Signaling as a Service

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.

If membership isn’t scarce, the membership loses its signal message. The same applies to physical products: Apple will never offer a cheap iPhone to compete with low-end Android devices – it would destroy the company’s signal message that the iPhone is a luxury product.

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

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

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.

The app that comes closest to a luxury service that I can think of is Superhuman, which charges its users $30 a month for an email client (which you could also get for free by just using Gmail).

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.

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

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