11 Laws Driving Success in Tech, according to CB Insights [Part 3]

Law of mobility

Discoveries about technology never get boring or stale. Going deeper in our series, we discover more laws standing as backbones to the acceleration of the digital generation we stride on today.

Following part 1 and 2 of the 11 laws driving success in tech according to CB Insights is the Law of Mobility.

Law of Mobility: The value of making products available anywhere, any time

In 2003, Russ McGuire, Sprint’s director of strategic planning, observed that wireless technology would be the catalyst of another revolution like the microprocessor and internet revolutions before it.

He had noticed that, while the recently released BlackBerry 8510’s interface was nowhere near smooth, the convenience of accessing email anytime, anywhere made the device ubiquitous in executive circles. Wireless devices were even starting to transform non-tech businesses — rental car services, for example, brought mobile barcode scanners and credit card readers to parking lots to speed up the process of car returns.

Based on these observations, and drawing on both Moore’s Law and Metcalfe’s Law, McGuire formulated the Law of Mobility, which states that “the value of any product increases with mobility.”

He first wrote about this law in 2005, adding, “If a product is available for my use an increasing percent of my time, without a significant increase in cost (in terms of product cost, operating cost, and convenience), then it will be more valuable to me. As the cost of building mobility into products approaches zero, then virtually every product will become mobile.”

McGuire further identified 2 value enablers of mobility: contextual relevance and convergence.

The former meant using information about a user’s individual conditions and needs to make the product more valuable. Today, we simply call this “personalization.”

Convergence, meanwhile, meant bringing together formerly separate objects into one unit. In other words, mobility doesn’t simply mean making a mobile, digital version of a physical or on-premises product or service. If that version can’t adapt to the user’s changing circumstances and fulfill its function without requiring multiple gadgets, then it hasn’t succeeded in delivering the value of mobility.

Netflix and the Opportunities — and Costs — of Mobility

Netflix Channel

From the very start, Netflix co-founder Reed Hastings knew that the company, which launched a DVD rental-by-mail service in 1998, would evolve to offer video streaming through the internet. But he also knew the time was not right.

Many pieces of the puzzle had not yet fallen in place: bandwidth to stream videos without an hours-long wait, buy-in from movie studios in the viability of streaming (which affected their willingness to grant streaming rights to their films), suitable mobile devices, and consumer demand.

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Netflix eventually introduced video streaming in 2007 — in part after observing the explosive popularity of YouTube videos despite their low resolution — and the new model took off. By 2010, it had made streaming available on mobile devices from Roku to Xbox to the iPhone. By 2012, Netflix’s “subscriber base rivaled that of Comcast, the largest U.S. cable operator,” according to author and journalist Gina Keating.

Today, customers no longer need a DVD, a DVD player, and a TV set to watch a film. All they need is a single device, be it a mobile phone, laptop, or smart TV — and a streaming service like Netflix. In the years since Netflix’s pivot to streaming, the video streaming industry has ballooned, while DVD rental is steadily declining.

Netflix now has 222M paid subscribers globally, making it the world’s largest streaming service. Its net income grew from $49M in 2006 — the year before it introduced streaming — to almost $5.1B in 2021.

Context — a key ingredient in the law of mobility — has been a major contributor to Netflix’s streaming success.

Netflix first introduced a recommendation system as early as 2000, when it began feeding user reviews into its Cinematch algorithm to recommend similar movies that users might like. Netflix continued to improve its algorithm over the years to more accurately predict how much a customer would like a given film.

Once it began offering streaming services in 2007, Netflix started to feed its algorithm a wealth of data on the context of every film view — from how each user navigated the homepage to whether or not they finished a movie. These actions, along with many other factors, now fuel Netflix’s recommendation engine, which today drives more than 80% of users’ discovery of new TV series on the platform.

When Netflix began producing original content in 2013, it used its insights into its subscribers’ preferences to predict how well shows would perform. In a sign of this model’s success, “House of Cards,” Netflix’s first original series, became the platform’s most-watched title in a matter of weeks.

However, the cost of building mobility into Netflix’s products is still far from approaching zero.

