In this class, I talk about the share of the consumer mind as a revenue competitive advantage. And how companies like WeChat and TikTok are changing this with digital tools.
Related podcasts and articles:
- #24: Share of the Consumer Mind in a Digital Age
Concepts for this class:
- Competitive Advantages
- Share of the Consumer Mind
- Switching Costs
- Searching Costs
- Temporary Supply-Demand Imbalances
Companies for this class:
- TikTok / Douyin and Bytedance
- WeChat and Tencent
I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.
My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.
Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.
Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy. And the topic for today, TikTok, WeChat, and how you capture the consumer mind in a digital age. Now, we are quite a ways into this class, those of you who are subscribers, I have put out 23 different learning goals in a sequence that I’m encouraging you to go through the sequence one by one by one by one. and those 23 learning goals are explained in 35 different podcasts, which is about 35 hours of me talking, which is a lot of me talking. And I think that really covers sort of the first bulk block of material I wanted to cover, such that we can now increasingly talk about different companies, different situations, different things happening out there in China and Asia and the tech world, and refer to this sort of bulk of material of, you know, hey, this is, this is what’s really going on with Garena in Singapore right now. And we can point to the various factors and concepts we’ve covered. I think we’re about there for this sort of first wave of content. And it took, I mean, it took about eight months of me talking to get it up here in various forms in the articles and on the podcast. So I feel pretty good about that. Today’s lecture is a bit of a capstone. on all of that. It’s one of the concepts within this sort of initial bulk, but it’s kind of open-ended and it’s changing fast. And it’s one of the more complicated, but also one of the more important ones. And we call that share of the consumer mind, which is a Warren Buffett term. And I wanna talk about what that means in a digital age. And that will be the topic for today. Now, for those of you who are subscribers, This is the point at which I nag you. Look, you are gonna get 10 times more out of this if you try and apply this, even if it’s just in your head, even if it’s just scribbling on a piece of paper as opposed to me talking. So you have 23 different learning goals within that, lots of ideas. Pick one or two, decide where you are in that process, and you can look at the chart I sent you of the various levels, easy steps, level two, level three, level four, and now there’s a level five going up. Wherever you are in that process, pick a learning goal, take one of the ideas there and try and apply it to a company that you feel comfortable with, whether it’s a digital company, which I talk a lot about, just a business you work with in life. Maybe you work at a bank, maybe you work at an auto dealership, maybe you work at a shopping mall, just take one of these ideas and try and apply it. And by apply it, I mean, write down three, four, five paragraphs of how this idea, let’s say a switching cost and network effect. viewing your customers as a connected network, not as individuals. Apply that to your business such that if you were gonna talk to the CEO of that company and you had about three minutes of time, what would you say? These are your three to four paragraphs of what you would say. Give it a shot, write it down on a piece of paper, write it down on the notepad of your iPhone or wherever you’re using. That’s the best way to learn is just try and apply this stuff. So anyways, that’s your assignment for this week. I’m gonna keep pushing you to do that once a week. The way this class works is I give you content, about half of that, about 40% of that is public, 60% is private just for subscribers. And then I’m gonna push you to try and apply that week after week after week, and over time you get better and better and better. So this is the part of the class where I nag you to do that. So absolutely make sure you do that this week. Do it today, do it tomorrow. Set aside 30 minutes, give it your best shot. If you do that every week, you will find that your progress is dramatically faster over and more significant over time. And for those of you who are not subscribers, please go over to jefftausen.com. You can sign up there. There’s a 30 day free trial. I’m sort of encouraging people to use PayPal or Stripe because we’re having some problems with Alipay which runs through China and the payment’s a bit of a problem there. So please, the others are better and things work a lot easier with that method. Okay, let’s get into the subject. Now the key learning idea for today, the key concept is share of the consumer mind. And this is a type of competitive advantage. So that’s sort of your key learning goal for today. Now I have sort of laid out a world, every most of what I’ve been talking about. is about business strategy, it’s about sort of competition. And I’ve been bouncing between two levels of that. One level would be more the strategy side where you build a business, it has certain inherent structural advantages, which I usually refer to as competitive advantages. And that’s sort of the business model, the components that put together this business. And ideally you want a business that can do things that other businesses can’t do, that eliminates your competition. That tends to make you more profitable and life is better. That’s sort of one level. The other level is just operations Okay, regardless of what your business model is. Maybe you have a strong one. Maybe you have a weak one Maybe you’re just a restaurant on a local street doing the same thing. Everyone else is doing okay Then you’re you’re competing on just sort of Operational effectiveness operational efficiency every day you get up and you you know, you run your business day by day by day and you compete on that level. So I’ve sort of been bouncing between these two ideas of structural advantages, which I’ve been calling competitive advantages, and then just operational marathons. And I gave you a talk two weeks ago, which I called the Smile Operational Marathon, which is sort of my framework for the five different ways you can compete in an ongoing operational