Accelerating the Speed of Progress
Apr 16, 2005, 6:59p
Many companies are focused on creating the best user experience. However, they are also focused on ensuring the success of their business. To stay in business and earn high profits, they're interested in creating products and services that have high switching costs. This is great for their business, because it means that users will be less likely to switch to similar services from their competitors.
One example of a service that has high switching costs is eBay. Due to its strong buyer and seller network (network effect) and user's reputation/rating, users are less likely to go to another site. Sellers are less likely to leave because they can get the highest price on eBay and they don't want to give up the reputation that they have built up over time by selling on eBay. And buyers are less likely to leave because eBay has the highest selection of products and services. Thus, they have a very stable business built on high switching costs. Unfortunately, their service has stagnated and they have done very little to improve the user experience.
The service is not as good as it would be if there had been competition, and so the user has suffered.
This is the bad part of switching costs - they don't always create the best user experience. In fact, since they reduce the ability of similar services to compete effectively, they stagnate development and slow down progress.
Imagine if eBay was an open network. If you posted on eBay, your product was automatically posted for sale on Amazon, Pricegrabber, Yahoo, Froogle, and every other shopping site who wanted to include your product. You would get the best price for your product, because it would available to the largest number of buyers. eBay, Amazon, Pricegrabber, Yahoo, and Froogle would need to compete for your service by offering lower posting charges and making it convenient and easy to sell your stuff. They would be forced to innovate in their business or else lose visitors. This healthy competition would accelerate the speed at which the product developed, which would increase the rate of improvement, which means that the world would improve faster.
If the internet was a closed network where publishing was inconvenient, expensive, and not readily accessible, the world would have suffered by not having the Internet that we know and love today.
If email wasn't based on public protocols that anyone could implement, we wouldn't be able to communicate as quickly and efficiently today.
If our cell phone numbers weren't portable, we would have to pay more for lower quality phone service.
So, if our goal as a company is to improve the user experience, we should be focusing on building open services that anyone else can serve. This vision leads to many questions:
1) What does it mean to open up a service? What are some examples?
a) anyone can add data easily
-> e.g. if someone posted something on a website for sale, it would be added to eBay, Amazon, Pricegrabber, Yahoo, and Froogle automatically if you want it to
-> e.g. if you create a website, it is added to all of the search engines automatically
b) anyone can present data easily
-> e.g. if I want to build a site to search over items for sale, I can do it easily by querying the universal "for-sale" service
* NOTE: none of these features need be free, but they should be affordable
2) If you're the only one who opens up your services, won't you lose because your competitors won't do the same?
Not necessarily. If you build the standards of communication (protocols), or the stock implementation, or the physical capital necessary for the service, your competitors may come to rely on you for those services. And this dependence is a strong competitive advantage that should overcome their reluctance to open up their services.
Also, the user interface and usability, though easy to copy, is a distinguishing feature that is often one of the most important reasons why someone uses your service instead of another one.
3) Should everything be made open, or is there greater benefit if some areas remain closed?
- it would not be beneficial for users if the Google ranking algorithm was made public, because then there would be a lot more spam in the results
- similarly, it doesn't make sense for the everyone to know how to make a nuclear bomb, because it will put more people's lives at risk
4) Do implementations need to be open-sourced?
In most cases, yes. Imagine if Apple had open-sourced OS X. There would be a lot more applications and enhancements to the OS than there are now.
Aside: So, there's the question of allocation: where should I spend my time? And then there is the next question of efficiency: how should I spend my time to maximize benefit? Productivity is simply efficiency x time spent. So to maximize productivity, you need to maximize efficiency and maximize the hours you allocate to a specific project.
Conclusion: We should not build services with user lock-in, but services that break user lock-in. Our services should not increase switching costs for our service and should decrease switching costs for other services.
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