The experience economy

Before World War 2, the middle-class in the developed world struggled to afford basic needs. In the post-war boom, standards of living rose dramatically, and people consumed far beyond what they needed. It was the age of conspicuous consumption: a race to own bigger cars and houses, and accumulate more stuff. The mean income in the developed world became sufficient to provide for a comfortable life.

Today, people increasingly realize they own more than enough stuff, and don’t want to pay for feature-rich versions of that stuff. Four blades in your razors are enough. In the language of Clay Christensen’s disruptive innovation framework, the product economy overshot the mass market’s needs.

An economy of experiences is emerging in its place. Experiences make people happier than products (a fact that scientific studies support). The popularity of experiences like music concerts has skyrocketed compared to corresponding products like music recordings. Apple, the most valuable company in the world, maniacally focuses on product experiences, down to minute details like the experience of unboxing an iPhone. Customers want to know where their food and clothes come from, so they can understand the experiences surrounding them. The emphasis on experiences also helps explain other large trends like the migration to cities. Cities have always offered the trade-off of fewer goods and less space in exchange for better experiences.

The trend toward experiences is important for technology startups. The era of competing over technical specifications is over. Users want better experiences from devices, applications, websites, and the offline services they enable. It is no coincidence that interaction design is replacing technical prowess as the primary competency at startups. People who create great experiences will be the most valuable to startups, and startups that create great experiences will be the most valuable to users.

 

72 thoughts on “The experience economy

  1. Chenyu Z says:

    agree! I remember @Jenn_RTR:twitter ‘s insight from running wedding business at Startwoods was that ” people associate brands with experiences “. I feel that companies like RTR, HBloom focus a lot on user experience & quality and thus own the value chain. 

  2. Awesome post, Chris. I think people are going to start invest more in what heighten their life experience, especially in cities. Smarter cities are around the corner and even smarter startups are sure to be there to grasp the new opportunities!

  3. I sort of disagree with the last paragraph since you’re equating great technology to HCI.  To me the output, not the workflow, is a greater determiner of value.  After all, the output of these systems is the thing that I’ll incorporate into my real life decision making.

    For some users maybe HCI is THE determiner of value.  But I’d argue that’s not the primary use case of software or devices.  The primary use case is still to get some work done and live a separate non-connected life.  Just my opinion…

  4. I think that technical prowess is a necessary condition and we shouldn’t forget that. UX comes second. There are many examples for this, Amazon, Facebook, Google, Twitter, etc. are all companies with unique technical skills, without them they wouldn’t have survived, and people sustain their fragile UX.

  5. Guest says:

    I think…

    Buying and owning a product had been an experience before, now enjoying something is the experience. I mean it has always been about experience.

    When serious technical innovation is not possible or most profitable other things can become more important. For example if it is not possible to create a teleportation system we can sell better and better first class seats.

    http://steveblank.com/2012/05/21/why-facebook-is-killing-silicon-valley/

  6. I think the trend might even be spawned from backoffice side.

    The spreadsheet jockeys are being given some very slick UX design tools for forms that create apps automatically.

  7. The companies with the big ad budgets are still producing products for the age of feature-rich consumption (P&G, Kraft, L’Oreal, GM, Coke, etc).

    There are great experiences out there on the web because they haven’t been clogged up with ads yet. But someday they’ll have to monetize and it will mean taking money from people whose business model is to sell an ever-increasing quantity of consumer goods.

    My point if I have one is that we haven’t moved away from the consumption of goods, and that in fact these new experience-based products are largely dependent on the continued existence of that world, or at least the ad dollars they’re willing to pay.

    When experiences start to pay other experiences to advertise their experiences I can’t help but feel that I’m looking at a house of cards.

    Also, a link to probably the best article ever written about consumer products: http://www.theonion.com/articles/fuck-everything-were-doing-five-blades,11056/

  8. I think this shift is rooted in our move from spending most our free time watching TV, where we were passive subordinates to the content creators, to spending time on the plethora of sites (YouTube, twitter, fb), where we generate or at least curate content. We started taking a more active role in our “entertainment,” and saw how much fun it was. That in turn set the stage for people valuing experiences over passive consumption.

    I think the other reason this shift is occurring, is because it can. Technology has enabled more marketplaces like Etsy, Skillshare and Tumblr to exist where the creator and consumer are blurred. 

    In a product economy (not sure this is the exact antithesis of the experience economy), marketing was king. To a large extent it was slick advertising that proved the value of the product.

    In an experience economy, the value of the product is proved more through it’s actual use and the experience it enables users to achieve.

