CHAPTER SIX

Better Ramp Up Your Virtual Relationships (Because That’s What Your Customers Are Doing)

Chapter Overview

Your customers don’t just shop online. They exist online. The dot-com world is where they dream, where they talk, and where they get information. It’s a very functional world. They learn about products, and they pounce on those products. They extract information about technical performance characteristics. They read the views of other users. They read the complaints. No one falls in love online. But be warned: people can fall out of love. Online assassinations can annihilate your brand.

So you need to be there—forcefully, actively, proudly, and with great care.

Just having a website or an app is not enough. You have to ensure that your brand really lives online. On the face of it, the task is a beguilingly easy one. Who can’t write a short blog? Who can’t jot down a series of insightful messages in 140 characters?

In reality, however, the task of building an emotional connection with your customers in a digital environment is hard. But, as we’ll see in this chapter, some companies have figured out the secret.

Headline: The Digital World Is Real, Not Virtual

By 2016, some 3 billion people—almost half the world’s population—will be connected to the Internet. According to BCG estimates, the Internet economy in the richest 20 countries, the G-20, will be worth $4.2 trillion. It’s still the fastest-growing channel of the consumer economy.¹

The Internet has become an integral part of your customers’ lives. In a survey of American consumers conducted by BCG in 2012, 83 percent said that they would give up fast food for a year rather than lose their Internet connection. Other lifestyle habits that some consumers were willing to forgo for one year rather than give up the Internet included alcohol (73 percent of consumers), coffee (69 percent), and even sex (21 percent).²

Why do they rate the Internet so highly? It’s about immediate gratification. It’s about the rapid conversion to purchase. It’s about today. Tomorrow’s too late. Some companies get this. Most don’t. But everyone should. In almost every category, 20 to 40 percent of the volume is up for grabs.

You need to understand these new economics. Specifically, you need to understand what it takes to deliver precise value-added pricing, excellent service and reliability, and an unlimited inventory. You need to experiment, experiment, experiment—and learn deeply and completely with every experiment. In the digital world, you must test every day, everywhere. If you stand still, you’re going backward.

In this chapter, we tell the stories of two companies. We start with Amazon, the start-up that has become the world’s biggest online retailer. Originally a bookstore, it is now, as Brad Stone, a senior writer with Bloomberg Businessweek, explained—drawing on the words of its founder, Jeff Bezos—an “everything store.”³ Its success has come from putting the customer front and center in everything it does—and never ceasing to do this.

We also tell the story of a newcomer that has shot to prominence without serving a long apprenticeship. At the start of 2008, there was no Airbnb, the online private lodgings business. Today, it’s valued as a $13 billion business.⁴ It is among the 25 most-beloved emerging brands in BCG’s Consumer Sentiment Index.⁵ It has struck a chord with customers. It has forged powerful emotional connections by addressing some significant unmet customer needs. It has found ways to alleviate some pain points in its customers’ lives.

Time will tell whether Airbnb can build an empire the way Amazon has done. Aggression, an expansionist approach, and a disregard for short-term profitability and the demands of Wall Street are the characteristics that have helped Jeff Bezos lead Amazon to unimagined success.

Amazon.com

Cadabra, a shortened version of the magical incantation abracadabra, was, according to the Wall Street Journal, the name that Jeff Bezos initially wanted to give his Seattle-based start-up after he left a secure job at a New York hedge fund in 1994.⁶ It hinted at the seemingly impossible task that he had set for himself: to deliver any book to the customer’s door at the click of a button on a computer. In the end, he decided on Amazon, after the world’s longest river, because cadabra sounded too much like cadaver.

But the company’s purpose didn’t change. Bezos knew that there was a huge demand for online shopping. Just before leaving New York, he calculated that Internet usage had increased by 230,000 percent in the space of one year. The challenge was to solve the practical problem of sourcing the books and shipping them to customers in a timely fashion. For the Princeton graduate, whose expertise was in computer science and electrical engineering, this was a problem he thought he could solve.

