User Engagement is Product Management

Nir Eyal, serial entrepreneur and author of Hooked: How to Build Habit Forming Products, shares how habit formation can replace expensive ads and spammy marketing tactics, whether hooks can replace solutions to pain points, how Facebook gets users hooked, and the truth behind Facebook’s acquisition of Instagram.

Here are the highlights:

• Can you build a habit-forming product without solving a pain point? (3:15)
• How can product managers test and measure habit formation? (6:26)
• What does it take to steal a competitor’s users habits? (11:29)
• What are the key metrics and KPIs for user engagement? (16:14)

And here's the transcript:

Mike Fishbein: I'm your host, Mike Fishbein. This is Product Management, a podcast produced by Alpha UX. Welcome to our third episode, airing from our headquarters in New York City. In this episode I'll be interviewing Nir Eyal, the author of Hooked: How to Build Habit-Forming Products. Listen on to find out how habit formation can replace expensive ads and other spammy market tactics. Hey Nir, why are habits so important to product managers?

Nir Eyal: Yeah, habits are these behaviors that occur with little or no conscious thought. It's about half of what we do, every day, day in and day out. It's done from these impulses that we're not consciously aware of these habits, but it turns out a large degree of what we do every day is driven by these unconscious impulses, and it turns out that companies can create a tremendous amount of value for their customers, as well as economic value by building in habits, into their product design, so that user's no longer require expensive marketing. They don't require spammy emails, and messages, that they're prompted to use the product on their own. They're self prompted to use the product by forming these habits with the product.

Mike Fishbein: User engagement is product management. I'll candidly admit, I didn't know any of that. Before going further, who in the world is Nir Eyal I wondered, and how did he learn all of this?

Nir Eyal: I started a couple tech companies. And the last one was at the intersection of gaming and advertising. The intersection of these two industries, which frankly are dependent on mind control, advertisers don't spend all that money for their health, they spend that money because it changes user behavior to get people to buy the things they want them to buy. And then the gaming industry, man, is very dependent on changing user behavior to draw people down this path, this design path, during a game experience. So, at the intersection of those two industries, I had this vantage point to see a lot of experiments, to see companies and products come and go, and I could start picking up on what were the patterns behind why some products became so engaging, and could sustain user interest, while others never picked up steam, could never get anybody to care.

After my last company was acquired, I started doing a lot of research into the why behind these techniques. What I found was, in the industry a lot of people use these techniques, they use the deeper psychology of why people do it, they didn't know why these techniques worked. There wasn't names for them. They couldn't identify why these things worked, they just did it because they're competitor did it, or because that's the way they'd done it before. I didn't find any guidebook on how to build habit-forming products, so that's the book I wanted to write. I wanted to write a product managers guide to building habit forming products.

Mike Fishbein: This seems to contradict a lot of what we know about user behavior and product management. We're taught to identify problems, and experiment with solutions. Now, it seems Nir is telling us all we need to do is get our customers hooked and we can just build anything.

Nir Eyal: I don't think you can form a habit without a pain point. The first step of this model that I outline in my book, this model is called the hook. All these habit forming products have these hooks built into the design of the product. The hook has these four basic steps, and what the hook is actually, let me back up. What the hook is, it is experience designed to connect the user's problem to the company's solution, with enough frequency to form a habit. It's all about connecting problems and solutions, and I'm a big believer in the Lean Startup Methodology, but here's the problem. I bought into Lean Startup and Customer Development, hook, line, and sinker. At my last company we lived and breathed Lean Startup Methodologies, but here's where I constantly got stuck. The most expensive part of the Lean Startup Methodology, as proposed by Eric Ries and Steve Blank, this loop of build, measure, learn. The most expensive part is the building phase. Building is where the blood, sweat, and tears, and money all go. The measuring and learning, that's fun. That's easy in comparison.

