On the heels of introducing “Productonomics“, I figured I should go ahead and post something relevant, and this article caught my eye a few weeks ago from Silicon Alley Insider: Facebook Has Zynga By The Short Hairs — But It Needs To Be Careful. Yes, of course I appreciate any business article that can refer to pubic hair, but it speaks directly to the kinds of “broad spectrum” econ-based concepts that we all need to be thinking about as we build products.  I have always felt that when developing products, you aren’t JUST dealing with the current marketplace and what you think users want… you are mightily constrained by “what you have to work with”, and many times those constraints matter more than we think.

Its easy to examine at our “product arsenal” and determine the following:  “I have X many designers, developers, and project managers, and I have these tools and technology providers – ok, go”. The problem with that line of thinking is that, in a sense, we are creating an experimental environment that is doomed to provide a false reading of our reality… a  reality that is a complex system with lots of moving parts. We really need to think about the business and competitive environment that our company exists  in, and in many sectors, the business development and legal efforts may have more impact on your decision-making than anything else (just ask anyone building digital media products).

The article discusses the buyer-supplier hold up problem, and in my mind, its an insightful view into the relationship of Zynga and Facebook – - or any app developer to platform provider relationship (iPhone and Android App developers, take note – - – same situation).  A Product Manager, looking at their options from a pure “user advocate” position, might opt to say “well, our users love our game on Facebook, and it works well on Facebook, and we can develop many more features if we stick to one platform, and overall, the product will be better”.  That actually might be a true statement, but past the short-run, if the the party that provides the platform has too much leverage, the product can suffer severely from restrictions that you didn’t bargain for – - or more likely, the profits of your company suffer severely from leverage that you gave up (and then the product suffers from lack of resources).

So what conclusions can a Product Manager draw from this lesson? Perhaps another micro-economic principal is helpful to throw in to understand their situation: Interdependence.  A popular buzz-word thrown around these days to describe the positive side of interdependence is “ecosystem”, but its the same idea. We don’t live in a vacuum with our users, and our companies don’t operate in a static world.  We need to think ahead, and plan for “scale” and all that — but relying on your intuition to make the right guess is pretty damned risky – - I think the lesson learned is for us product people is that we are advocates of users, yes, but also advocates of flexibility.  The real value of Farmville is the game itself, and Zynga might lose some short-term market-share by building in some “flexibility”, but in the mid to long-run, they will be better off with a healthy if not slightly competitive relationship with Facebook and a product that can evolve regardless of the platform or distribution environment.  That discussion will will probably manifest itself in a “we need to give up short-term feature-improvements for longer term flexibility” discussion… not the easiest one to have. Clearly, though, its the conclusion that Zynga drew: http://www.technewsworld.com/story/70086.html.

For a long time, I have been a fan of the “ecosystem” thinking with regards to product concepts and business practices, and it will undoubtedly become a consistent theme in this blog. My affinity towards ecosystem thinking comes at least partially from the frustration of working quite a while in an industry (digital music) where a healthy ecosystem is both lacking and desperately needed.  The core concept of the “Business Ecosystem” has been around for over a decade, and while the concept may be overused a bit, the logic behind it still rings especially true for media and the internet. Many of us in the digital media world have often found ourselves in a position of “explainer/evangelist” of the concept, due to the lack of a cohesive ecosystem – sometimes its hard for those at or near the top of the food chain to understand “balance” in a healthy ecosystem… but I digress – - different post.

4 Currency Explanation

Eric Ries’ well-crafted post, titled “Business ecology and the four customer currencies“, explains the “4 currencies” of money, time, skill, and passion and how they influence customers’ decisions. He does a fantastic job of illustrating the currency concepts and how important realistic customer segmentation is.  Eric has lots of good posts on Freemium concepts, and the ecology discussion is closely related.   He also pointed me to this DEEP article by Andrew Chen that goes into some interesting underlying economic concepts behind creating a successful freemium model – - definitely worth the read.

I have been thinking a lot about business ecosystems lately as I’ve been working through product concepts, and I think that as a “product people”, we ought to consider that our customers self-segment based on their mix of “customer currencies”. Ries provides currency definitions using gaming as an example, wherein the different user types achieve success using different currencies.  The basic concept is simple to understand (I”ll paraphrase here): players with money can buy success, players with lots of time can slog out success, and players with skill are good enough to achieve success quickly and cheaply. The players with a lot of passion are put into a special category, and he argues that while it may not seem like they have “what it takes” to be successful, they are often the hidden reason for the success of the game (and thus the ecosystem) overall.

Each of these four currencies represents a way for a customer to “pay” for services from a company. And this is true outside of games. Constructing a working business model is a form of ecosystem design. A great product enables customers, developers, partners, and even competitors to exchange their unique currencies in combinations that lead to financial success for the company that organizes them.

Ye Olde MRD

Customer Currency and Engagement

Applied 4 currencies Process