Jean-Charles Samuelian-Werve
Co-founder & CEO @ Alan
16 févr 2021Jean-Charles' Newsletters

JCNews #58 - The Art of the Bundle

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Like every week in the JCNews, you’ll find my latest and most interesting readings, including a must-read!

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JCNews #58 - Cover

💡The weekly must-read

👉 Shishir Mehrotra - The Art and Science of the Bundle (Colossus)

The bundle is one of the most powerful ideas in business.

Super-fan, casual-fan, non-fan is a way to describe three audiences for each product. So super-fans hold two characteristics. Number one, they would pay retail for the product. They think that’s a fair price. And number two, they have the activation energy to go find it. Casual-fans lack one of those two criteria (they might not pay that retail price). And non-fans ascribe either zero or sometimes negative value to a product.

Casual-fan businesses sit in the middle. They are businesses that provide access to their products to a variety of users, some of whom are super-fans and some of whom are not. And those tend to be subscription businesses.

What Spotify offered was a way to pay for all the music you might want to listen to, even if you’re going to get access to some things that you might not have gone out and bought individually. It allowed for every consumer to all of a sudden get access to goods that they were a casual-fan of.

Defining super-fans for your industry is super interesting. In healthcare you have many use cases (and we see Alan Baby as a way to get in contact with our super-fans). Casual fans are the whole population in healthcare, as “everybody” has needs.

For providers, I give them access to casual-fans and for consumers, I give them access to products they might be casual-fans of. A very large portion of what people spend time consuming are things that they value, but they would not have met that super-fan test for.

The myth is revenue from bundles should be allocated based on usage. (...) We started using the term marginal churn contribution (MCC): “if I were to remove this one product from the bundle, what percentage of my audience would churn”. The reason why ESPN is paid 20 times more than History Channel is if you were to pull ESPN from the bundle, 20 times as many people would churn as if you were to remove History Channel. You can formulaically arrive at what a fair price would be. What we call wholesale prices. This is how much you pay out to each provider. And it is correlated mostly to this term: the MCC.

What is the MCC of your services?

What is health insurance? Is the bundle between sick and healthy people. At sort of a level, if you think about usage versus anchor value, health insurance is the perfect example. The reason health insurance works is the cost for the super-fan is ridiculously exorbitantly high. People need to contribute, even though they’re not using it, or the whole system doesn’t work.

We have a more ambitious vision about it. It is not about just the cost. It is about the very different personas you have depending on the primary condition (pregnancy, mental health, parenting, sport-addict, menopause, diabete…)

For a consumer to properly value a bundle, there must be a transparent and reasonable à la carte price for every product in the bundle.

So now you go back to that consumer and say, great. You’re paying $50 a month for Comcast, what would you like to pay for? Well, I guess I’d like to pay for ESPN. Great, you can pay $50 for ESPN. Now, all of a sudden cable looks like an amazing deal.

Now you pay $50 for ESPN and I get 299 other channels for free? This is a really good deal. But because we don’t have transparency on each of these components, where it lands is that people think they’re getting ripped off.

People’s ability to understand a bundle starts from their ability to understand the components of the bundle.

How can you show you are a super good deal?

And the myth is the best bundles are narrow and have very similar products so that they make sense to consumers. But the thesis is that the best bundle is one that minimizes super-fan overlap and maximizes casual-fan overlap.

The incentive of the bundler is to minimize super-fan overlap. The key is, you want to be building a product that minimizes the cases where I’m paying twice for the same person. I want to pay as close as possible to the marginal churn contribution of this product inside this bundle.

You want to keep increasing the scope of your bundle in particular into new areas of super-fans.

Reed Hastings made a choice very early on, and is very public about it. “I’m not moving price. People saw it as a consumer forward message. It was $8 a month for a very, very long time. You build a product and then you add to that product and you increase the price as your value to your base increases.“

So what did Netflix do by holding price constant, they forced themselves to think about their own path to growth was subscriber growth And what that meant was every incentive of the business was creating more subscribers.

When people say I am going to raise prices, generally that’s a sign that you’ve run out of ways to think about the next frontier of super-fans and casual-fans for your business.

Amazon prime has done that. Didn’t raise prices for years and years and years and managed to add so much value to that bundle. Then they add music and they add books and they add all different things to it. And the thing I think that is not easy to see about that is what they were really doing was expanding the base.

When you start seeing a subscription service increase prices, people look at it as a willingness to pay indicator. I look at as I’ve saturated my ability to continue growing my base. It’s not a positive indicator as the ability to continue expanding at the same price.

Do you need to keep your price constant for a long time and be just focused on growing the business?

How to both feed their core as well as grow their next audience. The Spotify student bundle was one of the most fun ones to work on. Because I think most people’s perception was that it was a discounting program. In that process, what we were doing by giving the original version was Spotify plus Hulu for $5 a month for students. That was an immensely profitable effort for both companies. The super-fan overlap between those two products in the student space was quite small. The number of students who paid for both parts is very small. So everybody who signed up and a lot of people signed up for this combined product, everyone who signed up was new ti thus offering.

What’s a similar play for you? A good question to be asked.

The ability to do bundles is much simpler. You can pass back referral code, you can do OAuth to be able to get people to sign into multiple things.

