The hidden costs of switching

A good reminder from Tomasz Tunguz: The Hidden Costs Of The Switching Products In The Consumer Web

“In most of the consumer web, I’ve come to believe switching costs are significantly greater than I ever suspected…switching from one product to another requires effort: the time to learn new software and build new behaviors. This is why so many US businesses still use Excel for their book keeping and Word for everything else. No time investment is required to keep the business going.”

You have to know who your real competitors are. Word and Excel are flexible tools that everyone is already using…so using them is just easier than switching to something new.

Consider this: if switching was easy we would do it all the time since there would be no penalty. Here are some switching costs that may or may not be apparent:

  • Price – Price is merely the most visible and tangible cost of switching.
  • Time – How much time does it take to switch? In Tom’s case, and I’ve experienced this myself, just moving gigabytes of files around is a non-trivial task these days. I tried to back up all my image files to Dropbox recently and failed.
  • Workflow – How does switching change the way you work? Do you have to change your workflow to incorporate the new product? Ideally it makes your workflow easier but often it just makes it different.
  • Team – How does switching change your interactions with others? Do others rely on the same product as you? Do you use the product together? When you use something as a team the switching costs become much higher because it means multiple people must switch at once.
  • Social – Increasingly social changes are part of switching costs. As social interactions become embedded within products, switching costs will include changes in social interaction. Are your friends using the new thing? Are there social signals in switching over? Etc. Probably a bigger piece of the pie than we realize.

When designing products, its much better to be completely aware of the real switching costs of your product. In many cases we focus on the obvious ones and miss the hidden ones. I’ve also found that people don’t always report on these hidden costs…they point to your product deficiencies instead. They’ll say “I’m not buying your product because it doesn’t have X feature” when that’s not really the reason why. The real reason is deep-seated and has more to do with costs like Team and Social instead of some missing feature. Missing features is often a bogey…people say all the time that they’re not switching because of a missing feature and that’s just an excuse.

As usual…look at real behavior in addition to doing interviews. Watch what people return to over and over instead of switching to your product. If they’re continuing to hack something together in Excel instead of using your product then you’ve got your work cut out for you…

Published: June 12th, 2014

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