marathon. Now today I wanna talk about that first level, which is competitive advantage. which for those of you who’ve taken my classes in China or Thailand too, we have a lot of listeners from Thailand. Welcome to everyone in Thailand. I love seeing all these people who’ve signed up in the last week out of Thailand, which is interesting because I’ve been teaching here at Sassin Business School. And the people who are signing up are not my students. I actually checked, which was interesting. And it’s, I don’t know if it’s word of mouth or people have been talking about it, but yeah. Anyways, apparently there’s some. pretty popular podcasters here in Thailand who recommended me a little bit. So anyways, welcome to everyone from Thailand. So this idea of competitive advantage, for those of you who are my students, I talk a lot about competitive advantage. So this is my area of research. This is where I’m trying to leave my little mark in the world of strategy thinking is… Digital meets competitive advantage. What does a competitive advantage mean in a world that is more and more infused with software? Because we see certain competitive advantages that we are very comfortable with getting wiped out. Like traditional print newspapers had a very powerful business model. And then software just destroyed that. Now it’s a really tough business to be in. Daily news in general is a really hard business to be in and print news is pretty much dying. pretty quickly. But we see other business models emerging like a Google or Facebook which are clearly have competitive advantages based on other factors. So my sort of main area of research is this idea of how do digital tools, data technology, data, how does it create and destroy competitive advantage? And I’ve been researching this for almost a decade now, so this is kind of my little area. I’ll wrap this all up together in a book sometime if I can ever get to it. But within this idea of competitive advantage, I talk about how it used to be, and then how it is going to be as we move from a more industrial age to a digital age. So the traditional way we would think about this subject is we look for a company that has some sort of competitive advantage. Usually it’s a couple things happening together. It’s usually not one thing, it’s usually a couple unique factors that when you put them together, give this company a barrier to their competition, which means other companies have a very difficult time doing what you do. If you’re a restaurant on a regular street, there’s a lot of companies that do what you do. You’re selling ice cream or lattes, they’re selling ice cream or lattes, and there’s nothing stopping someone from jumping into your business, opening a new store down the street, and doing what you do. That degree of competition is basically undefended. or without a barrier. So people call this a barrier to entry. They call it a franchise. They call it a mode around the castle. They call it a sustainable competitive advantage. It’s all the same thing. It’s you’re doing something that others can’t really do that easily. Now maybe one or two companies can. China Unicom competes with China Mobile, but Coca-Cola competes with Pepsi. But it’s not 100 companies and there’s… The difficulty of getting is enough that we’re not facing new competitors every month, which is what restaurants face. So it’s sort of a matter of degree, that we are some degree protected. And the thinking behind this is, a lot of things are gonna impact your profits, are gonna impact the trajectory of your business, your revenue, your customers, your profits, the amount of money you have to reinvest in the business every year to stay competitive. A lot of things impact that. Maybe it’s changing consumer preferences, maybe it’s changed this in technology, maybe it’s changing regulation, there’s a lot of factors. But I would argue that the factor that changes those things the most and the most quickly is the degree of competition you’re facing. If your competitors lower their prices, it is gonna hit your revenue in days. It’s gonna hit your profit in days. If they launch a major marketing campaign, that is gonna hit the amount of money you have to spend on marketing immediately. If they refurbish their stores, you have to refurbish your store. So it’s gonna impact your revenue, your profits, the amount of money you have to spend, reinvest to stay in this game. And so companies that don’t have a barrier are in this perpetually difficult business race marathon. And those that do have barriers, they have a pretty nice life. Mark Zuckerberg doesn’t have to work very hard. He works one to two days a week if he wants, and he makes a lot of profit. very different than your average person who runs a restaurant or a coffee shop or a hotel. So how do you tell if you have a competitive advantage or the business you’re looking at has a competitive advantage? Everyone says they have one. Every 10K annual report, they say they do. Most companies don’t. When if they do have one, it is either increasing or it’s decreasing. It’s never stable. So you always wanna know, do we have one or not? And is it getting stronger or getting weaker? How durable is it? And this is sort of Warren Buffett 101. Now, will you just test? I mean, it’s very easy to test. You can look at a couple metrics. First thing you can look at is you can look at market share. Does this company have stable market share over longer periods of time? Not quarter by quarter, but let’s say over three to five years. Does this company continually have 20% of the market? Now, if you have 20% of the market over five years, and it’s pretty stable, that almost tells you by definition, you’re doing something that’s protecting you such that other people can’t take your business. They’re definitely trying, but they can’t do it. That’s kind of a measure of a barrier. And you can see a company like Coca-Cola, I mean, they’ve been the number one cola for 100 years. Clearly, their market shares shows some degree of protection happening there. If you look at smartphone sales, within Thailand, within China, within Singapore. You know, the market share goes up and down every six months based on, well, the iPhone just released number, whatever, and then Huawei has a new one. And you know, you can see the market share swing in real time. So that tells you, look, they’re not that protected because if someone can take 10% of your sales this