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  Sharpening the Competitive Edge.  User habits are a competitive advantage. Products that change customer routines are less susceptible to attacks from other companies.  Many entrepreneurs fall into the trap of building products that are only marginally better than existing solutions, hoping their innovation will be good enough to woo customers away from existing products. But when it comes to shaking consumers’ old habits, these naive entrepreneurs often find that better products don’t always win—especially if a large number of users have already adopted a competing product. A classic paper by John Gourville, a professor of marketing at Harvard Business School, stipulates that “many innovations fail because consumers irrationally overvalue the old while companies irrationally overvalue the new.” Gourville claims that for new entrants to stand a chance, they can’t just be better, they must be nine times better. Why such a high bar? Because old habits die hard and new pro...

  Providing Pricing Flexibility.  Renowned investor and Berkshire Hathaway CEO Warren Buffett once said, “You can determine the strength of a business over time by the amount of agony they go through in raising prices.” Buffett and his partner, Charlie Munger, realized that as customers form routines around a product, they come to depend upon it and become less sensitive to price. The duo have pointed to consumer psychology as the rationale behind their famed investments in companies like See’s Candies and Coca-Cola. Buffett and Munger understand that habits give companies greater flexibility to increase prices.  For example, in the free-to-play video game business, it is standard practice for game developers to delay asking users to pay money until they have played consistently and habitually. Once the compulsion to play is in place and the desire to progress in the game increases, converting users into paying customers is much easier. The real money lies in selling virt...

  The Habit Zone. When I run, I zone out. I don’t think about what my body is doing and my mind usually wanders elsewhere. I find it relaxing and refreshing, and run about three mornings each week. Recently, I needed to take an overseas client call during my usual morning run time. “No biggie,” I thought. “I can run in the evening instead.” However, the time shift created some peculiar behaviors that night. I left the house for my run at dusk and as I was about to pass a woman taking out her trash, she made eye contact and smiled. I politely saluted her with “Good morning!” and then caught my mistake: “I mean, good evening! Sorry!” I corrected myself, realizing I was about ten hours off. She furrowed her brow and cracked a nervous smile. Slightly embarrassed, I noted how my mind had been oblivious to the time of day. I chided myself not to do it again, but within a few minutes I passed another runner and again—as if possessed—I blurted out, “Good morning!” What was going on? Back h...

 A New Superpower.  Habit-forming technology is already here, and it is being used to mold our lives. The fact that we have greater access to the web through our various connected devices—smartphones and tablets, televisions, game consoles, and wearable technology—gives companies far greater ability to affect our behavior.  As companies combine their increased connectivity to consumers, with the ability to collect, mine, and process customer data at faster speeds, we are faced with a future where everything becomes potentially more habit forming. As famed Silicon Valley investor Paul Graham writes, “Unless the forms of technological progress that produced these things are subject to different laws than technological progress in general, the world will get more addictive in the next 40 years than it did in the last 40.” Chapter 6 explores this new reality and discusses the morality of manipulation.  Recently, a blog reader e-mailed me, “If it can’t be used for evil, i...

How I Got Hooked.  In 2008 I was among a team of Stanford MBAs starting a company backed by some of the brightest investors in Silicon Valley. Our mission was to build a platform for placing advertising into the booming world of online social games.  Notable companies were making hundreds of millions of dollars selling virtual cows on digital farms while advertisers were spending huge sums of money to influence people to buy whatever they were peddling. I admit I didn’t get it at first and found myself standing at the water’s edge wondering, “How do they do it?”  At the intersection of these two industries dependent on mind manipulation, I embarked upon a journey to learn how products change our actions and, at times, create compulsions. How did these companies engineer user behavior? What were the moral implications of building potentially addictive products? Most important, could the same forces that made these experiences so compelling also be used to build products to...

 FIRST TO MIND WINS. Companies that form strong user habits enjoy several benefits to their bottom line. These companies attach their product to internal triggers. As a result, users show up without any external prompting. Instead of relying on expensive marketing, habit-forming companies link their services to the users’ daily routines and emotions. A habit is at work when users feel a tad bored and instantly open Twitter. They feel a pang of loneliness and before rational thought occurs, they are scrolling through their Facebook feeds. A question comes to mind and before searching their brains, they query Google. The first-to-mind solution wins. In chapter 1 of this book, we explore the competitive advantages of habit-forming products. How do products create habits? The answer: They manufacture them. While fans of the television show Mad Men are familiar with how the ad industry once created consumer desire during Madison Avenue’s golden era, those days are long gone. A multiscre...