So what if Crypto is more Product than Customer focused?
How product orientation drives innovation, and how crypto is growing increasingly customer-oriented
This article applies ideas from management academia I learn as an Oxford student to the nascent world of crypto. I hope to make this a mini-series as I find applying academic ideas (seen as old) to the new context of crypto interesting. Have fun reading.
Projects and builders in the crypto and web3 space are often criticized for not caring much about user needs. Instead, they are seen as people with solutions looking for problems, building whatever they find cool, rather than building what the market demands. In short, they are generally product rather than customer oriented.
Here, I make the following arguments:
Product orientation’s very nature drives innovation and progress in the space, and we should therefore not condemn, but rather, embrace it.
Viewing crypto as an organized chaos of strategic experiments, product orientation is good for industry level innovation, but may not play out well at a project/ startup level.
It is normal for disruptive innovations like crypto to start off dominantly product oriented, and shift to market orientation over time as it matures
The shift has already begun, but it looks more centralized than we’d like
The context: Acknowledging crypto’s lack of customer focus
Crypto has a notoriously bad user experience. To see how this is the case, we look at examples of the current state of the crypto space in the context of Lauterborn’s (1990)1 4Cs, a more consumer-focused version of McCarthy’s (1960)2 4Ps. The 4Cs are: consumer, cost to satisfy, communication, and convenience.
The cost to satisfy a customer’s needs include the price of the product, as well as the cost of time, effort and conscience experienced by the customer in obtaining and using the product. Convenience is similar, referring to how convenient it is for users to obtain the product. In crypto, both are high:
Transaction costs or gas fees are high on the leading L1 network Ethereum
It takes lots of time and effort to set up a wallet and start interacting with dApps (lots of steps to just set up Metamask with deposited funds for gas)
It takes even more time to be a responsible crypto user. It is time-consuming to understand how a specific dApp you are interacting with works to assess its suitability and risks (many people deposited UST into Anchor before understanding how the 20% APY was generated), learn about the tokenomics of a token you are buying, learn yield generation strategies that require use of multiple dApps etc.
Previously, some conscience costs with environmental concerns of energy intensive proof-of-work (though this is no longer relevant as we shift to a proof-of-stake world)
On consumer needs and wants, another ‘C’, there is a wide-spread perception that a large part of crypto starts with the product in mind rather than starting with customer needs. To be clear, I believe crypto has the potential to solve, and many projects today solve real customer needs. For example, DeFi reduces costs in financial services, as layers of administration and thus wage costs are replaced with smart contract code. NFTs empower creators that can now take a cut on secondary sales. Tokens with well designed tokenomics are useful for incentive alignment and for rewarding early users and other stakeholders, besides shareholders.
However, the perception of crypto being product oriented is somewhat justified in that most builders, especially in the early years, built in the absence of clear customer demand. Most 0 to 1 innovators in the space were experimenting with the possibilities of what can be built on the new technology of Turing complete coding in smart contracts on top of a blockchain when Ethereum first introduced it, rather than conducting market research to find a customer need to solve for.
Argument 1: Product orientation drives innovation
A fair amount of academic literature around innovation and the evolution of new markets and technologies emphasize the value of product over market focus.
While keeping close to customers and understanding their needs may be useful for sustaining technologies, where firms improve the performance of established products along the dimensions of performance mainstream customers historically value, product led innovation is often needed in the case of disruptive technologies, which create new value propositions (Christensen, 1997)3. He further argues that products not demanded today may be demanded tomorrow, meaning that focusing on customer needs may hamper innovation.
While product led innovation often only caters to small niche markets initially, they have the potential of becoming mainstream (Bower & Christensen, 1995)4. Also, while new technologies often underperform pre-existing ones in its initial stages, their performance may improve and dominate that of pre-existing technologies eventually (graph below). Similarly, Geroski (2003) argues that new markets are often driven by supply side innovation rather than demand pull innovation, since there is a lack of demand signals for new technologies. Consumers are unable to articulate demand for radical new tech, and underlying inchoate demand is inherently hard to identify (Geroski, 2003)5.
Therefore, crypto’s product orientation holds value in that it has driven, and still drives innovation in the space. For example, Maker, a protocol launched in 2017 that issues overcollateralized stablecoin DAI, was conceptualized when no DeFi activity or demand for such a product existed. More recent protocols like OlympusDAO that introduced OHM in 2021 with the aim of building a decentralized censorship-resistant reserve currency in response to fiat-pegged stablecoins were also launched without clear demand for them. Nevertheless, such product led innovation pushes the frontiers of crypto.
In short, it may be good to build things that people may not appear to want now, as innovation springs forth from such activity. Product orientation in crypto is not a bug. It is a feature.
Argument 2: Crypto as strategic experiments
At the same time, it is hard to ignore criticisms of crypto's poor user experience and the startup world’s conventional wisdom on the importance of customer orientation. Ries’ (2019)6 The Lean Startup, for instance, emphasizes the importance of constant validation with the market. Perhaps this idea is best captured in Steve Job’s quote from WWDC 1997:
“You’ve got to start with the customer experience and work backwards to the technology. You can’t start with the technology and try to figure out where you’re going to sell it.”