year, okay, you weren’t protected. Now a caveat to that is, Oftentimes what we will see is we will see three to five dominant players like in smartphones, like in cars, where the top five players generally dominate the market, but between those top five, the market share does shift. So that’s a type of barrier. Look, you’re not protected against your immediate competitors, but you’re protected against everybody else. Huawei is not gonna lose market share to some random smartphone company we’ve never heard of before. It’s gonna be one of the top five. So there’s a bit of a caveat to that. Restaurants, yes, you’re absolutely unprotected. Anyone you’ve never heard of can open on your street and take 20% of your business any day of the week. Well, not any day of the week, let’s say any month. So one measure you can look at is market share. Is it stable? And you have to kind of have a good assessment of what’s happening in the market. Are we in a booming economy? Are we in a contracting economy? Is this a rapidly growing sector? Are we in COVID, you know, blah, blah happening? I mean, you kind of got to look at the landscape, but over one to two business cycles, how stable is your market share? We’ll give you an indication of some degree of protection. And the other one you can look at is return on invested capital, which is, you know, for every million dollars, we have to put in to open a new restaurant. a pizza company or a KFC or whatever. If we put in a million dollars, you know, that would be my invested capital, which could be debt or it could be equity in combined. What is my return on that investment per year, which is how much money can I take out of the business as owners earnings, another Buffett term, versus I may have to keep it in the business. One, I may not be making any profits because there’s a lot of competition. Two, I might have to, I make some profits. but I have to continually reinvest because my competitors are reinvesting, building new IT systems and blah, blah, blah. How much of it can I pull out, my return on invested capital? And you can look at that and you wanna look at that in two ways. One is sort of what they call the $1 test, which is for every dollar I put in this business, do I make more than a dollar? So you put in a million dollars and every year, your owner’s earnings are 100,000, which will be a 10%. Okay, so your return on invested capital will be 10% per year. and maybe you got your money for 5% or 8%, so you’re making a profit. That’s a measure of the profitability. It’s not a measure of competitive barrier because if everyone in your business who’s doing that business is making 10%, it doesn’t look like you’re doing something that others can’t. Now, if I’m doing a restaurant on a street and everyone on my street is making 5% on return on invested capital, They put in a million dollars, they can take out $50,000 per year and owner’s earnings 5%. That would be normal for my business, but my business is making 12%. I’m making $120,000 per year on a 1 million investment. If everyone in this type of business is making 5% and I’m making 12%, that’s an indication of a competitive barrier. Because you know the… The return on invested capital of a business is usually determined by the unit economics of a business. Dennis all tend to make about the same, restaurants all tend to make about the same, hotels in this part of the world all tend to make about the same. You know, they call those base rates. If within looking at the base rates for an industry or a type of business, you are above your competitors, that’s an indication of a barrier as well, because we’re doing something we can’t. All the hotels are making 9%. but our hotel makes 18% because we’re on the beach. That would be an indication of a competitive barrier based on location. So when you think about competitive barriers, I mean, you can look at market share as an indication, you can look at return on invested capital as an indication, relative to base rates for your industry. Okay, that’s two measures. Now, within that, people generally break this into demand side or revenue side advantages and cost side advantages. And I’ve talked about a couple of the cost side advantages like economies of scale, production cost advantages, transportation cost advantages, things like that, IP, tech. Today I wanna talk about the revenue side one which I haven’t really talked about. Now if one hotel, if most hotels, let’s say on Hainan. are making 8% return on invested capital, but my hotel is making 13%. That might be indication of a return on invested capital that’s higher, might be indication of a competitive barrier. Doesn’t necessarily mean it is, but it’s an indication it might be there. Okay, now there’s only two ways I can have a return on invested capital that’s higher than my competitors, because return on invested capital is revenue minus cost, operating revenue minus operating cost. divided by invested capital. Okay, let’s assume the invested capital is the same. The only way I can have 13% and they have 8% is either my revenue has to be higher or my cost structure has to be lower, such that my revenue minus cost, that difference is bigger than my competitors. So that’s why you can break these into two buckets, cost side and revenue side. Now on the revenue side, I’ve mentioned one of these before. There’s several types of revenue side competitive advantages. The one I’ve mentioned in previous episodes is switching costs. If you are a software company and you’re doing B2B SaaS enterprise like services, and I get companies like, I don’t know, GE or Procter & Gamble or something like that to install my software in their company and run their company on my software. I’m gonna have significant switching costs built in there because for them to just say, oh, we don’t like Jeff’s company anymore, let’s dump them and go to another company and save 5%. It’s actually kind of difficult to do that. There is a cost to switching and cost can mean it takes time, it takes effort, it’s difficult. I’d have to retrain all my people. Maybe they’re comfortable with this software and if I switch to another software, I have to train more people. maybe this software integrates with all my other functions, so I’d have to find another software that also integrates easily. There might be the perception of a risk, that look, I know this works, and if I’m gonna switch to another one, yeah, I’m gonna save 3% or 5%, but