It's the building that's hard. And so what I propose, is a new methodology of framework, based on the things that user's can't necessarily articulate. Remember, customer development and lean startup is terrific for figuring what customer's want, that they can tell you they want. What I propose it to look deeper than what they can tell you they want, because there's a lot of behaviors that user's will do, that they are unable to articulate. I propose looking to consumer psychology to understand some of these drivers of human behavior. Why? So, that we can build the right thing sooner. At my last company, we would have all these ideas for what we should build, and deciding what we should build was guesswork. Should we build what the loudest customer tells us to build, should we build what the investors says we should build? Should we build what the CEO says we should build? What do we build? What I want to give is a framework, based in consumer psychology, that helps us build the right thing sooner, so that we have less waste in the process.

Just to describe this hook, quickly. To answer your question around is a pain point necessary? A pain point is absolutely necessary. It starts first with this internal trigger. Just an overview of the model, every hook has these four basic steps of a trigger, an action, reward, and investment. It's through success of cycles through these hooks that these habits are formed. Triggers, the ultimate goal of a habit forming product is to create a mental association with these internal triggers, so that every time we feel a certain emotion, we're in a certain situation, a routine, we automatically do these behaviors with little or no conscious thought. For example, when I'm bored I hop on YouTube or Reddit, when I'm lonely I check Facebook, when I'm uncertain I Google. These instant associations with these negative emotions that prompt us to pass through the hook.

Mike Fishbein: It seems that hooks don't replace pain points at all. They emphasize them and reinforce solutions. Nir talked a lot about optimizing the product roadmap, but it wasn't clear how Product Managers could test for hooking potential.

Nir Eyal: There's this technique I outline in the book, in a chapter of the book called Habit Testing. And habit testing is this three phase process to help you identify what, if any, habits you have in your product, and how you can expand that behavior of your habituated users to the rest of your user bases. Here's the three step process. Step one is to identify. You can define what a habituated user looks like, they use the product once a day, three times a day, three times a week, whatever it is that you think is a level that a habituated user would use your product. Identify those users.

The first step is to identify who are the users that are doing this behavior. Understand what's unique about those users, so that you can codify. The next step is to codify what step those users took to become habituated to your product. And then the third step after identify, codify, the third step is modify. Change the path, change what I call the habit path that all users take to become habituated. You identify the users that are habituated, you codify what steps they took by looking at the data of how did users pass through this UX, and then finally, modify the product so that everybody follows that same path.

Mike Fishbein: This got me thinking, which companies do user engagement really well? What case studies can we learn from?

Nir Eyal: There's several. If you think of the usual suspects of the products that came out of nowhere over the past several years, maybe the last five to 10 years and within the blink of an eye, they're changing user behavior, they're on a massive scale. They're making hundreds of millions, if not billions of dollars, and they're touching hundreds of millions, if not billions, of users. It's companies like Facebook, or Twitter, or Instagram, Pinterest, WhatsApp, Slack, in the enterprise space. There's all these companies that have successfully formed these habits in user's day to day lives. So, Facebook and Slack are two great examples, they both have beautiful hooks built into them. The Facebook hook, for example, the internal trigger for opening up Facebook might be loneliness. This pain point, this negative emotion that we feel, that we seek to escape from. And so, the brain over time forms these associations with the problem and the solution by passing through this hook. You're feeling lonesome, you're seeking connection, you open the app, that's the action. The variable reward, the third step of the hook is what you see in your feed.

There's a lot of variability here, there's a lot of uncertainty about what do people post, what are the comments going to say. How many likes did something get. High degree of variability that keeps us checking this product, this uncertainty about what we might find the next time we engage with a product. Incidentally, the purpose of the variable reward is to scratch the itch. What happens to my boredom and my loneliness the first time I open the product? As soon as I open the product and I take the action, well the variable reward scratches that itch. I'm no longer seeking connection. I'm no longer bored. That pain point is alleviated, and in the investment phase of the hook is to ask the user to do a little bit of work to increase the likelihood of the next pass.