As a pioneer of mobile streaming, Netflix spent more than a decade and millions of dollars figuring out digital delivery, developing its technology, and battling incumbents and regulatory roadblocks.

The streaming giant also relies on Amazon’s AWS cloud service — as opposed to building and owning the requisite data centers itself — to host its streaming services and recommendation engine. As of 2020, Netflix planned to spend around $1B on its streaming and cloud computing requirements through 2023. It’s estimated that Netflix is AWS’ top-spending customer.

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Netflix also pays hefty sums to maintain its competitive positioning. It has recently been losing titles from its catalogue, either because studios have pulled them to host them on their own streaming services or due to competition from the likes of Amazon Prime Video and Hulu. Netflix produces original content to mitigate these losses, but production is expensive — it is estimated to have spent $13.6B on original content in 2021, a figure that could reach $18.9B by 2025.

Nevertheless, Netflix deserves credit for making video streaming on mobile devices a mainstream pastime. The years and resources it spent on innovation paved the way for other streaming services, lowering the cost of mobility for those competitors.

How Challenger Banks Aim to Connect and Simplify Every Aspect of a Customer’s Financial Life

Challenger banks epitomize the belief that with mobility, a product or service becomes immensely valuable.

In the late 2000s, banking customers still relied heavily on bank branches and were just starting to embrace online banking. But challenger banks bet that online — particularly, mobile — would be the next channel for retail banking distribution. That has proven prescient.

Challenger banks — tech companies that leverage software to digitize and streamline retail banking — tend to be branchless, living entirely online. They offer a mobile-first experience for every aspect of banking, from savings and money transfers to payments, asset management, and loans. Some also offer an ecosystem of financial products like insurance and investments, all through a single mobile platform.

For instance:

  • UK-based Monzo is creating a financial hub for bills management and incentivizing customers to switch to more eco-friendly energy providers so they can save on energy costs. It also offers a buy now, pay later service, tax-free savings, and a feature for assigning savings to different budgets.
  • UK-based Revolut offers investment and insurance products, a “shopper” feature that finds discounts online, a single-use card to secure online purchases, and travel-related financial services.
  • Brazil-based Nubank has integrated major e-commerce platforms into its app, allowing customers to shop without ever leaving the bank’s app.

These ecosystems reflect many fintechs’ ambitions to become super apps that unite all the financial products and services a consumer could need.

While brick-and-mortar banks could offer the same services, customers would not be able to use them anytime, anywhere. Mobility increases the likelihood of customer engagement in these products and services, especially among younger consumers. EY found that among global consumers who use challengers for their primary financial relationships (PFRs), 37% are ages 18 to 34.

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Convenience is one of the main draws of challenger banks. Customers don’t need to visit a physical branch to open an account. Loan applications can be processed more quickly, as many use readily available customer data — such as spending habits, bills payments, and savings — to determine credit score. Customers can become more proactive in saving money by using app features like separate wallets for certain goals (e.g., a travel budget account).

Mobility also enables banks to offer personalized products — such as customized benefits and tailored product features — to consumers who have come to expect this degree of individualization in digital interactions.

Despite the challenges inherent to online banking — including security issues and service outages — more consumers are adopting it worldwide, accessing these services from both challenger banks and incumbents that have pivoted to offer digital banking to keep up with shifting consumer demand.

The market size of challenger banks is expected to grow from $47B in 2021 to just over $2T in 2030. Insider Intelligence predicts that by 2025, the number of US residents with digital-only bank accounts will nearly double to 53.7M, up from 29.8M in late 2021.

Takeaway

McGuire recognized that mobility would usher in new ways of working and change customers’ expectations for interacting with businesses.

Beyond the evolution of gadgets, the mobility revolution has extended to services and legacy businesses. Nearly every sector — from retail to financial services to healthcare delivery — has to some degree gone digital and, therefore, mobile.

There’s a mobile app (or a SaaS product) for virtually every personal and business need and desire. Mobile app development is now an expected part of every software product’s roadmap — and failure to fulfill that can make customers defect in droves to the nearest competitor.

The Law of Mobility never gets outdated.

To be continued…



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