    So, in a sense, UX designers are the new mad men.

    I wrote a similar article on the experience economy last year:
    http://bit.ly/KMk4uv

  9. I agree… Interaction design is an increasingly sought after skillset, especially because amazing interaction design is difficult to find.  When you can use interaction design to solve really difficult problems, you’ve got something very valuable.

  10. GallowayHeather says:

    Interesting thoughts. Your comments about cities offering a trade-off of fewer goods and less space for better experiences made me think.  Cities usually provide a choice of at least more goods or types of goods and experiences than rural areas.

    What’s intriguing is: though many in today’s age may be turning away from conspicuous consumption (or at least feel there must be something else out there)…this manifests not just in people looking for a better user experience from their technology but beyond.  Many are demanding a slower life, slow food, less invasive (or at least less ‘push’) technology. A move away from cities, in fact.

    So with this movement away from conspicuous accumulation of things to conjuring and enjoy experience…it is not just how technology can enhance user experience but also how we can use technology to get back to a more seemingly technology-free or authentic experiences.  You buy tix online for a live performance.  I use technology to keep me in contact with clients, friends, and family so I can live in a rural area by the sea and enjoy  what is for me a richer experience.

    Seems to indicate to me that the startups that can provide better user experience baked into the technology are certainly promising.  The startups that can help users experience the world seemingly outside of technology are also important.

  11. David Beyer says:

    I’m not quite sure I follow. Whenever there is an economy selling goods, those goods entail experiences. Buying a pack of baseball cards 30 years ago certainly involved a thrilling experience (opening up the packaging, perusing the cards, etc.). Advertising in its relatively modern form has been about selling experiences. 

    Recently, digital services have focused on making the user want to use the product or service for longer, click on more links, read more paragraphs, etc. The best way to accomplish that is to get the speed, packaging, interaction, etc. down right. Yes, this is about “experience design,” but I think what we’re seeing is more the specialization of that function than the increasing importance of experience. Perhaps you’re alluding to the fact that people are consuming more digital services, which are designed around interactions (as opposed to concrete goods). 

    I don’t think there’s been any underlying shift away from people wanting to own stuff (unless you can prove that point outside of concert attendance).

  12. Great post Chris, this has been our thesis with Songkick. The internet can be used to help us spend less time online and more time experiencing art. There’s a strong latent desire to get offline to be tapped into – we find that the average Songkick user goes to twice as many concerts after they start using our service. Not because we change their underlying desire for more live music experiences, but because we make it so much easier.

  13. I can’t take it back that far but it’s easy to look at things from the 90s forward.

    We built companies/commerce online that were all about a click. All about thinking less about people and more as scientists about clicks. Less about experience and more about a slide towards a transaction in a shopping cart. 

    I agree with your conclusion mostly.

    Once data became real time and faces replaced clicks online, then conversations replaced measurements to some degree. At least from an end goal.

    UX is not everything and conversation as an end goal is not a goal in itself but both are key to most every value I find online today.

    Great post.

  14.  I think value is what wins the hearts of users. A great UX is what connects the user to the value in a frictionless way.

    All sizzle no steak is jut sizzle.

  15. Completely agree. I wonder if a corollary of this theory is that we are about to enter an age (or have already) of tech commoditization. Is the technical co-founder an endangered species or just undergoing an evolution?  

  16. agreed. there is also the issue that owning stuff costs more and lots of folks don’t have the money to buy, so they do more renting which tends to be more conducive to being an experience-oriented purchase. one example is how home ownership levels in the US are the lowest in years: 
    http://money.cnn.com/2011/08/05/real_estate/home_ownership/index.htm

    i don’t think this is a function of a desire to not own a home, rather not having money to do so. but as renting homes becomes more common, landlords/real estate groups may increasingly compete on the dimension of experiences. 

  17. Very valid points. I think as we begin to really engage with the big challenges, Fuel Security, Climate Change, Pollution etc, we will start seeing more and more people putting weight on “experiencing” life locally. 

    So the tree house in my garden. The egg my chicken laid, the recipe my grandmother wrote down. Whether or not ‘tech’ has a great role to play here is mute. However it seems to me that technological experience will more and more become about complementing “normal everyday experience” rather than providing brave new “alternative realities”.

    If this is the case look for growth and concomitant growth of values where you see trust emerge naturally,  in families, small communities and SME / personalised business models.

  18. Martin Thomas says:

    Rather than giving gifts, my wife and I would rather put the money towards some sort of experience/vacation/etc..   So I agree – experience > goods!