History tells us that Bezos was right. Amazon is the world’s largest retailer, generating revenues of $74 billion in 2013. It topped $90 million in 2014. No longer just a bookstore, it is the “everything store”; but more than this, it is the most beloved e-commerce brand on the planet. According to our research, it attracted more than six times as many “favorite” votes as its nearest competitor, eBay.⁷

But two decades ago, this popularity was not a foregone conclusion. When Amazon.com was launched on July 16, 1995, proclaiming itself “Earth’s Biggest Bookstore,” there was no one who predicted that Bezos would be named Time’s Person of the Year by the end of the decade.⁸

Bezos brought to the venture overwhelming ambition and a determination to achieve with persistence and aggression. Another success factor was a commitment to both innovation and trial-and-error experimentation. Above all, Bezos had a narrow focus on the consumer—delivering what he wanted and how he wanted it, and then making sure that he was happy with his purchases.

Headline: Be Ambitious and Aggressive in Pursuit of Your Goals, and Treat Every Day Like Day One

When Bezos launched his company, he was operating out of his garage, so the label “Earth’s Biggest Bookstore” was clearly a statement of his ambition. For some, it was laughable. “I just met the world’s biggest snake-oil salesman,” said one bookseller after bumping into Bezos at a publishers’ event in the mid-1990s.⁹

But Bezos has proved the skeptics wrong. He has never lost his ambition, even when Amazon did become the world’s biggest bookstore. Every year, he has added new product lines to his shelves. Today, on Amazon, you can get movies, computers, TVs, toys, apparel, jewelry, sports gear, air conditioners, cars and motorbikes, cosmetics, and even fresh food.

More than this, Bezos has branched out far beyond retailing. With the Kindle, which he launched in 2007, Amazon became a rival to Apple as a digital-device manufacturer. With Amazon’s powerful data-storage capability, it became a rival to IBM in cloud computing. It can count the secretive Central Intelligence Agency among its customers. There are some who think that the Big Data business and cloud technology could become Amazon’s mainstay in the years ahead.¹⁰

More recently, he has started to encroach on the world of Hollywood. Amazon has a video-streaming service and has started to commission its own content, just like Netflix, its rival in this market. In January 2015, Amazon was awarded two Golden Globe Awards for Transparent, its series about a transgender father.¹¹ Soon after this, it unveiled plans to acquire, produce, and release dozens of films each year. It has signed up Woody Allen to develop a comedy series for its video-streaming service.¹²

Such relentless expansion has been possible because Bezos has fostered an unusually competitive culture. Ex-Amazonians talk of the company’s confrontational, almost gladiatorial, atmosphere.¹³ One of Bezos’s foundational principles is, “Have a Backbone: Disagree and Commit.”¹⁴

According to this principle, Bezos says, “Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.”¹⁵

As we saw in Chapter Five, Bezos bought Zappos, which was winning a name for itself in the online shoe business. Then he bought Quidsi, another online retailer specializing in diapers and other mother-and-baby products. Quidsi is Latin for “what if?” But Bezos didn’t wait to find out whether Quidsi would become another Amazon, expanding beyond its original product line. He went eyeball to eyeball with Walmart, which had put in an offer for Quidsi. As Brad Stone reported in The Everything Store, Bezos warned the founders that he would reduce Amazon’s pricing of baby products to zero if they signed with Walmart. This would have inflicted a mortal blow on Quidsi, so they didn’t dare call his bluff. With steely conviction, he won the day.¹⁶

Headline: Constantly Experiment, Constantly Innovate, and Accept That Some Failures Will Happen

Bezos does things differently. He has always defied convention. When he started Amazon, he quickly discovered that online retail is a Darwinian petri dish—it’s cheap to experiment and you can see results fast.

In an early experiment that was controversial, he began allowing customers to post their own book reviews—good or bad. As Bezos recalled: “I started receiving letters from well-meaning folks, saying that perhaps you don’t understand your business. You make money when you sell things. Why are you allowing negative reviews on your website? But our point of view is [that] we sell things if we help people make purchasing decisions.”¹⁷

As we’ve seen, Bezos is no respecter of reputation or title. He says that the “decentralized distribution of invention throughout the company—not limited to the company’s senior leaders—is the only way to get robust, high-throughput innovation.”¹⁸

Some innovations are hidden from plain view. They are mechanical. They deal with the infrastructure of the business. And they are arguably the most significant innovations. For instance, at the heart of Amazon’s success are its fulfillment centers. These make it possible for the company to commit to next-day delivery. “Nineteen years ago, I drove the Amazon packages to the post office every evening in the back of my Chevy Blazer. My vision extended so far that I dreamed that we might one day get a forklift,” Bezos told shareowners in 2014. “Fast-forward to today, and we have 96 fulfillment centers and are on our seventh generation of fulfillment center design.”¹⁹

