edge solutions to seamlessly deliver engineering and operations.
But is that all? Absolutely not. But you have weaved the tapestry of lasting engagement. But, there are two more ways to sustain and grow your PMF. Stay tuned to learn more in Part II.
Sources