Representativeness Bias in the Tech Industry

In business school Dick Thaler taught us about the representativeness bias, which could be crudely stated as the bias of over-weighting everything you're familiar with when making judgments, estimates and guesses about stuff. Dr. Thaler convinced me in class that we all fall prey to this bias far more often and with a greater deepness of error than we imagine, even after the bias has been explained to us.

Dick Thaler taught us about representativeness bias

For people in the tech industry, the representativeness bias can lead to (1) an over-estimation of the penetration of a product or service, either in awareness or usage, and, on the flip side, (2) an under-estimation of potential market sizes. As someone in the tech industry, you are a techie and you know lots of techies. Hence when all the techies you know start using a website, say Twitter, you overestimate how much people use Twitter or even know about Twitter. On the flip side, you underestimate how much Twitter has at stake to win by capturing the uncaptured market, or how badly some other service could thrash Twitter by grabbing the uncaptured market.

less of a big deal than people say
(though I wish them luck)

To stick with Twitter for a moment: how many people use Twitter? About a million. If they were all in America (which they aren't), they would number 1 American out of every 300. Hey, that doesn't sound like very much! How much of the remaining 299 out of 300 Americans do you think have heard of Twitter? Hint: *much* less than half! In other words, no one knows about this service, given that it's supposed to be something that any old person with a phone and friends can enjoy. Now, I like Twitter. But this is a service that is supposed to be as neat and as of general interest, as, say Facebook, which has 80 million users. If you needlessly chop a huge portion off that number to be "conservative," you have a potential market for a Twitter-like service of 50 million people. So, in user accounts, Twitter has penetrated 2% of its potential market. Basically, it's sucking big time. You'd be inclined to ask yourself if it's designed wrong, marketed wrong, or environmental factors are against it. Some conclusions: (1) Twitter is overhyped; (2) the idea of trying to build a better Twitter is undervalued. Now I don't mean to pick on Twitter exclusively. It's true for any site you like, to varying degrees. You can even say it about Facebook. Facebook's membership -- again even if you inflate it by counting everyone as an American -- compromises about a quarter of the country. That's a heck of a lot of people. But it's also outnumbered 3 to 1 by the non-Facebook users. For a site whose goal (according to me) is to be entertaining enough to compete with sitting around and watching television, it's a massive but still quite incomplete advance.

With a relentless focus on the mass market, Jobs avoids the representativeness bias of techiedom and can think big, score big

A great example to the contrary is the iPhone. As you may recall, Steve Jobs made some pretty bold sales forecasts for the iPhone before it was launched. If iPhone had been viewed in terms of the "smartphone" market, Jobs would have seemed crazy. But he was thinking correctly. You could say that the smartphone market was like Twitter - cool, but nowhere near the size it was supposed to be. He wanted to go for the real market, which was more of a Facebook type size (to continue the analogy). Of course, don't go saying that "everyone" knows about the iPhone now! ;-)

This logic inspired my foray into Linkspank. A tech insider may think of the competitive arena for link sharing, social news, or whatever you want to call it, as saturated. But the reality is quite the opposite. One of the biggest sites in this area - Digg - has only a few million users. Compared to the size of the market -- for really any person you likes YouTube, reads news on the web, or gets or receives email forwards is a potential user of such a site -- Digg is a little sniveling baby.

It IS true that the small minority of people who use Twitter, for example, may be different from the other 97-99% of Americans in some meaningful way... but I'll leave that point alone at this time.

Here's another, slightly more fun example. You know those "viral videos" on YouTube and elsewhere that "everyone" has seen? The all-time most viewed video on YouTube, the Evolution of Dance:



It has been viewed about 90 million times, which is say about 90 million people. By comparison, an estimated 140 million people view some part of the Super Bowl each year. So, while it's impressive, it still falls a bit behind the Superbowl Halftime Show (estimating, since that's not what the previous figure refers to). And that is the number 1 video - the number of views drops off VERY quickly as we go down the list. Still in the top ten is the "laughing baby video, which has a mere 50 million views:



It's pretty funny, and a lot of people have watched it, but unless you live on a special techie-only planet, you know more people who HAVEN'T seen this video than you know who HAVE seen it. Fewer than 1 in 6 Americans has seen it (once again, with my grotesque the-world-is-America math).