— Steve Jobs
Academics similarly extoll the benefits of customer orientation. Levitt (1975)7 argues that firms fail when they become product oriented instead of customer oriented, and highlights the need to adapt to and meet customers’ changing needs. Meanwhile, Drucker (2002)8 states that a key part of the innovation process is looking at potential users and their needs.
Clearly, products fail if they are not well-received by the market, and a product-oriented approach is thus risky at the project or startup level. Nevertheless, it is essential to drive innovation at the crypto industry level. While many projects fail and may not take off, those that do push the boundaries of crypto in its possible applications.
To understand this better, we can take the analogy of the crypto industry being a ‘firm’, with each protocol being a strategic experiment that it conducts to test a hypothesis and to learn from outcomes (Govindarajan & Trimble, 2004)9. We can also view each protocol as one of Ries’ (2019) iterated experiments. While each protocol or experiment is risky and may fail, these experiments in aggregate drive the industry forward.
Argument 3: It is normal to shift from product to market orientation
We can frame crypto in the context of innovation cycles. Abernathy & Utterback (1978)10 describe the patterns of industrial innovation as one which begins with radical product innovation, slowly shifting to evolutionary innovation over time. The early stages are characterized as an ‘era of ferment’ where market needs are ill-defined, uncertainty is high, and a variety of product designs compete for dominance. Building is thus naturally product led. The industry eventually matures, a dominant design emerges, and evolutionary innovation replaces radical innovation to make improvements on now well-defined performance criteria. In short, technology drives business in the early stages but is driven by business in the later stages.
To understand these concepts practically, we look at the example of the automobile. Arguably, the concept of a cart powered by anything other than a horse was not in the minds of the mainstream market. Early innovators of automobiles were therefore product driven, experimenting with the technology they had at their time, creating varied designs: steam powered Stanley Steamers competing against gasoline powered combustion engine cars, and cars with tillers competing with those that have steering wheels. Over time, a dominant design for automobiles emerged, and further innovation became more market focused, increasing comfort and ease of use.
Therefore, it is not unexpected to see crypto pioneers being more product focused than market focused. Nevertheless, we expect an increased emphasis on market needs as the space matures.
Argument 4: The shift has already begun
It is clear that segments of crypto are striving to be more market oriented. Most notably, CeFi crypto companies abstract away the complexity of setting up a wallet, understanding wallet operational security best practices, and interacting with a diverse range of dApps. They also reduce the price of services, especially for users with small investment sums that cannot otherwise afford high gas fees.
Leading firms like Binance, FTX, and Coinbase offer spot buying and selling (alternative: DEXs like Uniswap), leveraged and derivatives trading (alternative: dYdX, Opyn), earn programs for yield (alternative: LP and farming), and more recently NFT trading (alternative: Opensea, Magic Eden). Some fintech startups are also using DeFi in the backend to offer customers great yields (eg. Germany-based Donut, US-based Eco, Singapore-based DeZy).
These companies offer a slick user experience and easy user onboarding we have come to expect from fintech startups, while allowing users to benefit from crypto. However, most of such efforts reintroduce centralization and single party risk to their users, as they act as custodians for people’s crypto funds (refer to the recent Celcius and BlockFi saga). Similarly, the rise of centralized L1s like Solana and Binance Smart Chain make this trade off for the sake of a better user experience with lower gas fees.
That is not to say that user experience cannot be improved without sacrificing decentralization and security. Testament to this are projects like Argent’s non-custodial wallet and Ape Board’s multi-chain DeFi dashboard that greatly improve user experience. Nevertheless, centralized approaches have been leading the shift to a customer-oriented mindset, rather than decentralized approaches.
Closing remarks
To conclude, product orientation has been the core driver of innovation in crypto, with each project being a risky experiment that explores crypto’s possibilities. As the crypto industry matures, we are seeing a shift to greater market orientation, something we expect in a disruptive technology’s life cycle. However, most customer experience improvements have traded off decentralization, and the industry needs to find ways to achieve both without sacrificing the other.
We are now in this transitory phase where product oriented founders and projects continue to drive new innovation and present new use cases, while a growing segment of customer oriented projects aid in onboarding more people to Web3 by increasing its usability.
Lauterborn, Bob, 1990. New marketing litany; four P's passe; C-words take over. Advertising age, 61(41), p.26.
McCarthy, E. Jerome, 1960. Basic marketing, a managerial approach, Illinois: R.D. Irwin, 1960.
Christensen, C.M., 1997. The innovator's dilemma: when new technologies cause great firms to fail, Boston, Mass.: Harvard Business School.
Bower, Joseph L. & Christensen, Clayton M, 1996. Disruptive technologies: Catching the wave. Harvard Business Review (January–February 1995), pp. 43–53. The Journal of product innovation management, 13(1), pp.75–76.
Geroski, Paul, 2003. The Evolution of New Markets, Oxford: Oxford University Press.