if it doesn’t work, it’s really gonna screw up my business. So all of that is called a switching cost. It’s a perception of risk, it’s a difficulty, it’s a time, it’s an effort thing. such that when my company comes back to them and says, hey, I’m sorry, my friend, we’re gonna have to raise our prices 5% this year, the customer kind of says, ah, man, all right, it’s fine. You know, in some businesses, if I’m selling tables to that company, I say, look, I’m selling you tables, I’m gonna raise my prices 5%. The company says, yeah, forget it, get lost. We’re gonna put it out to bid, we’ll just buy our tables from somewhere else, no problem. I have no ability to raise 5% if I’m selling basic tables. I do have an ability to raise my prices 5% if I’ve got deep switching costs because I’m the software system you run your business on. That’s a switching cost. And in practice, that’s gonna show up in two metrics. The number one metric it can show up in is I’m gonna be able to charge a premium for my service. The other software companies are 10% lower price than me, but the customer stays with me. Now, if I boost my prices 150%, at a certain point the customer is gonna say, forget it, I’m outta here. So I can’t gouge them, but I can get a 10% premium on top of my service relative to my competitors because of my switching costs, and a 10% increase of revenue. you know, for a million dollars of revenue, and let’s say I’m making 10% profit, I’m million dollars revenue, that’s 10% profit. If I can charge a 10% premium versus competitors, so I’m charging 1.1 million in revenue, my profit just went from 100 to 200,000. That’s a 100% increase in my profits. So it’s gonna show up in my return on invested capital. So one measure you’d look at is, can they charge a premium and get away with it? not 50%, but 5%, 10%, 15%. That’s gonna show up as a return on invested capital that’s higher than my competitors. That’s an indication of a revenue side advantage. The other metric you can look at is repeat business. If people keep coming back to me and buying from me and not just switching around, people walk into the 7-Eleven, they go up to the freezer and they’re thirsty and they grab the Coke. Why don’t they grab the orange juice? Why don’t they grab the Dr. Pepper? Nope, they keep walking in, they keep grabbing the Coke. And the competitors, this is very frustrating to them because they say, look, we put our product right next to the Coke, it’s 10% cheaper because Coke is charging a premium, yet everyone still keeps grabbing the Coke. The repeat business just keeps happening. Customers aren’t moving, why aren’t they moving? So that sort of repeat business is another indication that there’s something there. Now you can put both of these metrics, the ability to charge a premium and repeat business, you can put them both under the term customer capture. And most types of revenue side competitive advantages are an example of customer capture. And there’s lots of examples of this like, You know, my favorite example is you go to the airport and you wanna get a cup of coffee and you’re in the terminal waiting for your flight and you wanna get some food. And all the prices of all the restaurants in the terminal are 50% higher than outside. Why? Because captive customers, you know, you’re in the terminal, you’re waiting for your flight, you literally can’t leave. So everyone in the terminal boosts their prices. Now, you know, the airline terminal gouges them on leasing fees, but you know, that’s… captive customers. And there’s a lot of examples. People who have, if you install someone’s software in your business, you’re to some degree a customer, a captive customer. And switching costs would be a type of this, but there’s other types. Searching costs would be another type. That if you’ve been going to your doctor for many years and they know your medical history, you might want to switch doctors because your doctor comes to you and says, hey, my friend, I’m sorry, I’m raising my fees. for visits 10% this year. Now you don’t actually have any switching costs here. It’s very easy to just go to another doctor. The hard part on doctors is finding one that you trust and feel comfortable. It’s the searching cause that is difficult, not the switching costs. So when most people look for a doctor, you go online and you search for good doctor and that doesn’t help you. You look at billboards, that doesn’t help you. Usually what people do is they, Ask a friend, can you recommend a good doctor? There’s a searching cost. That’s a type of customer capture that’s a little different than switching costs. Searching costs are kind of going down in the world because digital’s good at taking care of that problem. You could look at what we call a temporary supply demand imbalance. Sometimes when a business is growing quickly or something new has emerged in the world, there will only be one or two competitors. early on, so there’s an imbalance between supply and demand at that moment in time. You know, you go online and, you know, there’s only TikTok because they kind of moved early with short video. There aren’t 20 short video companies out there. They’re kind of a first mover. They got their first. So there’s probably more demand for short video than there are suppliers at this point in time. And a lot of early stage industries are like that. You will see a temporary imbalance between supply and demand. Or maybe there’s a government regulation that limits something, but there’s something that’s constraining the supply side such that you will see more demand than supply, usually for just a short period of time. And based on that, those companies can charge a bit more. So we could call that a type of customer captive or revenue side advantage. So the searching cost, switching cost, temporary supply demand imbalance. But the one I really wanna talk about today, so I finally got into the point, is share of a consumer mind, share of the consumer mind. This is a type of revenue side advantage. It’s a type of customer capture. And unlike the, and this is a Warren Buffett term, he talks about how he likes companies that have a share of the consumer mind. And it’s kind of a catch-all. It’s a whole bucket of lots and lots of things where somehow a company has just managed to occupy part of your brain. That you get up every day and you know Coca-Cola. You just know this company. If I ask you to name a backpack company, you probably can’t