This happens in two ways. The first way, is that investments load the next trigger. For example, when I leave a comment for somebody, or I like something, I friend a person, I'm loading the next trigger because doing so gives the company permission to message me in the future. To bring me back through the hook again, through an external trigger, what's called an external trigger, it gives me some information for what to do next. The other way that investments increase the likelihood of the next pass, is by storing value. The more photos I add to Facebook, the more I data I give the company, the more content, the more followers, the more investment I put into successive cycles through the hook, the more important it becomes to me. I become more and more dependent on the product the more I invest in it. I store value in the product. A lot that they're doing extremely well, that company has continued to impress, I think, habits are a huge competitive advantage.

I think what Facebook realizes and I think what Zuckerberg should get a lot of credit for, is that he realizes that Facebook of the future will not be the Facebook of today. And so anytime somebody threatens his habits, his user's habits, he buys those people. That's why Facebook paid 22 billion dollars for What's App. That's why Zuckerberg paid a billion bucks for Instagram, and everybody laughed at him. Remember when he bought Instagram? What? He bought this crazy, silly, photo service. Big deal. A billion bucks he paid for it. Man, did he overpay. Turns out, if you separate Instagram from Facebook today, Instagram is worth 35 billion dollars, so who's laughing now. Zuckerberg understands the power of habits, and anything that threatens his user's habits, he will first try and copy, right? He tried to create some products, and if he can't, then he ends up buying those products.

Mike Fishbein: Nir mentioned Mark Zuckerberg originally trying to copy Instagram. We saw the same thing with Google building Google Plus. It seems oftentimes not to work. What would it take to steal habits from another company?

Nir Eyal: Habits are a huge competitive advantage, but they're not impenetrable. The way you steal a competitor's habit, an incumbent's habit, is one of three ways. Number one, you pass user's through the hook with greater velocity. If you can figure out something in the interface to make passing through trigger action more of an investment, faster, you have a hope of capturing the habit. The second way is if you can increase the frequency with which users pass through this hook. That typically happens with some kind of interface change, so when we went from desktop to laptop, to mobile, now to wearable, every time that happened, accessing these technologies became something we could do more frequently. The habit debt got reshuffled. Now, the old habits had to be ported over to the new interfaces and because we could pass through the hook more frequently, new market entrance had a chance.

Facebook was built for the desktop, or the laptop interface, where you had lots of real estate, you could cram a lot into a webpage, but it wasn't a mobile first product like Instagram was, which was really about this social network built for the mobile phone. That's principally occurred, that new habit occurred, because this product was optimized to be used on the mobile phone, therefore was used more frequently. And then finally the third reason, the third way to capture a competitor's habit, is by making the reward more rewarding. If you can be the kind of product that is used, and makes the product more rewarding than the competitor's product. If your product is more rewarding, then that's another way that you can capture habits.

For example, Zuckerberg offered three billion dollars to SnapChat, because think about it. If you got a message from SnapChat or a message on Facebook, which reward is more rewarding? To open that app, which one are you going to check first? Are you going to check Aunt Matilda's Facebook post, or are you going to check the SnapChat post from somebody you've been flirting with? You're gonna check SnapChat. The reward is more rewarding. And that's principally driven by the fact that SnapChat messages explode. People's discretion about what they're willing to send, you're willing to send less discretion. They send funny and flirty, and sexy pictures, which make the reward, more rewarding.

Mike Fishbein: This concept of making a product more rewarding than a competitor's product, redefines the way you think about competition. You are not just competing on a feature by feature basis, you are competing on which feature resolves the user's pain point in a more meaningful and fundamental way from a psychological perspective. Let's dig deeper into that. Why and how does Facebook compete with SnapChat to solve for boredom or loneliness?

