In the dark ages before the Internet, we lived in a seller-driven economy. People were only aware of what was at their local market, so they had limited choices. People relied on advertising and word-of-mouth to learn about new products and services. Companies would create new products based on not much more than a Don Draper-esque hunch and a few focus-groups, then blast them into the world with very little targeting by today’s standards. Companies could succeed through the sheer brute-force of mass marketing and advertising. If Gillette made a new razor, people would likely buy it because of how often they saw it advertised and how few competing products there were on shelves.
In this seller-driven economy reaching a mass market was really only possible for large companies like Unilever, Proctor and Gamble, and Coca-Cola that could spend millions on national advertising campaigns. Today, some startup down the street can make a Google ad in five minutes that can reach a huge (and highly targeted) audience for a fraction of that cost. And that’s not even counting all the ways to reach people on social media. Just look at how rapidly Dollar Shave Club has grown, gobbling up Gillette’s market share with a fraction of their advertising budget. Now you see Gillette offering razor subscriptions to compete with the little guy. This wouldn’t have been possible without the power of the Internet.
The Internet has given consumers access to nearly any product, anywhere in the world, at any time. This access to the “long tail” of products and services has shifted the landscape and created a buyer-driven economy. People now have access to niche products which satisfy their specific wants and needs. As this trend continues and more options become available to buyers, sellers face increased pressure to create products that people will not only buy and use, but actually love.
The good news is the Internet has also given companies access to previously invisible groups of customers. The long tail goes both ways.
The challenge is no longer finding and reaching your customers—it’s understanding them. What are their needs and wants, pains and fears? To build a successful business you must intimately understand your customers because they are the ones driving today’s economy forward. Don’t be afraid to get really specific about who your target customer is. As the saying goes, there are riches in the niches.
Scaling is another matter.
Lyft, WeWork, and the like have done a great job of "Blitzscaling", or rapidly growing their user base. This strategy of prioritizing growth before profits has worked for many companies in the past (just look at $AMZN). But the Internet was different then. Despite the speed at which the newest breed of unicorns are scaling, they are struggling to attract new users and keep the ones they have. As the Economist writes...
"Because the unicorns’ markets are contested, margins have not consistently improved, despite fast-rising sales. Managers are terrified of cutting their vast marketing spending, for fear of losing customers. Many firms are scrambling to develop ancillary products to try to make money from their users. And without deep moats around their businesses a permanent question-mark hangs over the unicorns: if Uber really is worth $100bn, after investing only $15bn or so, why wouldn’t its rivals keep trying their luck, or an established tech giant be tempted in?"
These companies have proven that with enough money you can identify, attract, and acquire massive numbers of customers. But can you keep them happy? This will come down to how well they intimately understand the needs of these customers.
In the buyer-driven economy, people can switch between Lyft and Uber, AirBNB and Marriott, or Home Depot and Lowe's with a single tap. What keeps people brand loyal is more than price, it's value. How well you understand the customer and their specific pains and needs will drive how much value you can create for them.