Ries, E., 2019. The lean startup : how constant innovation creates radically successful businesses, London.
Levitt, T, 1975. Marketing Myopia. Harvard business review, 53(5), p.26.
Drucker, Peter F, 2002. The discipline of innovation. Harvard business review, 80(8), p.95.
Vijay Govindarajan & Chris Trimble, 2004. Strategic Innovation and the Science of Learning. MIT Sloan management review, 45(2), p.67.
Abernathy, W. J & Utterback, J. M, 1978. Patterns of Industrial Innovation: Technology Review. Strategic management of technology and innovation, pp.154-160.
While product orientation may drive innovation in some cases, it is not always necessary or sufficient for progress in a given industry or market. Other factors, such as customer demand and competition, also play important roles in driving innovation and progress. For example, customer demand can create incentives for companies to innovate and improve their products in order to meet the needs and preferences of their target market. Competition, on the other hand, can push companies to innovate in order to differentiate themselves from their rivals and gain a competitive advantage.
The assumption that product orientation is inherently good for innovation in the crypto space is based on a limited and potentially flawed understanding of the motivations and behaviors of the actors involved. For example, some projects and builders may be motivated by personal gain or a desire for power and control, rather than a genuine desire to innovate and improve the industry. In these cases, product orientation may not necessarily lead to meaningful innovation, and may instead result in products that are designed to benefit the creators rather than the users.
The notion that product orientation is good for industry-level innovation but not necessarily for project- or startup-level innovation is overly simplistic and fails to take into account the complex interactions and feedback loops between different levels of the industry. In reality, the success of a project or startup can have significant impacts on the broader industry, and vice versa. For example, a successful project that creates a new product or service that meets a real customer need can inspire other projects and startups to adopt similar approaches, leading to broader industry-level innovation.
The claim that disruptive innovations like crypto typically start off dominantly product oriented and shift to market orientation over time as they mature is not supported by evidence. There is no fixed or predictable pattern of development for disruptive innovations, and the shift from product to market orientation, if it occurs at all, can happen at any point in a technology's lifecycle. Some disruptive innovations may start off with a strong focus on customer needs, while others may not shift to market orientation at all, remaining dominantly product oriented throughout their lifecycle.
The assertion that the shift from product to market orientation has already begun in the crypto space is based on an incomplete and potentially biased understanding of the market. It is not clear that the market is becoming more customer-focused, and even if it is, it is not necessarily happening in a way that is beneficial for all actors in the industry. For example, the increasing centralization of the crypto market, as evidenced by the dominance of a few large players, may be making it more difficult for new, innovative projects to gain traction and reach their target customers.
The use of Lauterborn's 4Cs as a framework for analyzing the user experience in the crypto space is questionable, as the 4Cs were developed for a different industry (advertising) and may not be applicable or relevant to the crypto market. The 4Cs may not adequately capture the unique characteristics and challenges of the crypto market, such as the decentralized and global nature of the technology, the high level of technical complexity, and the regulatory uncertainty.
The examples given of the high cost and inconvenience of using crypto are not necessarily representative of the entire industry, and may not accurately reflect the experiences of all users. There are also counterarguments to these examples, such as the potential for decentralized finance (DeFi) to reduce transaction costs and the increasing availability of user-friendly wallets and other tools that make it easier to use crypto. For example, the growth of DeFi has led to the creation of new protocols and tools that allow users to access financial services at a lower cost and with greater convenience than traditional financial institutions.
The assertion that most builders in the crypto space built without considering customer demand is based on a limited and potentially biased sample of projects and builders. It is not clear that this is true for the majority of projects in the industry, and even if it is, it does not necessarily mean that product orientation is inherently bad for the industry. Some builders may have identified customer needs and built products to address them, even if they did not conduct formal market research or engage in other customer-centric practices. Additionally, the lack of customer focus may be more prevalent in the early days of the crypto market, when the technology was new and unknown, and builders were focused on exploring its potential rather than meeting specific customer needs.
The idea that crypto has the potential to solve real customer needs is not in dispute, but it does not necessarily follow that product orientation is the best or only way to achieve this potential. Customer-centric approaches, such as market research and user testing, may be more effective at identifying and addressing customer needs. These approaches can help builders to understand the specific problems and challenges that their target customers face, and to design products that are tailored to their needs and preferences. By contrast, product orientation may result in products that are not well suited to the needs of the market, leading to low adoption and customer satisfaction.
The argument that product orientation is good for the crypto industry because it allows builders to experiment and explore new possibilities is overly simplistic and fails to take into account the potential negative consequences of this approach. For example, product-oriented builders may create products that are not fit for purpose or that do not address real customer needs, leading to wasted resources and a lack of trust and adoption by users. This can lead to a lack of trust and confidence in the industry, and can undermine the progress and innovation that product orientation is supposed to facilitate. Additionally, a focus on experimentation and exploration may lead to a proliferation of products and services that are not useful or relevant to the market, further undermining the industry's credibility and reputation.