These are large, industrial warehouses with up to 1 million square feet of space. Workers are said to fast-walk as much as 11 miles on a shift. They abide by the “just-in-time” and “continuous improvement” rules of kaizen. There are critics. According to the New Yorker: “Accounts from inside the centers describe the work of picking, boxing, and shipping books and dog food and beard trimmers as a high-tech version of the dehumanized factory floor satirized in Chaplin’s Modern Times.”²⁰

Bezos sings the praises of his operations team. They are “methodical and ingenious.” And they are committed to more innovation. In 2013, Amazon rolled out 280 major software improvements across the fulfillment center network. “Our goal is to continue to iterate and improve on the design, layout, technology, and operations in these buildings, ensuring that each new facility we build is better than the last,” said Bezos.²¹

Amid all this success, there have been inevitable setbacks. For instance, the Fire smartphone has suffered some bleak sales figures. Amazon was required to take a $170 million charge on production costs and unsold inventory in 2014. It also had to cut the phone’s price from $199 to 99 cents.²²

Headline: Don’t Just Be Customer-Centric, Be Customer-Obsessed

Bezos talks of having a “customer-obsessed culture.”²³ He resists the pleas of Wall Street, which complains about his apparently “profits-last” strategy. He plows most of Amazon’s profits back into the business for the benefit of current and future customers.

When he launched Amazon, Bezos personally answered customer e-mails. Customer service, he said, was “the cornerstone of Amazon.com.” By 1999, he had a team of 500 people answering e-mails. Customers can personally write to [email protected]. He reads many of these and forwards complaints to the relevant executives, asking for an explanation and a solution. These forwarded e-mails, known as escalations inside Amazon, keep executives focused on the customer. As a senior executive once said: “Every anecdote from a customer matters. We research each of them because they tell us something about our processes. It’s an audit that is done for us by our customers. We treat them as precious sources of information.”²⁴

But if Amazon takes note of what its customers say, it really takes note of what they do. Often, people say one thing and do another. It’s human nature. Amazon understands this. It therefore makes sure that it truly understands what customers really want. It has built one of the world’s great data-storage capabilities so that it can capture and compute every click a customer makes. Then, when the data are subjected to deep analysis, it can tell a thousand stories about what really moves customers.

In many ways, Amazon is a cold, calculating, hyperrational organization. But with the information from its Big Data systems, it has managed to forge an emotional connection with customers so that it has become the world’s second-most-beloved brand, after Apple. In particular, it has wooed its most powerful advocates. As Bezos told shareowners: “Amazonians around the world are polishing products and services to a degree that is beyond what’s expected or required, taking the long view, reinventing normal, and getting customers to say ‘Wow.’”²⁵

The classic product for these customers is Prime. Fundamentally, this is “all-you-can-eat, two-day shipping for a flat annual fee.” But since its launch in 2005, Prime has expanded to include other benefits, such as Prime Instant Video, its video-streaming service.

The reason Amazon has chosen to focus on these special customers is simple. As our research shows, they are worth much more than casual customers. On average, an apostle customer spends $2,873 per year on Amazon.com. These customers typically make eight recommendations, mostly through word-of-mouth advocacy (60 percent), gifts (16 percent), and social media sites (13 percent). We have conservatively estimated the expenditures of a convert at $867. This means that an average apostle is worth at least 2.3 times her actual spending on Amazon.com.²⁶

What customers love about Amazon.com is its convenience. This is the number one factor driving people to the site. Other factors are “trust,” suggesting that it is a reliable service, and “good value for the money.” One of the customers we interviewed is Julia. She grew up in a small Mississippi town, got married as a teen, and had two children with her first husband. Now she lives in an even smaller, more remote town. With a population of 1,500, it has few retail options. She has to drive 15 minutes to get to the nearest Walmart. And Dillard’s, the nearest department store, is in Hattiesburg, a 30-minute drive away.²⁷

About five years ago, Julia discovered Amazon.com. A friend told her about it. Today it is her largest single retail provider. She buys shoes, shirts, pants, home goods, kitchen appliances, tools, office supplies, and even an item as obscure as a marine-quality music player from it. “Every month, I spend at least $100,” she tells us. “My partner jokes, ‘What kind of a relationship do you have with that UPS man? He pulls up almost every day I go to work.’ But I tell him the driver is just bringing me my Amazon delivery.”

