Saas: Status as a service
I am Aarihant Aaryan! Welcome to the Iron sharpen Iron newsletter,
Every week I share my homework from my startup journey, learning about human behavior, and sometimes decoding industries and business models for fun.
I can’t control my curiosity :) )
Ps: Today’s article is inspired by a book I read, Elephant in the brain, and a few other articles I have read in the last couple of years. Mainly an article called status as a service by Julian digital - name, few picture credits to him :))
Many people in India quote Kunal shah saying - India is a status-driven country but only a few % of people have an understanding of what it is truly, today I double down on my favorite subject - “STATUS AND SIGNALING”
Today’s newsletter is going to be a mix of Evoluntary biology, human behavior, and Tech - LET’S GOOO!!
Humans fundamentally love to signal or seek status in some or the other form, few might disagree stating they are wealth seeking but wanting to signal and seek status is just human behavior - we are operating by them in some or the other level.
The car you drive, the watch you wear, the bag you carry, and many other aspects like these signal who you are.
The best way to communicate your financial status and attain or maintain social status without telling people who you are is by the things you own - well this is called Conspicuous consumption.
Let’s go deeper and look into a few things:
Education:
While we assume students go to college for education or to acquire skills - they go for certificates - it signals that are certified in some field, so the great recognition the certificate has, the more valuable your signal becomes - that’s why there is a huge difference between a certificate from your college and certificate from IIT.. the very fact there are grading system is to signal to the employer who is the best and who isn’t
students tend to perform when there are grading systems, they suck and times are changing anyways.
Marriages:
Most weddings in India are big fat weddings it is purely a signal play to hold some sort of status in society.
The motivation for signaling and status is extremely high and they are absolutely okay to get into debt.
Ps: An average Indian makes 128,000 per annum but ends up spending 20,00,000INR for a wedding.
Charity:
Charity isn’t really about improving the well-being of others, we in fact don’t really care much about the actual outcome of our donations, and most of the charitable behavior is driven by visibility (hardly any donations are anonymous, my friends who run fundraising platforms saw 5x hike in giving when they introduced mentioning donors name, picture and a leaderboard based on giving)
mating motives (donations are higher and more likely when observed by a member of the opposite sex). Charity is about appearing generous rather than actually doing good.
Govt job:
If we think from the signaling or social status lens - see how good a signal it is to say that you cracked an “X” govt job by competing with millions of people - It is a transparent game with a transparent score, which makes many more people participate.
Signal theory is not just limited to Humans:
Animals are also signal beings and have a social hierarchy, in fact, all their life is mating success and life is dependent on signaling
Lionesses are attracted to longer, darker manes - The darker the mane, the older the lion, and the greater his potential to be a good fighter and mate. Lions that have more mane, also tend to become the leader of the tribe. (Mane means lion hair)
When I learned this I was reminded of how marriage decisions happen for humans, owning a car and house is a great signal, that communicates you are well competent to take care of the bride - the chances of them succeeding is higher.
When peacocks are ready to mate, they fan out their iridescent tail feathers (known as trains) - they constantly signal that if they can burn so much energy to keep up with their beauty they could do much more for their partner.
The female eagle selects a male she likes the look of flying with. During this process, she'll pick a stick and drop it to see if the male can catch it. If he does, she'll continue to pick larger sticks and fly higher, dropping the stick for the male to catch each time - The male eagle needs to signal his flying capabilities before getting trusted by a female eagle.
Rhinos fight against each other and the winner gets to mate with one female rhino.
There is a lot to learn from evolutionary biology, once you start going in deeper - the chances of you understanding human behavior increase.
Components of signaling:
Assuming you understood what signalling means, let’s try to understand what are the type of signaling:
Signal
signal distribution
signal amplification
First one, Let me make things simple, assume you buy an expensive bag - that is a signal message that “ you own a bag worth $3000 and you are wealthy enough”
The second one, In order to get your signal message across to some people, you need some form of signal distribution - so what you do is you take your bag to places where people can see it. The obvious constraint here is that your signal distribution is limited to things you can display in public, that’s why people pay for shoes so much but not socks - that’s why in India people pay so much for living room furniture but not their bedroom or bathroom.
The third one, let’s say everyone owns the same LV bag, but how do you make sure you stand out - you will end up buying the flashiest bag or bags which are extremely limited
Ps: This LV bag is apparently $150,000 lol.
If we think, offline - real products are wonderful at signal messages but signal distribution becomes a problem.
Signaling in Tech:
Digital products have one crucial disadvantage over products and services, No one can see the apps on your phone except for you.
The reason Spotify premium doesn’t work well is that they can’t distribute the signal message to anyone but a concert ticket would work well because there is a signal message and a chance to distribute.
Probably the best way to solve the signal distribution problem is to add a physical product to a software’s premium offering, which allows signaling via casual contact probably a Spotify premium card.
Fintechs in India have cracked this well, companies like fampay, Jupiter did good work - fampay went to the next level and made customized cards.
In states, you get your fav cartoon or football team-based credit/ debit cards - it increases their probability to reach more customers, like those who don’t want their fav things to be on their debit card.
Status as a service:
Since signal distribution is weak in the offline world both digital products and real-world atoms-based products find it difficult to monetize -
The Internet has created a new kind of signaling utility: Distribution as a service.
Physical products are limited to the number of people you see in public – but the Internet allows you to reach a virtually infinite number of people at once.
This is the primary value that social networks like Facebook, Snapchat, and Instagram provide.
All they help you with is to distribute your message to as many people as possible in one go.
Want to increase the number of people knowing that you are traveling the world in business class, or share that you drink Starbucks every day, or share your new sneakers - just upload a picture on Instagram
Likes, comments, shares, and views define how successful your signal distribution was.
Social network success is directly correlated to the network effect it holds - This is why social networks are free to use – in order to maximize their signaling potential they need to acquire as many users as possible.
Monetising signal amplification:
Earlier, we defined signal amplification as product features that help users to increase the strength of the signals they want to convey to stand out from the crowd, the example we used was the $150,000 LV bag.
There are similar amplifiers there in the tech world, i.e Snapchat lens or camera makes you look cuter and unique which will get you more attention and visibility..
PUBG is a wonderful signal amplifier:
PUBG hit 8 billion dollars in revenue in 4 years - PUBG isn’t just a game, it is a place where friends used to hang out with each other and play - a digital theme park, a metaverse. They could talk, coordinate and play.
What changed things for PUBG was it was a competition, out of 100 random users only one could win - the only way to win was to kill the 99 - it was a proper transparent game with a transparent score.
It amplifies your signal that you are the best player among the pool of other players..
PUBG made money by selling multiple in-game items like skins, outfits, and emotes.
Shaadi . com leveraging signal amplification:
Shaadi . com is more like a social network/marketplace to find matches for marriage, there are freemium users for shaadi . com as well but doesn’t guarantee the probability for the user to stand out apart from their status rivals.
The sole purpose of features like membership is to outcompete status rivals by giving you preferential signaling treatment and people pay for it.
PUBG and shaadi . com - could monetize what we do solely on the one thing we all secretly care so much about Signaling.
If you have any thoughts share them in the comments :)
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