name one off the top of your head, but if I ask you to name a soda company, Everybody on the planet knows Coca-Cola. How did it, I mean, how did this company, which is just sugar water in a can, how did they become so prevalent in the brains of consumers all over the world? And this is like, they just, they occupy a share of the consumer mind. How did they accomplish this? And lots of, not lots, a decent number of companies have achieved this. through lots of different mechanisms, through different types of psychology, through different types of habits. Sometimes it evolves over a long period of time, sometimes it happens very, very quickly. It’s a sort of a grab bag of a lot of different type of phenomenon that we all put under this term share of the consumer mind. And when a company has a share of the consumer mind, which is very different than brand as an asset or brand equity, We can usually see this play out in their ability to command a premium in the market or to have repeat business. And it’s a type of competitive advantage and it’s sort of soft and it’s intangible. And there’s a whole lot of different subtypes of this. So let me give you a couple examples. Let’s say Coca-Cola, since I’ve been talking about Coca-Cola. If you pull their numbers, you see very clearly that they have a competitive advantage. I mean, you can see it in the return on invested capital, you can see it in the market share over 100 years, and it is clearly mostly a revenue side advantage where they are able to charge a premium and they get a lot of repeat business. Now, one of the nice things about being a small product like a Coca-Cola is it’s only $1, you know, or 10 Taibot or 7 Kwai. So when you charge a premium, customers don’t really notice a 10% increase. on $1 to $1.10. So it’s harder to charge a premium, it’s hard to do that when you’re selling a car for $25,000 versus 35 versus 45. But you can do a lot of that at the low cost level. And a lot of the companies that do very, very well on this side of this type of customer capture and revenue side advantage are very low priced items because people don’t notice. Okay, so what kind of… You know, so let’s say we see it in the numbers, and then we say, okay, what type of competitive advantage does this company really have? It looks like it’s a revenue side phenomenon that they’ve built. It doesn’t look like it’s a switching costs. I mean, anyone can grab any soda anytime. It doesn’t look like it’s a searching cost. I mean, it’s easy to find something to drink, and it doesn’t look like it’s a temporary supply demand imbalance. I mean, there’s soda frigging everywhere. No, it’s a share of the consumer mind. And what have they done How are they staying in people’s brains such that consumers just buy Cokes all the time and pay a little premium? Now I would say for Coke, it’s probably two factors that they have built up over a long, long period of marketing, you know, decades and decades of marketing. The first is it is chemical. This is one of my factors I look for is chemical. Look. It’s not a coincidence that Coke and Red Bull and Starbucks are all stimulants. That they have sugar and they have caffeine and they’re loaded with them. And it creates one, you get a bit of a rush because it’s a stimulant. It’s mildly addictive. So you’re getting, it’s a chemical phenomenon. It’s a physiological phenomenon that’s happening there. And that does not help happen with selling water or orange juice. That’s why there’s no Starbucks for orange juice. right? And there’s no Coca-Cola brand for orange juice, but there is for Red Bull, there is for 5-Hour Energy, and there is for Coca-Cola. Nicotine would be similar. Cigarettes had this. Alcohol has it to some degree. Gambling definitely does. Anything that’s just like a chemical phenomenon, you can often get a share of the consumer mind. That does help. The other factor I would look for is I would call it a mindless purchase. Those are kind of the two factors I look at when I think of Coke. I think chemical and I think mindless. Mindless is you just don’t think about it. Like one of the factors I look at a lot when I look at consumer behavior is how rational is the purchase? How much is your brain turned on? If I’m trying to sell you a car, that is a very rational purchase. There’s some emotional aspects as well, but it’s a 30, $40,000 purchase. Your brain is turned on, you are thinking about it. Is it a good car? How often will it break down? Do I like it? What’s the price? What’s the cost gonna be? I mean, you are very switched on in terms of your brain. Think about next time you walk into a 7-Eleven or a supermarket and you’re, oh, I gotta get soda. Do you even think about it? Like, does your brain even turn on? Or do you just walk down the aisle, you grab it? Do you even think, gosh, do I want Coke? Do I want Pepsi? Do I want Dr. Pepper? Well, Dr. Pepper’s 10% cheaper. That’s a savings. Ooh, you know, I think you’ll notice for a lot of products, you don’t even think about it. Your brain is turned off. And that’s a very good way to make money as a business is to sell something to people when their brain is not rational. Maybe it’s very emotional. Maybe it’s outraged, or maybe it’s just switched off because you’re not thinking about it. One good company that’s like this Like two of them like big pens Like if you ever notice when you buy a pen if you ever look at BIC, which is a French company I think it’s called beach They sell razors and they sell pens. So when you walk into a store any store really they’ll be on the counter There’ll be some pens. They actually have very good profits When is the last time you actually thought about buying a pen even when you need a pen? Do you even think about it or do you just walk in and you just grab it and throw it in the bag and you’re on? A lot of good businesses are like that. So I put Coca-Cola in, it’s mostly a mindless purchase. There’s some physiologic chemistry going on. And there’s a little bit of enjoyment. It actually does taste good. Those are kind of the three factors I look at when I think about how people buy cokes. And when we’ve gone through some of these cases, I repeatedly say to you, look, whenever you look at a company, put on two viewpoints. One viewpoint is the competitor view. View this as a competitor. How could I fight this company? How could I take it down? If is that possible? And the other is put on the consumer viewpoint or the customer