For Julia, Amazon is “convenient,” “easy,” “dependable,” “good value,” and “geared to my timeline.” She says, “I shop when I want to, not when the ‘store is open.’ Amazon is always open. I go online and comparison shop. They have very good prices and very broad variety. It makes me happy.”

For her holiday shopping list, Amazon will get the lion’s share of her purchases, including gifts for her mother, children, stepdaughter, partner, and friends. “There’s something for everyone, and I don’t have to fight the mall traffic or waste my time. When I order from Amazon, I know it will be here when they say it will be—or earlier.”

Julia does explore other websites. But time and time again, she returns to Amazon. “It’s my go-to source,” she said. “I look at the other sites, but Amazon is generally the cheapest, offering the broadest assortment.”

Headline: The Lessons of Amazon

Ever since Bezos launched Amazon.com, he has stressed the importance of price. Early on, he offered discounts of 10 to 30 percent. No one could match his prices. Also, he has stressed selection and inventory. Amazon offers almost any book—new or old. In the first year, he arranged for mobile billboards to appear near Barnes & Noble stores, emblazoned with, “Can’t find that book you wanted?” and promoting Amazon’s website address.²⁸

To keep this commitment to prices and inventory, Bezos has needed to stay firm on costs. One of his principles is frugality: “We try not to spend money on things that don’t matter to customers.”²⁹

Ultimately, Amazon is a utility. It provides exceptional value and service. It gives the upper middle classes comprehensive access to products. It has benefited for years from an exceptional cost benefit in the form of no sales tax; however, this advantage is slowly eroding as Amazon adds facilities in various states and as state legislatures require tax collection. The company operates on razor-thin margins. As a result, it has gained an enormous share of the market in many categories of goods. This, in turn, has meant that it has enjoyed an immediate potential improvement in profits and cash flow. It competes against focused competitors with a deeper offering and competitive delivery charges.

Will Amazon attain $200 billion in revenues? Will it learn to translate ubiquity and habit into enduring emotional connections with its consumers?

Time will tell.

Airbnb

On New Year’s Eve 2009, 2,000 guests and hosts were using Airbnb. Five years later, 550,000 rang in the New Year on Airbnb, staying in 20,000 cities in nearly 200 countries around the world.³⁰ This online community marketplace, where users can rent private homes or list their own home for use as a place to stay for a short period, is one of a handful of digital companies that broke through the $10 billion valuation barrier in 2014. The others were Uber and Snapchat—which, along with Airbnb, appear in BCG’s list of the world’s top 25 most-beloved emerging brands—and Dropbox, SpaceX, and Xiaomi.³¹ All of them have come, seemingly, from nowhere. They have grown fast. Their founders have struck it rich in record time.

Brian Chesky, Airbnb’s chief executive, was in his mid-twenties when he and his roommate, Joe Gebbia, cooked up the idea of renting out air beds in their apartment in San Francisco to cover the rent. The city was hosting an industrial design conference, and many of the hotels were full. So the two of them hastily constructed the website Airbed & Breakfast, offering an air bed and a hot breakfast for $80 per night.³² Three people booked, including a 38-year-old from Razorfish, a digital marketing agency, and an industrial designer who was “even older.” As Gebbia, now Airbnb’s chief product officer, told Fast Company: “They broke every assumption we ever made about who would stay on an air bed at a stranger’s house.”³³

As Chesky recalls, people thought the idea of renting to strangers was a “weird thing, a crazy idea.”³⁴ But there were two people who thought it was brilliant: Justin Kan and Michael Seibel, cofounders of Twitch, the video-gaming community that has since been sold to Amazon for $1 billion. They introduced Chesky to the movers and shakers in Silicon Valley. The result was an investment by Y Combinator, the incubator that financed Twitch and Dropbox. Then Sequoia Capital invested $600,000. This was a big boost to Airbnb—and turned heads. Founded by Don Valentine, who is sometimes dubbed the grandfather of Silicon Valley, Sequoia was an early investor in Apple, Google, and YouTube.³⁵

