When Two and Two Come Together: Personalization in Business Models

At the Dartmouth Entrepreneurs Forum on April 1, 2016, dozens of students, aspiring entrepreneurs and interested individuals attended informative workshops and sought out the advice of esteemed speakers. Among the speakers were Amanda Reed, a general partner at Palomar Ventures, and Alex Tonelli, current CEO of Vocate. Speakers detailed general entrepreneur principles, stating that a successful entrepreneur radiates a selling ethos and that the entrepreneur’s main motive for work should be passion.

Keynote speaker Langley Steinert, the co-founder of TripAdvisor and founder and CEO of CarGurus, gave an interesting piece of advice to entrepreneurs about their mission and product. According to Steinert, what matters is not whether an entrepreneur can raise money and build a profitable, growing business, but rather if the entrepreneur is able to solve an individual consumer’s problem with the offered product or service.

Inherently, businesses offer products or services that attempt to solve consumer problems. Some businesses offer products that are reductive, providing the consumer convenience, while others are more empowering, they allow the consumer to be able to do more than what they are capable of alone. And to generalize, there are really a myriad of ways the consumer-business interaction takes places and the consumer’s motive for remaining in that interaction is is generally dictated by the way in which the business can solve his or her problem. To generalize, consumers face essentially an unlimited number of problems that are resolved by seeking products or services. On the flip side, businesses attempt to meet the demands of a certain group of targetable consumers as efficiently as possible.

What Steinert is putting an emphasis on, however, is not the fact that businesses exist to offer solutions to consumers. Rather, Steinert urges intelligent product architecture that allows entrepreneurs to solve an individual’s problem. In today’s society, the paradigm of an average consumer with a representative set of problems and needs does not exist. Each individual is different in that they have their own unique set of problems. And even when taken to a further level of distinction, among individuals with similar problems, the best solutions to their problems may be distinguished for each individual by things such as personal preference and adaptability. Essentially, what Steinert is arguing is that in order for a business to be successful, it must offer a high level of personalization in its products or services.

When we dissect Steinert’s emphasis on personalization in product design, it is apparent that in principle, the benefits of personalization are quite clear. At a very base level, when a business provides a level of personalization in their product or service offerings, it provides a more wholesome, satisfactory customer experience than if it had not. The clear benefit here is the establishment of customer loyalty, consequently decreasing customer attrition. Through a cascading effect, personalization is a company’s tool in differentiating itself from competitors, obtaining a more defensible business model and increasing business performance.

Although the theory proves appealing, it is interesting to see uses of personalization in practice, and how it has affected the relevant business. An example of a business that has successful adopted this model is Pandora Internet Radio (commonly known as Pandora), a music streaming and automated music recommendation service. When Pandora was conceived in 2000, the initial vision for Pandora involved creating individualized radio stations that only contained music that the user enjoyed based on his or her patterns of musical preferences. Thus, from the very beginning, Pandora had attempted to incorporate a level of personalization in its product. An article by Henry Truc, an experienced financial writer and editor of equities.com, shows the lengths to which Pandora goes to create a personalized experience for users. Truc states that “what Pandora does better than anyone else is collecting and utilizing data” and that the number of ways in which this is done, most notably a simple system of giving a “thumbs up” to preferable songs and artists. This is a key driver of what lends to Pandora being able to boast that “it knows its users’ music preferences better than anybody else”. Pandora has reached tremendous success since its conception, boasting $1.8 billion in revenue in 2014 with more than 250 million users worldwide. And it’s hard not to attribute Pandora’s success to the way in which its personalized product is able to completely trounce terrestrial internet radio (radio that is constituted by stations which play their own selection of music) and curate content for its users.

During his talk at the Entrepreneurs Forum, Steinert himself describes how his personal venture at TripAdvisor, a travel website company now dedicated to providing reviews of travel-related content, nearly faced bankruptcy because he did not buy into the importance of this concept. In its early stages, TripAdvisor was a content search engine. During this time, Steinert found himself at a point where growth had halted and only four months’ worth of cash for operating expenses remained. Steinert took great strides in attempting to make changes before realizing that he had the wrong product and the wrong idea for how TripAdvisor could serve the customer. Upon moving from the content search engine it was before to the input based, user behavior-tracking tool that it is now, Steinert and TripAdvisor have reached tremendous success. As Steinert put it, showing the most popular hotel in Boston for you versus showing the most popular hotel in Boston on TripAdvisor has made the difference.

When organizational processes and customer offerings are constructed with the needs of the individual customer in mind, the business and consumer are co-creating a mutually valuable outcome. In the case of Steinert’s TripAdvisor and the nearly ubiquitous Pandora Radio, customers receive a rewarding experience that should, if correctly catered and executed, solve their problem. As a result, the business is able to generate revenue, establish customer loyalty and orient itself to retain both as a positive feedback loop for long-term success. Thus, personalization should be considered as a key component of product architecture and a driver of business value.