Signaling as a Service

Digital products have one crucial disadvantage over atom-based products and services: Intangibility. Apps live on your phone or computer. No one can see them except for you.

A positive feedback loop of views, likes and comments helps you to quantify how successful your signal distribution has been.

I believe that this is the main reason why consumer software companies have a harder time monetizing than their physical counterparts.

The financially most lucrative strategy for software companies is to provide distribution for free and instead monetize users who want to stand out of the crowd with paid signal amplification.

You would think that going to school is about learning and acquiring skills, but then why do students pay tens of thousands of dollars for Ivy League schools when all of the learning material is effectively available online for free? Why do we use grading systems when we know that students learn worse when being graded? The answer, again, is signal... See more

Signaling does not only explain luxury purchases but also consumption of all sorts of other goods: “Green products” are more about signaling a prosocial attitude than actually helping the environment. Other consumption signals include loyalty to a specific subculture (e.g. band t-shirts), athleticism & health consciousness (athleisure clothing) or ... See more

Here’s another example: eBooks have never caught up with paper books despite being more convenient.

But there’s a difference to other software products: Superhuman has signal distribution built in. Every time you send an email via Superhuman, your recipient will notice a little “Sent via Superhuman” in your signature.

While Path did indeed fail as a distribution provider, I would argue that keeping the network’s size small can still have benefits in line with my signaling theory: Deliberately limiting the number of people who can join a network (e.g. by charging a membership fee) creates scarcity which in turns makes the network more interesting. Network members... See more

Another point of evidence is the lack of luxury software products. People spend absurd amounts of money on jewellery, handbags and cars, but I can’t think of a piece of software with an even remotely similar price tag. Sure, people have tried to sell $999 apps but those never took off.