Airbnb searched for other major events to promote the service, including the Democratic National Convention in Denver, Barack Obama’s inauguration in Washington, DC, and the London Olympics. These spurred growth, and further rounds of investment followed as Airbnb attracted more bookings: 100,000 in 2009, 750,000 in 2010, and more than 2 million in 2011. When Airbnb raised almost $500 million in April 2014 from TPG, T. Rowe Price, and Dragoneer Investment Group, it took its total investment to around $800 million.³⁶ This accelerated growth makes one ask why Airbnb is so successful. It is not, after all, the only company to offer private lodgings online. Others preceded it, including HomeAway and Vacation Rentals By Owner, which is now part of HomeAway.

The answer lies in Airbnb’s ability to drive real business-model innovation. It did this by tackling both the value proposition and the operating model at the same time. First, Chesky and his colleagues attacked two distinct and unmet emotional customer needs, improving the value proposition of the lodging business. Second, they developed new operating models to facilitate the delivery of the technical and functional features that could satisfy those needs.

Headline: Offer Your Customers Unique and Authentic Experiences, and Make Things Easy for Them

Airbnb has come a long way since 2008. Then, the only creature comfort was an air bed on the kitchen floor in San Francisco. Now, customers can choose from more than 1 million properties. Thus, Airbnb is bigger than either Marriott or InterContinental Hotels. Its top cities are Madrid, New York, London, Chicago, Brooklyn, Washington, DC, Amsterdam, Paris, Boston, and Vienna. Affordability remains a significant part of the portfolio. More than 50 percent of the rooms on the Airbnb website are priced at less than $100 per night. But there is a growing list of luxury properties, too. For instance, there is a Las Vegas penthouse for $1,900 per night. Alternatively, you can choose an eighteenth-century hilltop villa in Umbria for $1,669 per night. Or how about a six-bedroom farmhouse set in 1,000 acres in Brazil for $3,778 per night?³⁷

What Airbnb has worked out is that customers are looking for unique and authentic experiences. Many of them are tired of the generic experience provided by the big chain hotels. Consumers from the millennial generation especially praise Airbnb. They like the social experience, the affordability, and the unpredictability. Also, as Chesky told the New York Times, they are naturally inclined to borrow, rent, or share. “I think now, for the younger generation, ownership is viewed as a burden. Young people will only want to own what they want responsibility for. And a lot of people my age don’t want responsibility for a car and a house and to have a lot of stuff everywhere.”³⁸

But older consumers are taking to Airbnb, too. Right from the first time they rented air beds, Chesky and Gebbia were taken aback by the enthusiasm of older travelers. We spoke to one seasoned traveler named Britt, a 57-year-old logistics professional from Nashville, Tennessee. He lives with his wife and daughter, and they have a household income of $150,000.³⁹

“I only heard about Airbnb a few months ago, and I’ve already stayed four times,” he told us. One of these stays was in a beautiful loft in Quebec. “It turned out to be on the main street you want to be on,” he recalled. “It was about $100 a night, and the hotel I had booked was by the airport for $250 a night.”

The experience has transformed his vacations. “I stay at a lot of hotels, and they are always right next to the airport. Half the time it’s a Sheraton, half the time it’s a Hilton, and half the time [when] I get there, I don’t even know which one I’m at—they’re so generic.”

Airbnb’s secret has been to figure out what some customers really want and give it to them. Too often, customers struggle with the basics when looking for private lodgings. Finding desirable properties is the first problem. Completing rudimentary tasks that they take for granted when they stay at the big chain hotels, such as reserving a room or checking in and out, is another problem. Then there is the question of trust. Can you, as a customer, trust the people you’re renting from? Can you, as a host, trust the people you’re inviting into your home?

