Personalization as Digital Moat

I recently tried to switch from one music streaming service to another. Technically, it takes ten minutes. In practice, I’m still with the old one. Not because the new one is worse. Because the old one knows me.

It knows my listening habits. It knows what I listen to in the morning and what in the evening. It built playlists that match my taste without me doing anything. It suggests things I didn’t know and turns out I like. That took years. Years of data, feedback, fine-tuning. The new service starts from zero.

That’s the moat.

The strategy behind it is no secret: Personalization creates barriers to competition. The better you know your customer, the harder it is for them to leave. The industry calls it customer retention. You could also call it something else.

The difference between a good product and a moat is the direction of the force. A good product attracts because it’s good. A moat holds because leaving is expensive. In practice, the second tends to get sold as the first.

I can’t arrive at the new service where I am at the old one. Not because the new one is technically worse. Because my profile, my history, my trained algorithm don’t come with me. The data belongs to the service. What feels like “my” profile is actually “its” profile about me.

Personalization has various levels. Each level collects more data, understands the customer better, delivers more accurate results. Each level deepens the moat. That’s not a side effect. That’s the point.

When a company invests a hundred million in personalization, it doesn’t do so out of kindness. It does so because every dollar that deepens the moat makes the customer more expensive for the competition. In economics, this is called switching cost. The cost of leaving. Not monetary cost. Time cost. Habit cost. The feeling of starting over from zero.

I know this from software. You work with a program for ten years. You have templates, workflows, shortcuts. Everything fits. Then a better program comes along. You try it. You realize: It’s better. And you stay with the old one anyway. Because you can’t take your ten years with you.

From the company’s perspective, that’s a competitive advantage. But from the customer’s perspective, it’s something else. It’s the loss of freedom of choice through the back door.

Nobody takes anything from you. Nobody locks you in. You can leave anytime. But every day you stay makes leaving more expensive. And because leaving is never dramatically expensive, just always a little more expensive than yesterday, you don’t notice the moat filling up.

That’s the real cleverness of it. An obvious prison creates resistance. An invisible one doesn’t. Personalization is the most polite prison ever built. It adapts to you. It learns your preferences. It makes your life more pleasant. And it gets harder to leave with every passing day.

The question nobody asks: If personalization were such a great service, why can’t you take your profile with you? Why can’t you export your data, your preferences, your trained algorithm and carry them to a competitor?

The answer is simple. Because then the moat would be empty. And without the moat, the product would have to speak for itself.

How much of what we call customer retention stayed because the product is good? And how much stayed because leaving got too expensive?