viewpoint. Walk yourself through the process. What do I care about when I buy a pen? How do I actually buy it? Do I think about it? Do I walk into a store? If you think about how you buy a pen, usually what happens is I’m doing something, I’m writing and my pen runs out and I need one. And I look around, where can I get a pen? Where can I get a pen? Oh, there’s one. And I walked down to the store 50 feet away. I grab one and I go back. And that’s kind of how Bic sells itself. So two factors there, chemical and mindless, and maybe a bit of enjoyment is how I think about Coca-Cola. Another factor you can think about, I have about eight of these factors I look at. I’m not gonna go through all of them. But let’s say chemical is one, mindless is another. Rational thinking is another. You could also think about habit formation. Cigarettes. Cigarettes, one, they’re very chemical because it’s super addictive, nicotine, and it’s also got an incredible habit formation because your average smoker smokes 20 cigarettes per day, which means 20 times per day they stop what they’re doing, they go outside and they smoke a cigarette. So the frequency of the activity, it becomes part of their day. So habit formation is important and that usually relates to frequency. Another factor to think about is emotional. Is it something that makes you happy? I love, I mean I really like Star Wars well before they ruined the series with the latest ones. I used to love Star Wars and the I really like the Avengers. It makes me happy. It’s an emotional thing. There’s no rational part of my brain thinking about I want to go to the movies on Saturday and this ticket is $12 and this ticket is $9. So I’ll go to the $9 one. No, I just think I really like Marvel and I like the Avengers And I’m going there. It’s an emotional thing a lot of entertainment music. It’s very emotional luxury products make you happy Fanboys blockbuster movies popular songs, you know a lot of it could be emotional Another factor is aspirational People buy big homes because it’s an aspiration in life. They buy nice cars, or at least they used to, because it’s an aspiration. They go out to dinner with their friends and they order an expensive bottle of wine. They buy Gucci and Prada stuff because it makes them feel good. These are sort of lifestyle upgrades. They’re aspiration to live a certain type of life. So you could say aspirational. And then there’s a couple other called psych and morality. But… Those are probably four or five that are worth thinking about when you think about how did this company achieve a share of the consumer mind? Anyways, this is why this is a bit of a grab bag this whole idea of share of the consumer mind because depending what business you’re looking At it’s gonna be very different luxury products Buying ketchup in the supermarket. Have you ever noticed it? Like when you buy ketchup, you don’t even think about it Heinz makes pretty good profits could be beer, could be alcohol, it could be how you get to work, it could be taxis, I mean, could be going to the doctor, going to the dentist. Every business you look at, if you can find one that looks like they have a share of the consumer mind, usually it got there through a different combination of factors. And I’ve just mentioned a couple, but it changes business by business. This is why it’s a bit of a grab bag, this whole category. And then assessing whether a company has this or not is important, and then if it’s rising or falling. decaying or growing is important. And that sort of brings us to the point of today’s episode. Everything I just told you, I could have told you 15 years ago. Coca-Cola, Heinz, luxury, music, all of that was the same. How is this share of the consumer mind as a competitive strength advantage? How is that being changed by digital? How is the fact that we are moving from a more physical world to one where software, data, and all of this is more and more important, how is that changing this whole question? And I think it’s actually fairly profound that it’s playing out all over the place. Every time you see someone glued to their screen on the subway playing Candy Crush or PUBG or whatever, look at the hold that smartphone screen, that game has on that person’s mind. Look at how much, and this is why sort of the topic for today is share of the consumer mind in a digital age, which is a big sweeping subject. I’m just sort of broaching the subject today. And then two clear champions of this phenomenon are WeChat and TikTok. Look at how TikTok went from a nothing small company to a global giant in two years where people all over the world, teenagers are glued to their screen, watching TikTok for an average of about 55 minutes per day. That is a consumer share of the mind phenomenon, clearly. And it is clearly mostly a digital phenomenon. This is not like a hit TV show or a hits. I mean, this is something very strange is going on there with short video and TikTok and share of the consumer mind. And WeChat, I would argue, is another massive phenomenon in share of the consumer mind and the digital age. People in China are on WeChat all the time. You open that thing up 20, 30, 40 times a day, paying your bills, getting on the subway, ordering a taxi, ordering a car, paying for lunch, sending a chat, checking in with work, talking to your students in the private WeChat group, all of that. watching videos. That’s a very interesting way to think of share of the consumer mind. So let’s talk about three companies. First one we’ll do is we’ll talk about Facebook. And, you know, Facebook, everything we’ve talked about in this class, I’ve talked about network effects, I’ve talked about sort of, you know, these social media, social networks, thinking about your consumers, your customers as platform, part as one user group on a platform. In the case of Facebook, you’re talking about at least two user groups. you know, consumers on one side, and then you’re talking about advertisers on another. You’re talking about sharing. All of this stuff is a lot about the business model. It’s a lot about the strategy. It’s a lot about multi-sided platforms, network effects, things like that. And I’ve mostly talked about these companies in those terms. But when I look at Facebook, you definitely see those things with Facebook. I don’t think it’s the dominant reason Facebook is what it is. I think the dominant reason Facebook is what it is, is something very powerful