Airbnb has addressed these pain points. It is for this reason that it has been hailed as the pioneer of the “share economy,” which Forbes magazine estimated was generating revenues of $3.5 billion in January 2013 and growing at more than 25 percent per year.⁴⁰ If you go to Airbnb’s website, it is easy to find and book a property. Payments are facilitated by Airbnb, which gives reassurance to both customers and hosts. Now, hosts can also approve bookings via the mobile app, which speeds up the transactions during booking and checking out. Other features include a $1 million insurance policy and a 24/7 customer-service hotline. (These were hastily introduced after an episode dubbed ransackgate, when a guest trashed a host’s apartment in 2011, generating unfavorable publicity.⁴¹)

Perhaps most important, Airbnb has fostered a two-way conversation between hosts and guests. There are bios of participants. Identities can be verified through Facebook and other social media. No one is anonymous. And everyone can converse online. The thousands of user-generated reviews that exist are widely trusted by the Airbnb community.

Two people that Airbnb brought together are Dom, a casting director from Paris, and Peter, an automated-engineering technologist from Ontario. In 2012, Dom decided to list his plush two-bedroom apartment on Airbnb. He charges $186 per night for a minimum stay of three nights. It’s situated in Le Marais, literally “the marsh,” in the fourth arrondissement, a sought-after neighborhood on the right bank of the Seine. On Airbnb’s website, you can see Dom’s photo, his wonderful apartment, and some personal details. He was educated at the Lycée Charlemagne, one of the top high schools, before entering the movie business. He welcomes browsers with, “Hey, I’m Dom!”⁴²

Dom has attracted 70 reviews. The reviewers have verified identities. Peter is one of these. He lives with his wife in Fergus, Ontario, Canada. He says his daughters are “the heart of my life.” He has a verified e-mail address, phone number, LinkedIn profile, and driver’s license. In January 2015, after his stay at Dom’s apartment, he wrote: “Dom was a very helpful host throughout our stay in Paris. He gave us excellent directions to get to his apartment and inquired as to our comfort. The flat was perfectly situated for lots of different adventures in Paris. It is in a little courtyard slightly off the beaten path. Wonderful restaurants and shops right in his backyard! It was about a five-minute walk to Notre Dame and a charming bookshop, Shakespeare and Company. It was only about 15 minutes to the Louvre. However, everything was so easily accessible from the metro just minutes away. The apartment was equipped with everything we needed for the stay. Although paint was peeling from the ceiling, the eclectic vibe was charming. We had a very comfortable and enjoyable stay!”⁴³

Often, virtual relationships become real relationships that endure long after an Airbnb stay. As Wired magazine reported: “We are entering a new era of Internet-enabled intimacy.”⁴⁴ Our research has found that in many cases, hosts actually offer their properties for less than the market price just to make sure they maximize the number of personal connections they make. As Lori, a 58-year-old retired professional from Bethesda, Maryland, told us: “I live in a four-bedroom house with a 21-year-old son who is not there. I have the space. It didn’t have anything to do with the money.” She had become a host after enjoying a stay with Airbnb. “I came back and I thought, ‘Wow, that was really cool!’ I met all these wonderful people, and I had a fabulous time—I’ll sign up to be a host.”⁴⁵

But for many hosts, the money is an important incentive. More than 50 percent of them depend on it to pay their rent or their mortgage, just as Chesky and Gebbia did when they started out. This is, of course, part of Airbnb’s value proposition: “Airbnb is the easiest way for people to monetize their extra space and showcase it to an audience of millions.”⁴⁶

For this service, Airbnb has devised a new operating model that seems to satisfy everyone—the hosts, the customers, and the company. This is how it works. For a three-night stay at a property in Chicago charging $100 per night, the customer would pay $100 plus a $12 service charge per night—a total of $336 for the entire stay. Of this, the host would keep $291—the $100 per night charge minus a $3 service charge per night. Airbnb would receive $45: $12 each night from the customer and $3 each night from the host.

As the New Year celebrations got under way at the start of 2015, Airbnb could reflect on the fact that millions of people had used its services since 2008. As of this writing, some 25 million travelers had stayed at an Airbnb accommodation. In a short space of time, it has become trusted, beloved—and profitable.

Headline: Help Your Customers Dream, and Then Fulfill Their Dreams

There is a pathway to every purchase, whether it’s a chocolate bar, a gold watch, or a brand-new SUV. In the hospitality business, there’s a very structured pathway. There are four distinct phases: dream, plan, book, and share. We’ve done some detailed analysis on how much time aspirant travelers spend on each of these phases.