Nir Eyal: Variable rewards comes out of the work of B.F. Skinner, the father of operating conditioning. You might remember Skinner from your Psych 101 class back in college. Skinner did some very interesting experiments. The one that comes to mind is he took these pigeons, he put them in a little box, gave them a disc to peck at, and every time the pigeon pecked at this disc, they would receive a reward. A little food pellet. What Skinner found was that at first when he gave this reward in a predictable schedule, so pigeon would click the disc, receive the food pellet, it basically could train these pigeons to peck at the disc whenever they were hungry. Then Skinner did something a little bit different. He introduced an intermittent schedule of reward. A variable reward. Sometimes the pigeons would peck at the disc, nothing would happen. The next time the pigeon would peck at the disc, they would receive a reward. What Skinner observed was, the rate of response, the number of times these pigeons pecked at this disc, increased when the reward was given on a variable schedule of reinforcement.

In all sorts of products that we find most engaging, most habit forming, the things that capture our attention and won't let go, you will find these variable rewards. This is something that Facebook is very much struggling with, in that if the ratio between the mundane and the interesting gets out of whack, if it's boring, if it's not rewarding enough, people leave. You have to find this right ratio, and of course, Facebook has to balance this with monetization. And now that the network has gotten so big and everybody is on it, I don't know if I find a post from my Aunt Matilda so interesting. I certainly don't find advertisers posts all that interesting. Facebook uses these algorithms to figure out what you think is interesting, based on your behavior, based on your investment in the product. What you like, what you click on, what you see, to modify the feed.

It's actually an advantage, a huge advantage, that Facebook has over Twitter. Twitter, actually they've figure out some new innovations, Twitter, to curate your feed. But the fact that your Twitter feed is happening in real time, it's not algorithmically programmed like Facebook's feed. Facebook certainly doesn't show you everything that your friends do, they show you what they think you're going to be most interested in, to keep the variable rewards at the right ratio.

Mike Fishbein: Now that we have a better understanding of rewards, it's important in all of product management, by the way, to have a repeatable method for testing and measuring your progress during implementation.

Nir Eyal: The state of the art that I know of, is to track by cohorts. You define what level of usage would you expect a habitual user to engage with a product. It depends on your product. There's no magic number. Some products it would make sense for a habitual user to use everyday, maybe multiple times a day, maybe once every few days, maybe once a week. The first step is to identify what is a habitual user look like? How frequently would they engage? Then, make a change in your product, and then track by cohort. It actually doesn't matter what that number is, just pick a number and insist on relentless forward progress. Pick that number of the frequency, what percentage of your users you call habituated, based on this criteria of how often they use the product, and then make changes to the product using the hook mode. Figure out what your hook is, trigger, action, reward, and investment, make changes to your product accordingly and see how that effects the percentage of users who you define as habituated.

Mike Fishbein: We've got a great understanding of user engagement, habit formation from Nir. Right now, you should know what's next. That's right. The benchmark. Let's see how Nir reflects on the next series of questions we ask to all our interviewees. We like to think of this section of our podcast as our own reward to get you hooked, very meta.

Nir Eyal: Okay, how do I eat my own dog food? Let me be clear, that not every business model needs a habit. There's plenty of businesses that can use the psychology of user behavior without necessarily requiring habits. You can piecemeal, understand, "This is this principle out of consumer psychology. How can I make my experience better? How can I design a better product, without necessarily building a habit." If your business requires a habit, if the way you create deliverable value necessitates people coming back on their own, like these companies I discussed around if you think about Facebook and Twitter, and Instagram, and Pinterest, and What's App, these companies couldn't survive without habits. They would go out of business if they had to spend money on ads to bring user's back. Those businesses necessitate a habit. They have to have all four steps of the hook. If your business is like that, you too have to have these four steps of the hook.