happening in terms of share of the mind for consumers. I think it is overwhelmingly more on the psychology and the consumer habits side, than it is about the fact that it’s a platform business model with network effects and all of that. It’s more of a consumer phenomenon than a business model phenomenon. Now I think the business model protects it. But I think the adoption, the crazy amount of usage is more about the share of the consumer mind. So, just a simple first pass analysis, why are people on Facebook so much? Like, why do they use this thing all the time? Now I would point to this list we just went through. I just went through a couple factors. Is it chemical? Is there an addictive aspect? Facebook has been criticized by some, I think it was Mark Benioff of Salesforce.com, maybe he said this. He said basically like Facebook is the new cigarettes. I think it was him who said that. Cigarettes are incredibly addictive, super addictive because of all the nicotine. Is that what Facebook is? Is it a chemical addiction? There are definitely sort of dopamine hits when you post something and you see if people liked it or didn’t like it and you see how much feedback you get when you post. There’s definitely a lot of that going on, especially when people start showing off and saying, hey, look at me, I’m on vacation. Hey, I just got a promotion and they do all this humble bragging stuff. This is one of the reasons I’m not on Facebook. I think it’s. it’s bad for you as an individual. Is it chemical? Is there a chemical hit that creates more and more usage? Yeah, I think there’s a decent amount going on with dopamine and some other phenomenon there. Okay, what about habit formation? Is this like cigarettes? Is it like getting a Coke? Is it, you know, you always buy these things? Is there a sort of habit being formed? Yeah, I think people do get I think people do get in the habit of just checking Facebook. How many hits did I get? How many responses did I get? I think that’s probably going on. Is it just mindless? This is, we don’t even think about it. Do you just go onto Facebook and just watch your news feed and whatever they keep pushing to you on the news feed, you’re just sort of passively consuming it like vegged out on the sofa? It’s kind of like how you watch Netflix. You just kind of veg out on the sofa and you watch, a lot of the shows on Netflix are terrible, but you just kind of put it on when you want to tune out and not think. So is Facebook just passive consumption with your brain turned off? Eh, you just keep refreshing the newsfeed. What’s up, what’s up, what’s up? You know, Twitter’s like that. Is that there? Is it emotional? Is it an emotional, does it make you happy? Like, you know, buying Gucci products makes a lot of people very happy. They get a lot of joy out of that. Music makes you happy. And the emotions can be negative as well. Does it make you outraged? Does it make you angry? If you’re serving up a product that perpetually makes people angry and outraged, people will keep coming back. I mean, that’s the news as far as I can tell. I think the news has turned into basically they’re in the outrage business where they feed you up one story after the next to get an emotional reaction and you keep coming back. Is that what Twitter is about? Is it aspirational? Is it rational? Maybe. I mean, which of those factors? And there’s other ways to take this apart. I’m just giving you a handful of simple factors. But There’s clearly something powerful going on in Facebook on the consumer side, share of the consumer mind. And I think that’s the dominant explanation for why Facebook is what it is, not the secondary factors like network effects and other things. And I think Twitter’s probably the same. So when I look at TikTok, which brings us to company number two, that’s what TikTok looks like to me. I don’t see a lot of network effects in TikTok. I think they have a network effect for sure. I don’t think it’s particularly strong. I think it will be easy for consumers to switch to another platform. I think it will be easy for content creators. TikTok is basically two user groups, content consumers, content creators, which are usually the same group just doing different roles. I think it’s very easy for both of those groups to switch to other platforms, whether it’s live streaming or whatnot. So I don’t think the network effect, I think it’s there. I don’t think it’s overwhelming. like it is for say Alibaba. But they definitely have a lot of factors that we’ve talked about, a lot of the digital superpowers we’ve talked about, scalability, word of mouth is helpful, platform business model is helpful, it has the economics of digital, has a lot of those factors we’ve talked about. But what jumps out at me about TikTok, that is it is mostly a consumer share of the mind phenomenon, that it’s just a very addictive thing to watch. I mean, I probably watch TikTok an hour a day. As soon as I open up TikTok, I look up and it’s a half hour later. You know, something is going on there with consumer brains related to this product. And I actually, when I look at ByteDance, that’s what strikes me at ByteDance is very good at doing. That they are very good at artificial intelligence and they are very good at product development, have designing products that are very addictive and habit form. So, I mean, if I run my little list I gave you for TikTok, is it chemical? No, I don’t think there’s anything chemical going on. Is it habit forming? Eh, maybe somewhat, I don’t think very much. Is it a mindless activity? Yeah, I think a lot of that’s, this is what’s going on, is you turn on TikTok when you just wanna veg out, when your brain is tired, you got home from work, sit on the sofa, open TikTok, go in. and just start scrolling through videos and you look up and it’s been a half hour. I think a lot of it’s just mindless consumption. Is it emotional? Yeah, I think that’s why if you look on TikTok, a lot of what they focus on is things that have music. Almost everything on TikTok is about music, that people dance to music, they lip sync to music. Music has a very emotional effect on people. I think that’s part of it. It’s a lot of dancing. I think it’s entertainment based products like the Avengers. I think TikTok has a lot of that going on. I don’t think it’s aspirational. I don’t think it’s very rational. I think I view it mostly as sort of an emotional slash mindless consumer behavior. And