We found that the dream phase is the most time-intensive. For a typical four-day stay, a customer will spend more than 42 hours on the logistics. Of this, some 18 hours will be spent on the dream phase. This is not expended in one single chunk of time. Customers may spend several weeks on the dream phase—and with the growth of mobile, they can dream anywhere and everywhere. Think of all the people thumbing their smartphones in the grocery store checkout line or while sitting at a restaurant eating lunch. Almost certainly, their minds are elsewhere.⁴⁷

Airbnb understood this behavior. The company realized that travelers love to dream. People love to imagine themselves in different places, different countries, far away from their everyday experience. For our research, we spoke to lots of customers. One told us: “I just fantasize, compare, think about where I am going to stay, and I just get lost.” Another said, “It is part of the pleasure … getting lost online and looking at all of the possibilities. It’s an obsession. I have a travel porn addiction.”⁴⁸

To help customers dream, Airbnb has created a beautiful mobile app that has great design and photography. Of course, other hotel groups have an online presence intended to tempt prospective customers, but this is an area where Airbnb has overinvested. Chesky and Gebbia know a thing or two about design. They met while studying at the Rhode Island School of Design, one of the top art academies in the United States.

Where other hotel groups have one graphic designer, Airbnb has dozens. Where others have a few photographers—or, worse, instruct local general managers to take a picture on their smartphone—it has thousands of professional snappers around the world on staff or on retainer. Airbnb effectively changed the operating model, diverting resources to create a new activity that is hard for traditional hoteliers to replicate.

So when a new host signs up, a photographer is dispatched to take a photograph that is dreamworthy. Once a customer falls in love, the emotional connection is made, and the move to the “book” phase becomes an inevitability.

The success with which Airbnb has managed to help customers dream has prompted Chesky to go beyond the company’s original purpose of helping customers find a place to stay. Now, he wants to participate in the “entire trip” of the $6 trillion global travel industry. As he told Fast Company: “People went to Dell for the computers. But they go to Apple for everything. That’s the difference between a transactional company and a transformational one.”⁴⁹

Airbnb wants to be a transformational company. Chesky, like his customers, is building his own dreams. But for these to be realized, he must continue to fulfill the dreams of others.

*****

One Conclusion

Amazon and Airbnb come from two different eras of the digital age. However, they are both about speed, power in the hands of the consumer, and convenience. There is a common lesson: you have to move quickly or you’ll be left behind. Be the first to identify an unmet consumer need. Be the first to attack it aggressively with every digital weapon at your disposal.

Your customers are online, and they are quick learners. They flit from one new digital product to another. Amazon has been masterful in the way it has jumped from books to general retail to cloud computing and now to Hollywood-style video production. Airbnb has deftly moved from air beds to castles, all the while responding to the customer’s demand for a system that can truly be trusted. According to Thomas Friedman, the New York Times columnist: “That was Airbnb’s real innovation—a platform of ‘trust’—where everyone could not only see everyone else’s identity but also rate them as good, bad, or indifferent hosts or guests.”⁵⁰

If you are a nascent company, then Amazon and Airbnb provide textbook case studies on how to disrupt your competitors. If you are a traditional company, with little digital heritage, then they show you what you are up against and what you need to do to counter them.

You have to create trust. There should be no distinction between your online and offline reputation. Above all, you have to make digital a priority. You have to overinvest in digital technology. Don’t marginalize it. Too often, we have seen that the digital business is the responsibility of the marketing or IT division. But when that happens, it gets starved of cash and blocked by politics. If you’re the CEO, you need to make it your business. Have the digital officer report directly to you.

Three Takeaways

1. Digital is here to stay and part of the core. It’s not some nice-to-have option. It’s real, not virtual. An app or a website won’t get you to where you need to be. You must fully embrace the digital age. You must change the way you do business. Appoint a chief digital officer. Make her one of your top eight executives. Invite her to every important discussion about the future of the business. If you bury digital, it will bury you.

2. Digital is real. It’s also magical. At last, you can deliver your customer’s wildest dreams: next-day delivery of an out-of-print book, or an affordable apartment near the Eiffel Tower in Paris. Use digital technology to stay close to your customers and anticipate their unmet needs. Then use it to satisfy those needs.

3. Digital is relentless. You can’t coast. You can’t take it easy. There’s always something new. There’s always a new competitor. So treat every day as if it’s your first. Be as energetic and enthusiastic as you were at the beginning, when you started your company or your job.