An eigenquestion is find the most discriminating question and answer that question first. And you can think about if I have 10 questions, for which question if I answered it first, would it answer the other nine questions?

I love it :)

🏯 Building a company

In addition to selected articles, I share one of Alan's leadership principles every week - the same one that I share internally and with our investors every Wednesday.

👉 At Alan, we don’t need everyone to be convinced of our decision (Healthy Business)

  • The person who's responsible for the work decides how to do it (he/she is the owner). Alaners do owe an explanation for the reasons of their decisions. Decisions should be understood by the team executing them. But we absolutely do not have to convince everyone in the company.
  • The team gets to provide input, and the owner will acknowledge and move forward. The acknowledgement can be as short as one sentence: "thanks to all who commented".
  • The owner does not need to answer every comment and we should not expect our ideas to be considered in the eventual decision.

👉An excellent guide on how to write well (First Round)

  • Modeling and stressing the importance of effective writing throughout your organization can meaningfully improve business execution and outcomes on a broader scale.
  1. Use short, simple words. Particularly in business communications, simpler is better. The Gunning Fog Index measures the readability of your text by counting words-per-sentence and syllables-per-word. (...) A search-and-destroy mission for business jargon is a fine place to start. Why “divest” when you can “sell”? Why pursue “business objectives” when “goals” can get you to that promised place?
  2. Let your verbs do the work. Effective writing leans heavily on verbs and less so on adjectives and adverbs. (...) In Professor Spengemann’s class, we were not allowed to use the verb “to be” (is, am, are, was, were) — ever. (...) I regularly swap out lightweight volleys such as “Last month was a difficult one,” for sniper-like direct hits like, “Business tanked last month.”
  3. Eliminate unnecessary words. Turf the egregious filler words: very, rather, little, indeed, somewhat, really, kind of. These nutrition-free calories of the mind either cushion your weakly-held beliefs or lamely pretend to quantify something you’ve failed to quantify. (...) As a general rule, if you can’t identify what part of speech a word is, best not to use it. (...) Words fight for your reader’s scarce attention. Thus every unnecessary word detracts from the important ones. (...) Two simple tactics can train you to eliminate unnecessary ideas. First, knowing that humans excel at reading no more than absolutely necessary, consider which parts of your prose your reader will skip. Then delete them. Second, walk away from your writing. Time permitting, do something else. When you return to your words, you’ll have taken a small step away from your bias as the writer,
  4. Use simple verb tenses.
  5. Avoid the passive tense. For those unfamiliar, the active tense implies that the noun at the beginning of your sentence is doing the doing.
  6. Structure matters. The Paragraph: The first sentence should summarize the entire paragraph. The remaining sentences should support the first. (...) The Essay: The first paragraph in the essay should summarize the entire work. And each subsequent paragraph should defend the first, rather than digress to some fanciful and marginally related sub-plot.
  7. Get to the point. It’s better when you just say the damn thing right up front. Your reader can take it — and will in fact appreciate your directness.
  8. Break all the rules. Ultimately, writing has one rule to rule them all — empathy for the reader.

👉Skateboard, Bike, Car: how to build a product (Andrew Wilkinson)

  • We shut up and build stuff, get feedback, and iterate until both our team and the client love it
  • Predicting the future is hard.
  • Every company needs some degree of long-term strategy, and there are people who are very good at it, but I think there’s a strong case to be made for rapid iteration over planning in most cases.

🗞In the news


👉Tobi Lütke (Founder & CEO, Shopify) about being a platform (Masters of Scale)

  • What we did to get the platform off the ground is to basically leave all the economics for Shopify on the table and give it to the third-party app developers. It just started out – and to this day, is an incredibly valuable platform to build on for other people. And we built a lot of the technology which is underlying it in 2009. ... And we’ve only cleared that in 2018. So it takes a long time.
  • Eric Schmidt: Another failure that I’ve seen many many times at Google and elsewhere, is people decide that the platform is what they’re building, rather than a solution. There are no cases where a platform emerged that was highly successful before it had a use case that solved a new problem that was important. But you don’t write a business proposal saying, “I want to build a platform.” You write a business proposal saying, “I want to solve the following problem in a new way, which will result in a platform.”

🏥 Healthcare

👉Why is it so important to speak with simple words in the world of healthcare? (The Atlantic)

  • Give people simple, honest, accessible information about their health and the health-care system.
  • We mostly do outreach physically on the ground with people, answering their questions. I started a video series called “Dr. Lisa on the Street,” focused on engaging people in conversations to connect them with health information.
  • These services exist; they just don’t exist for poor people.
  • The misinformation I’m hearing that concerns me the most right now is around this messenger RNA. For instance, I ask people, “Do you know what an antibody is? When we say ‘antibodies will protect you,’ do you know what that means?” Many do not. And those are very common terms used in the media. Even the word immunity: “Do you know what it means to be immune from something?” And they don’t know. ... Well, instead of using the word antibody, I tell people I encounter that the body is naturally able to mount a defense to a foreign invader.

💚 Alan

👉How to decide what to focus on as a startup founder (Sifted), where I discuss some of our Leadership Principles (asynchronous work, no-meeting policy). Click here to subscribe!

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