the last example for today, we’re just about done, is WeChat. I mean, clearly WeChat. has dramatic market share. People are using it all the time. Consumers are on it all the time. It has all the hallmarks of a share of the consumer mind business. But, you know, where is it coming from? And this is why in previous articles talks, I’ve talked about Alan Zhang and how he thinks about his product. That he does not want WeChat to be a place for mindless consumption. He does not do. all these push notifications. He does not want you just sitting staring at the screen as they just push a newsfeed to you one after the next, after the next. He wants it to be a place where you can have private conversations, which he argues and I think is right, is very healthy. Public conversations, posting stuff on Instagram, Twitter, I think is a lot of unhealthy behavior. Post talking to your friends, talking to small private groups of your friends and colleagues I think is very helpful and very healthy. He wants it to be about private conversations. He wants not to be a place you waste time, but where you get on and there’s a utility you use, like paying a bill, paying your light bill, topping up your smartphone, ordering a taxi. He wants it to be a suite of very useful services in your life, like a toolkit. So it’s sort of your go-to utility belt for communication and all the various things you do during your day. pay your bill, get a taxi, get a bicycle, maybe send a message, send a message out to your workmates, but you get on and you get off. Now that’s a very different approach to share of the consumer mind, which is based mostly on, I would argue, utility. So when I look at this little list, it doesn’t look to me like mindless activity, like TikTok and Facebook. It doesn’t look to me like emotional activity. It looks to me like rational behavior. that people go on there and their brains are engaged. They’re thinking about what they’re doing. They’re sending a message to their workmates. They are telling their parents, I’ll be over at six. They’re paying their bill. It’s very much rational behavior. With some degree of habit formation, you get into the habit of just checking it all the time and living your life there. I think that’s quite good. I mean, I think this is a very positive thing for people, generally speaking. So I kind of view it more as habit formation. and a lot of rational behavior, a lot of utilities that you use in your life. And I would argue that a lot of Google is the same way. If you read Google’s 10K, what they talk about is building very useful services for the mass market, like mapping, Gmail, operating systems. I mean, they build utilities for the whole world to use that make their life more efficient. more effective. And I think WeChat is closer to that than say the TikTok Facebook world, which is the other, I think, extreme of the spectrum. But I would put all of these examples I just gave you, Google, Facebook, TikTok, and WeChat, under the category of share of the consumer mind in a digital age. And I think it’s pretty fascinating. This is a big, big bucket, a lot going on. I spent a lot of time taking apart business after business. along these dimensions and trying to figure out, how this is evolving, is it getting stronger, is it weaker? How did this company do this? Oftentimes it’s hard to predict. You just sort of see it after the fact. Look, look at all these people on YouTube. How did they pull that off? Look at all these people on Alibaba, on all these people on KwaiShow, all these people on Shopee. You can see the consumer behavior and then you try and work it out reverse engineer. How did they do that? And then I try and figure out how it happened after the fact. But the great product managers, product development people of the world, they’re able to design these things. I don’t have that skill. I don’t know how they do it. I think it’s a very powerful skill set to be able to build a product, design a service that can capture a share of the consumer mind in this way. I think TikTok ByteDance is very good at this. I think Google is very good at this. WeChat is amazing at this. I mean, think how many times WeChat, not WeChat, Tencent has done this. They did it with WeChat, they did it with QQ, they did it with online gaming, they did it with Tencent Video, they did it with Tencent Music. They have a lot like, like seven to 10 major products that have massive share of the consumer mind in all in different ways. And they’re really impressive at this. And that is the content for today. So really just one main concept I wanted to talk about, which is share of the consumer mind. For those of you who are subscribers, that’s learning goal 24, which is share of the consumer mind in a digital age. We will get more and more into this as we go into more and more companies and we’ll tease that apart in lots of ways. There’s a lot going on there and it keeps changing. I think software digital data technology is really changing. the experiences we have when we deal with companies and products and services. It’s evolving pretty quickly. It’s pretty fun to keep an eye on. But that’s the learning goal for today. As for me, I am packing up and I’m heading down to Koh Tao in a couple hours. I was supposed to go last week and I got a little spooked. I was going to fly down there and I got a little spooked about whether I might get off an airplane in Thailand, even though it’s domestic, and because I’m a foreigner I might get quarantined for 14 days. So I ended up canceling my flight and I’m going to take the ferry down to Koh Tao in a couple hours. So anyways, if you’re down there in the islands in the Gulf, Koh Tao, Koh Samui, that area, give me a call. I’ll be hanging out there probably for the next, I don’t know, maybe one or two weeks, something like that. So it’s going to be fun, but hopefully I won’t get quarantined. So everyone have a great week. I will talk to you next week and for those of you who are subscribers, make sure you do your homework this week. Spend 20 minutes, apply one concept, one idea, pick one of the now 24 learning goals, apply it to a company that you think is interesting or that’s important in your own career and take a stab at it. Okay? And for the rest of you, if you haven’t signed up, you can go over to jeffthousen.com and sign up there with a free 30-day subscription and join the class. Have some fun. and I will talk to everybody next week.