Now, as an author, I don't need my book to be habit forming. A book is something you buy, you read once, and you don't necessarily read again, and again, and again. It doesn't have infinite variability. You understand the principles, and that's about it. That being said, I fall into that former category. I do this for fun. I'm not writing books to make money. There's not that much money in books, and then I've started two companies, thankfully, that exited, so I'm not doing this to get rich, I'm doing this because I struggled as a product manager for a long time, and know how hard it is to create a product that people actually use, so that's why I'm doing what I'm doing. That being said, I use a lot of the principles in the book, piecemeal. Just one quick example off the top of my head, the investment phase.

I did something crazy with my book that no publisher would allow you to do, but I did anyway when I self published the book. I allowed 900 of my blog readers to read my entire manuscript on Google Docs. The deal was, if you read my book online and provided comments, what did you like, what you didn't like, edit it here and there, provided feedback on the manuscript, then you became a contributor. The deal was that I would put your name at the back of the book, and it's in the back of the book til' this day, everybody's name who helped me with the book. Why did I do that?

Number one, I really did need help, and I wanted to improve the book, and I can't thank my contributors enough. They did an amazing job. The book got much, much, better because of the comments that they left. It was also a way to build investment. That by people putting a bit of effort into the product, by leaving these comments, by investing in the book, they also became my advocates. They became people I can trigger in the future and say, "Look, you helped with the book. Now, it's available on store shelves. Now you can go pick it up." And it made the product better for them with use. Because they helped me edit the book, they could see their edits in the final copy of the book. They could find their name in the back. I used many of these principles of consumer psychology to make a more engaging product.

How do I do user testing and customer development in my own business, in my own book? My blog is a form of user testing. I don't work on product, per se, anymore, I just really like to write, and I really enjoy answering these burning questions that I have in my own mind. Seeing the response from readers, is how I do user testing. I don't set out, I never set out to write Hooked, I didn't sit down and say, "I'm gonna write a book on habit forming products." I started writing small blog posts. I started seeing what people are interested in. These were topics that I really thought were interesting, and seeing the response from people, and learning what questions they wanted answered. My product is making product managers lives easier by helping them know these principles of how to make more habit forming products, so I could test that slowly, one blog post at a time.

I am reading a book called The Half Life of Facts, which a very interesting book about how our, what we think is true degrades over time. How what we think is a fact, can change in a lifetime, or a generation/'s lifetime.

What's a product management nightmare? I think it's terrible anytime we build a product in seclusion, we don't have customer feedback, when we don't do Lean Startup Methodologies and customer development. I think that's very important to do. What's even worse, when you follow them to a T, and you still build the wrong stuff. That's a nightmare, too, because frankly, the easy route is to what we used to do. Waterfall development, you stick the engineers in a room, they code up what you design for them, you don't hear from them for six months to a year, they come out, they say, "Here's the product." Big surprise, nobody wants to use it. That's the pretty common scenario. That's easy when you think about it, in terms of a decision to make, how to build product. That's the lazy managers directive. Go build the product, do what I tell you.

The enlightened perspective is, "No, no, no. We have to do customer development. We have to get user feedback." It's much harder to do if you think about it than just saying, "Build what I tell you to build." Then you have to be open to feedback. You have to judge what we build, what we don't build. Interestingly enough, the scariest scenario is that you do that and your damn product still doesn't get used. That's the worst of all. You took the hard route, and you got the same results. That's really the nightmare that I try and prevent. Frankly, I experienced too many times because we couldn't figure out what to build. And so, that's where this framework is helpful, is to use these deeper psychological principles to build the right thing sooner.

Mike Fishbein: If you're like me, there's a lot more you want to learn from Nir. Here's how you can.

Nir Eyal: Yeah, thanks. This was a pleasure. My blog is at Nirandfar.com. Nir is spelt like my first name, NIR. And far.com. The book is Hooked: How to Build Habit-Forming Products, it's available wherever books are sold.

Mike Fishbein: That's our show. Thanks for tuning in, until next time. This is Mike Fishbein from Alpha UX.