Behavioral Debt

on October 3, 2016
Reading Time: 4 minutes

I’m fortunate to be a part of several circles here in Silicon Valley that get together frequently to discuss big ideas and engage in all kinds of technology related philosophical questions. I started sharing a concept with this group and was encouraged to flesh it out further. So I would like to introduce it to all of you for thoughts and feedback. Consider this one of those posts you need to have your thinking cap on. I’m calling this concept “Behavioral Debt” and it explains why a company’s customers don’t act or do the things they want them to.

The simplest way to understand this is with the popular saying, “You can’t teach an old dog new tricks.” I am attempting to put more understanding around this idea as it relates to the consumer tech landscape. I run into issues around behavioral debt regularly in my research on the consumer market. Companies want to know why their customers aren’t buying new products or services they offer while their old ones seem to be all their customers are interested in. In most cases, what we observe is simply entrenched behavior that is very difficult to evolve. Once a behavior is established, debt is built up around it. The longer that behavior remains entrenched, the larger the pile of behavioral debt. The larger the pile of behavioral debt, the more difficult it is for that customer to climb out from under it.

Let’s use a tangible example in Facebook. Facebook would like to move into a more transactions-based model for the buying and selling of goods on their platform. Here we may likely see the messy reality of behavioral debt rear its ugly head. Consumers have built up years of behavioral debt doing a few main things on Facebook. Consumers are likely content in this reality and, when they want to buy something, they go to Amazon or some other established online merchant. Facebook wants to offer them the chance to do this on Facebook so they don’t have to leave and spend time and money somewhere else. But “you can’t teach an old dog new tricks” and I have a feeling convincing consumers to do anything more than they do today will prove quite tricky for Facebook due to the many hours/years spent building up behavioral debt in how they use Facebook.

Similarly, Intel, Microsoft, and the PC makers would all like to sell more of the 2-in-1 PC concepts. These devices are not the cheapest machines on the market but they offer better margins. The problem is, 2-in-1 PCs sell at a fraction of the volume of notebooks. What Intel and Microsoft have not yet learned is there is a massive amount of behavioral debt built up around the PC form factor. People understand it, they are comfortable with it, and they have established workflows on it. Many of you have heard me say those who grew up with a PC have a bias for it. This bias is explained by behavioral debt.

This idea of behavioral debt also showed up recently in our mobile payments study. In markets like the UK, where consumers have been tapping to pay with their physical credit cards for years, many consumers (nearly 40%) said they have yet to embrace paying with their smartphones (which they acknowledge is safer and more convenient) because it is still easier to use their physical cards to tap and pay. Another 25% said they simply forget they can use their smartphone to pay instead of their credit card. This is a prime example of behavioral debt and showcases why changing an established and entrenched behavior is extremely difficult.

This is why we observe consumers in emerging markets or the Gen Z kids of today do things with their smartphones and tablets many of us can’t believe. We see them do things and think there is no way they can do them without a PC. The reason this “you can’t do real work on a tablet” phrase keeps erroneously showing up is because those who use it have a ton of behavioral debt around PC-based workflows. Those who do not have PC behavioral debt are free from those biases and are able to break what seems like new ground but is entirely natural to them.

This should also be recognized by startups trying to do something similar but better than what a popular service already does. We see startup after startup offering a feature, like a messaging app or a commerce store that proposes to be better than what hundreds of millions of people already use. More often than not, these fail because, when behavioral debt is built up, the person rarely wants better — they simply want familiar.

Getting customers to break free from behavioral debt is very hard. It also seems it is very rare given the case studies I’m finding and working through. In fact, it could be observed it is so rare when consumers fundamentally change a behavior that it should be considered quite profound. Doing so means an acknowledgment the new way is dramatically better and thus the behavior change is swift. This happens less frequently than we often believe in consumer markets. This one point, circling back to Facebook, is what makes something like Snapchat so interesting. Snapchat is on pace with Facebook in the number of videos played. The main difference being the vast majority of videos played on Facebook are not clicked on where in Snapchat they are. Facebook wants/needs videos to be successful but their users just want to get on Facebook, post a picture or share something, see some posts from others and move on. Getting video engagement has been a challenge for Facebook because of their users’ behavioral debt. But with Snapchat, video was the assumed experience from the beginning. Starting fresh means starting without behavioral debt. This is why, in my opinion, Facebook must continue down the road of acquiring a family of assets which encompass the needed consumer behavior. Buy Snapchat for video, Twitter for real-time news and global social communication, and whatever else springs up.