By Sarah Tavel (Senior Associate, Bessemer Venture Partners)
It’s become commonplace to describe products as either painkillers (“need to have”) or vitamins (“nice to have”).
Painkillers are products that address existing needs/pain points. Companies selling painkillers harvest customer demand; the prospects are already searching for someone to fix their problem and take their money.
Vitamins on the other hand don’t really address an immediately apparent need. Instead, the vitamin company must sell a prospect on how their solution will make the prospect’s life better; that the prospect has a need that isn’t being met, even if they didn’t realize it themselves.
The problem with vitamins is that it’s hard to get people to pay for them and once you have them as customers, hard to keep them paying. Painkillers on the other hand are sticky. Once you start using it, you’re hooked.
While the vitamin vs. painkiller dichotomy is helpful, I don’t think it properly describes an important small-but-growing group of products: the drug.
Drugs are products that like vitamins, must sell a prospect on how their solution will make the prospect’s life better. However, unlike vitamins, drugs become as addictive as painkillers.
There are three qualities that distinguish drugs from vitamins:
- Accruing Benefit — The more you use the product, the better it gets. I think this is largely because a consumer adds data to the product, either passively or actively.
- Mounting Loss — The flipside of the accruing benefit is that the longer you stay with the product, the more you rely on the product and therefore have to lose by leaving the product. Going cold turkey is hard.
- Product-Market Fit — At the core, drugs are vitamins with product-market fit. Drugs pass Sean Ellis’s product-market fit question, “how disappointed would you feel if you could no longer use this product?” with flying colors.
For example, a href=”http://www.evernote.com/”>Evernote is a drug. Sure, it’s a productivity tool (the quintessential definition of a “vitamin”) but I’ve become an addict. Essentially, Evernote’s freemium model was like a drug dealer offering a little “taste”. Now it’s become such an ingrained part of my life; my lifetime value for Evernote is going to be very, very high. Products like Dropbox, and personal security companies like Dropcam also resemble drugs to me, and I think Bessemer portfolio company BillGuard might have the potential to become one.
Because drugs can’t harvest demand in the same way painkillers can, but also because it becomes harder and harder to let go of a drug the longer you use it, drug-like products are perfect for a usage-based freemium model. The barrier to getting a customer hooked on the drug goes down significantly (though not completely) when the initial “taste” is free. Vitamin-like products, meanwhile, need to extract as much value as possible while the customer is active because their churn rate will be much higher.
What do you guys think?
(hat tip to Greg Duffy at Dropcam for inspiring this post.)
This post was originally published at Adventurista.
About the guest blogger: Sarah Tavel is a Senior Associate at Bessemer Venture Partners, where she focuses on the software and Internet sectors. Prior to joining Bessemer, Sarah was a consultant for a strategy-consulting firm and also founded a general-contracting business. While earning a degree in philosophy cum laude from Harvard University, Sarah captained the women’s rugby team and was a Harvard Scholar. She blogs at www.adventurista.com. Follow her on Twitter at @sarahtavel.