People like to talk about the magic of a technology that has enabled 50 million people (if views = people) to watch something filmed casually in someone's kitchen. And it is magical, I agree. But looking at the numbers closely turns the viral video concept a little bit on its head. Our popular notion is that something catches fire on the web and then "everyone" sees it. But the reality is that sharing is still rather inefficient, and it's more right in many respects to think that "no one has seen anything." :-)

Linkspank addresses this problem in a few ways: it lets you share more videos and links with your friends, without inconveniencing them (since they can manage their Inbox and email settings). You can also see which of your friends have already received a spank. So rather than being a part of the problem, be a part of the solution (haha): join the spank and spank this page to your friends, so they can read this nifty article... and catch up on the Evolution of Dance and the Laughing Baby.

Viral Videos

Last spring, I had the opportunity to study Linkspank Marketing with my Marketing Communications classmates. We did a thorough study of marketing tactics for Linkspank. We came to many interesting conclusions. One conclusion was obvious and yet still striking: it was that viral videos are far and away the most effective way of reaching people online. People know this, yet we were still amazed, in the financial model, just how superior is successful viral video is compared to any other form of advertising, marketing or other expense to get peoples attention

Our experience in creating Linkspank TV made it relatively simple to create a viral video. We already had a team in place to create videos and to create video content. Bur TV show is different strategically from the viral videos. Our TV show is intended primarily for current users of our site. For this reason it makes sense that our television show would be more mainstream, less risky than our viral video, which in turn would be more offensive and more risk taking. Why? Because on one hand, for our television show we have dedicated viewers that we want to keep and make happy. On the other hand, our viral videos have to cut through a lot of noise out there and reach people who are not yet spankers but who should be spankers.

Viral videos appear to have indicated that the main way to cut through the clutter is to be so offensive that you stand out. Or probably “outrageous” is a better word, because viral videos don’t seem to have to be NSFW. To act on this opinion, a viral video is going to play a key role in our public launch this month. We have created a video that we will be sending to our users and and asking them to forward to their friends.

Viral videos are hard to make "stick" or make successful. But I don't think the failure rate is the real deterrent to companies - it's the cost of failure. A weird or outrageous video will alienate some viewers, maybe even many viewers.

Here I think it is key to have a strategy, if you have a strategy that is your guide to determine what you do and even what detail of what you do. I think a lack of strategy is why more companies don't create videos – they don’t know where to start. Do we make a funny video? What should do your video be about? Who should it reach or impress? The world is much more open probably, in that of conservative traditional advertisement. Linkspank, on the other hand is a young startup with a crazy name. We don't mind being weird and we might not mind even being defensive at least sometimes and it wrong as we are too offensive. For our company, this represents a big opportunity. One reason companies have trouble creating viral videos is because they are constrained in a way that we are not or at least should not have to be. That constraint is that big companies are reluctant to do weird or offensive things – while viral videos are actually usually maybe almost as a rule weird and offensive at least to some people.

In my opinion (and this has been my opinion for a long time) it is much more important to win over a small number of users—rather than simply not to alienate the larger audience. It is true that our site has special appeal to a great audience and I would like to be able to serve that large audience. But in this early stage it is important to target and win over early adopters, who will appreciate unusual messages more.

This might lead you to ask, as Linkspank grows, will its communications and brand become more mainstream? I think the answer is yes, to a degree. It is important to evolve to accommodate growth, but is also important to maintain our own identity. Part of my personal agenda is that I would like to create a vibrant large community but that I do not want to grow the community beyond its natural size. I think many successful websites have been pressured to do this to keep growing, and while they have proven that it is possible, I still would contend that it is not necessarily good business. But I shouldn’t be getting ahead of myself – it’s still time to make crazy YouTube videos.