Shishir Mehrotra – The Art and Science of the Bundle - [Invest Like the Best, EP.175]

Podcast Notes Intro There are 3 types of audiences:Superfan: They pay retail price for a product and will look for your productCasual fan: They only have one of the criteria listed aboveNon-fans: Have zero of the traits listed aboveThe 4 Myths of Bundling:1) Bundling is bad for consumers and providersTruth: By bundling, you produce value in 2 ways: providers get access to casual fans and consumers get access to products they may become a fan of2) Revenue from bundles should be allocated based on usageTruth: When dividing up revenue, you have to look at the Marginal Churn Contribution or how many customers would leave the bundle if a single service was removed3) Bundles will always feel like a rip-off to consumers since they represent a lack of choiceTruth: Because there is a lack of transparency about the price of each component in a bundle, people sometimes feel they’re being rip-offed when they’re actually getting a good deal4) The best bundles are narrow and have very similar products so they make sense to consumersTruth: The best bundles maximize casual fan overlap and minimize superfan overlap When you have a bundle, there are two main ways of increasing revenue:Getting more subscribersRaising the subscription priceAs an investor, don’t look for subscription companies that try to leverage their price, look for companies that maintain price but find ways to add more users “When you start seeing a subscription service increase prices, people look at it as a willingness to pay indicator, I look at it as a, I saturated my ability to continue growing my base and I now have to monetize my existing base more” – Shishir Mehrotraeval(ez_write_tag([[580,400],'podcastnotes_org-medrectangle-3','ezslot_0',122,'0','0']));

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My guest today is Shishir Mehrotra and the topic of our conversation is the bundle: offering access to multiple products, services, or providers for a single bundled price. This topic is full of incorrect pre-conceived notions, and as it turns out, the bundle is one of the most powerful ideas in business. Properly harnessed it is good for everyone involved. Shishir explains the ins and outs of bundles in this conversation.

Shishir ran product at YouTube for years and sits on the Spotify board of directors. He founded and now leads Coda (which is “A Doc” spelled backwards) in 2014, to bundle together productivity apps like docs, spreadsheets, databases, and applications. I love this wonky, detailed conversation which has me thinking differently about many businesses and business strategy. Please enjoy.

This episode is brought to by Koyfin.

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Show Notes

(2:08) – (First question) – The arc of his career

(3:32) – Why he has an interest in bundling

(7:45) – The concepts of superfan, casualfan, and nonfan businesses

(11:05) – Using Spotify as an example of bundles

(13:24) – The first myth of bundling: Bundling is bad for consumers

(17:53) – The second myth of bundling: 1st vs 3rd party providers and the bundlers

(23:03) – Low usage but high Marginal Churn Contribution (MCC) business

(24:26) – How insurance fits into these models  

(26:37) – Myth 3 of bundling: How this impacts consumers

(32:12) – How marginal costs play into the thinking of bundling

(34:54) – Myth 4: Bundling things that have nothing to do with each other

(39:51) – How bundling companies can apply this into their product development

(43:21) – Strategic advice to companies building bundles

(49:01) – How price and pricing power play into advantages for certain bundlers

(54:16) – How does bundling play into his investing thesis

(56:47) – Most interesting bundles he’s observed

            (58:44) – Eigenquestions: The Art of Framing Problems

(59:14) – What the future of this trend is

(1:02:24) – What is an eigenquestion

(1:06:29) – Kindest thing anyone has done for him

Learn More

For more episodes go to InvestorFieldGuide.com/podcast. 

Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub

Follow Patrick on Twitter at @patrick_oshag