    I’m not associated with these guys in any way, but Everlane.com is an ecommerce store that has really impressed me with their online experience.  I like the way these guys are doing things…

  19. You may be seriously underestimating the importance of status with the 99% – the desire to “look” like the 1% even though you aren’t there.  For example, people who lease a luxury car that they clearly can’t afford, people who purchased bigger homes than they could afford, etc.  Even Apple – as much as I agree with you on their entire drive for an ideal experience – is a status play to a large degree.  The bottom line is that emotion forms a large portion of people’s purchases, and credit has made it easier for people to purchase things than before WWII (frankly, before the 60′s) when everything was purchased for cash.  If we still had to purchase with cash vs. credit, we would see a much different economy (and purchase habits) than we do today.

  20. warpaul says:

    I’ve always tried to live by the mantra, “stuff is short-lived, but experiences endure.” Now I can better justify my reasons for doing so. Thanks, Chris.

  21. I agree that status purchases are still important to a lot of people (although I don’t think this is what drive Apple buyers – the products are simply great).

  22. I don’t think tech cofounders will be commoditized any time soon, but they are no longer the primary differentiator in many areas of internet, apps etc.

  23. POINT IS BEFORE, GREAT EXPERIENCE HAPPEN BY ACCIDENT.

    ADD BETTER TECH = BETTER EXPERIENCE.

    NOW ADD BETTER TECH = COST MORE, SAME OR WORSE EXPERIENCE

    INSTEAD OF COUNT ON EXPERIENCE IMPROVE BY ACCIDENT, NOW MUST DO ON PURPOSE.

  24. ADS CREATE IMAGINARY EXPERIENCE POWERFUL ENOUGH NO ONE NOTICE IT NOT HAPPEN AFTER BUY.

    UNTIL THEM STOPPED WORKING. 

    NOW REAL EXPERIENCE REQUIRED.

  25. CAR WITH GREAT ENGINE AND HORRIBLE SEAT, STEERING WHEEL IS CAR THAT FAIL. 

    CAR WITH GREAT SEAT, STEERING WHEEL, LOUSY ENGINE, CAN STILL BE MODERATE SUCCESS.

    MAYBE THAT GIVE HINT TO WHAT MORE IMPORTANT TO NORMAL HUMAN.

  26. anuragg says:

    Great post Chris. Interestingly, your point is closely related to one of Seth Godin’s main tenets in ‘All Marketers are Liars’ — that in a post-consumption economy, people buy what they *want*, not what they need. And making people want a product is all about crafting the right experience, both in the product and in how it’s marketed.

  27. Shrinking in places but it will reach equilibrium before it collapses.

    YouTube and Twitter are essentially ad-supported free content, as are most online magazines and newspapers. Different versions but the core model is the same. So it’s shrinking in places but growing in others.

    Where there’s an audience you’ll be able to make money selling ads. And “it’s free!” gives you a bigger audience because people are bad at calculating hidden costs.

  28. Have to disagree about the four razor thing.  Five blades are a definite improvement for those with thicker beards.  Otherwise, solid observations.

  29. Cezary Pietrzak says:

    I agree with Chris’ point that the experience design is becoming a driving force of new tech startups.

    One way to think about an experience is through the perspective of a story. A great product tells a great story from start to finish. How it came to be, what philosophy drives its existence, and how it lives these values every day. It tells stories at every point of interaction, from the initial onboarding process, to core product features, to each individual marketing channel. It’s very clear about WHY it’s doing what it’s doing, and the ultimate BENEFIT to users, because that follows a strong storyline. And if it every falls off track (think Airbnb), it knows how to move back to its narrative.

    While most people subconsciously think about the experience when creating a product, they either aren’t able to articulate a great story, or simply don’t pay attention to the details. Little things make a big difference, as Apple has shown us time an again, and they’ll only be more important as the startup space gets saturated. Kudos to companies like Skillshare, Kickstarter, Fab and Uber who all tell great stories as they build great businesses.

  30. WinkieBoy says:

    We are confusing “disruptive innovation” with “disruptive experience”.

    For example, Twitter’s core technology was invented in 1985. The human to human(s) communication experience has been around for millions of years and has been a disruptive experience since day one. Twitter’s first concept / design was developed in 2006 and it has been very successful by taking an existing experience, brief –140 character – human to human communication and making it global, simple and
    reliable.

    We are also confusing “disruptive innovation’ and “free based products or services”.

    There are way too many VCs and entrepreneurs claiming that the only way to create and execute a “disruptive innovation” is through a free service or product. First, the only disruptive free base service or product I know is the air – and we don’t know for how long it will be free. Second, free ad based products and services are not free. You pay with your time viewing or reading advertisement and/or giving up your privacy and user generated content.

  31. HAVE NOTHING TO DO WITH AUDIENCE.

    INFINITE SUPPLY MEAN EVENTUAL COST PER AD MUST BECOME ZERO.

    FACT AD WORTH ANYTHING TODAY IS ONLY INERTIA SLOWING FALL TO NOTHING.

  32. BestJohnD says:

    People buy stories and experiences. Advertising rarely focuses on the qualities of the product as much as the life you could be living should you buy it.
    We say products are “aspirational”, and suggest a life we can purchase -  in that context why would tech specs matter? As long as consumers have the prospect of escapism, they’ll choose that over dry functionality every time.

  33. shankarb says:

    Makes me think ! Powerful persuasive logic. What about basic needs of developing countries…or is this true for only developed world ?

  34. lifecelebration says:

    Do yourselves a favor and read the book The Experience Economy by Joe Pine and Jim Gilmore. Here you will find what Chris Dixon speaks to written almost 13 years ago. It’s great stuff!

  35. i’m in total agreement with you. as is the west coast. however, i don’t think most NYC entrepreneurs are there yet. 

    without fail, anytime i’m in a room of entrepreneurs in nyc i overhear comments that devalue the role of experience design. the worst and most frequent offense is when people recruit what they call “designers,” they list the technical specifications that person should have. a designer and a front end developer are two different people with complementary yet divergent skill sets. few seem to get that. then they wonder why user’s land on their homepage and have no clue what to click on, so then opt for the close button.

    however, when in the bay area, simply mentioning that i’m a ux designer can incite a mob of people looking for, and appreciative of, good designers and respect for what they bring to the table. 

    i believe that, due to the bay area’s more mature market, they’ve seen the perils of a band of engineers trying to make something people want — and then fail — and realize that 1s and 0s mean little if they don’t add up to a well crafted experience.

    it will probably take a similar amount of time for nyc startup scene to get the memo. which is sad, because this is the city where all the design talent lives, if you know where to look.

  36. Preston Pesek says:

    Excellent piece.  My tastes have evolved to seek better experiences more than the ownership (and storage/maintenance) of things.  Two examples:

    1. Airbnb. I would rather allocate dollars toward having a variety of unique and cool experiences staying at Airbnb properties, rather than have the awful experience of owning and administering a second vacation home, which the former economy considers an asset. 

    2. Task Rabbit – I would pay for someone to fetch me an ingredient from Fairway Market, which is one of the worst experiences of living in NYC. 

    There is tremendous value not only in having good experiences, but also avoiding bad ones, and lots of money is being made in this new economy. Very insightful, thanks Chris.

  37. Preston Pesek says:

    Price point is also a factor in perceived status.  Apple, being among the more expensive personal computers automatically places it in a position of a status item regardless of whether or not the product is superior (which Apple also happens to be for the most part).  A more appropriate example is Prada.  Their shoe leather wears out & looks like crap in no time.

  38. GM and Ford started losing the American consumer because of their outdated and ugly dashboards in the 1970s and 1980s; decisions driven by bean counters and so called marketing experts telling consumers that Peoria was the center of the universe. Europeans and their Asian copycats simply made for a better visual and tactile experience.  You can point to lots of innovations in retailing that were better experiences over the past 100 years that won out.  It’s all about touching the consumer; a 2-way experience.   If you think about the last 30 years in tech you can generalize that the competition in networks and computers gave rise to personalization and individual expression of the 1990s (remember the PC and stylized skins for Nokia phones?).  The advent of broadband was the great coming together of the 2000s where people could begin to express themselves and understand from other people’s perspectives how they were being touched.  Mobile just turbocharged that process.  Nobody wants Peoria; they want Paris.  Nobody wants white bread; they want croissants.  And they will let people know about their experience.  Back to networks (my favorite subject); the company that can provide the better voice and video user experience will win out. Remember the “pin drop” or “can you hear my now?” campaigns.  I hate, hate, hate and absolutely abhor cable TV menus!  She who comes up with that better experience wins my loyalty. 

  39. Reddy_s says:

    “The trend toward experiences is important for technology startups. The era of competing over technical specifications is over. Users want better experiences from devices, applications, websites, and the offline services they enable. ”  Excellent takeaway  ………..

  40. Way to burn your backend devs! Joking, but agree with what you’re seeing. Backend devs are much more concerned with apis then they were 10 years ago.

    On the flip side of UI, I’ve used terrible interfaces for years if the product has other essential benefits (visual studio’s debugger is one example).

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