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"Hot Product Stickiness"

[written April 3, 2005]

This article about the Toyota Prius caught my eye in the latest issue of "Wired", April 2005:

Granted, 49.7 miles per gallon is at least twice what all the gas hogs around me are getting. But whenever I hit the accelerator, no matter how gradually, my mileage dips. I must be doing something wrong. I click the screen over to a real-time schematic of the hybrid gas-electric power train. Rolling out of a stop, the car is golf-cart silent while the display shows the 50-kilowatt electric motor providing all the power to the wheels. Once I hit 9 miles per hour, the gas engine takes over, transforming the electric motor into a performance booster that kicks in only when I need some extra juice. The secret to increasing my fuel economy, I realize, is to manipulate the relationship between the two halves of the engine. The more I can use the electric propulsion, the better mileage I'll get.

"And that's when I have my eureka moment. There's a sweet spot on the accelerator. When the car hits 40 miles per hour, I coast for a few seconds, letting the gas engine go idle, then use the electricity to maintain my speed by depressing the pedal ever so slightly. My mileage starts to climb -- 50.1, 50.4, 50.8.

"My ad hoc videogame on the traffic-clogged streets of LA is nothing new to the 120,000 Prius owners in the US. Some fanatics even drive shoeless to be in better touch with the accelerator. For true masters, 50 miles per gallon is a piker's score; they shoot for a consistent 60."

This description of James Porto's experience using the Prius was exactly what I was looking for. It's the sort of thing sensations are made of. Flickr became a sensation with its addictive and accomodating interface, along with the external applications from its tagging feature. The iPod did it with its nifty thumbdial that you can't help but spin around to play with it. Research In Motion's Blackberry did it with a push e-mail infrastructure and easy-to-access online data. Sony's PSP already has tons of hacks to add software that exploits its wireless connectivity, and it only came out a few weeks ago. The Prius hooks you in and has you playing with its sensitive acceleration pedal to tweak gas mileage. You forget that the car gets around an amazing 60mpg.

Toyota Prius

These products all have features that bring you closer to the product. You feel like you're becoming an expert into running it efficiently. It feels fun to use, so much that you forget the interface is affixed to a good underlying and useful product. You become fond of it.

As an investor, this is exactly the sort of gimmick or catch that I'd look for to find the next hot product. Once people are exposed to that feature, how can they go back to any other product? Using anything other than a thumbdial or dHTML interface is a letdown -- it just feels cheap to go to the competitor. And isn't it nice to not even notice the interface except how fun it is?

Products that people like to hack are worth paying close attention to. People like the product enough to want to make it better. The Prius has this stickiness. In fact, it was just reported that Prius owners are hacking their Prius with extra batteries to lengthen mileage to up to 180mpg. Basically the car runs off batteries far more than it uses the gas engine.

Unfortunately, the car companies making hybrids are not great stock buys like tech companies would be. Right now the American car companies are getting pummelled with debt rating downgrades, increasing retirement burdens, and all sorts of nasty, expensive shit. i.e. a lot of non-automobile-related expenses. The Japanese car companies' stocks are doing well, but aren't huge growth plays and don't pay the 4-5% dividends that one can get from an American car company.

Toyota (TM) 3-year daily stock chart looks like a sell under its 200dma

I don't know if there's much of a play on car companies. I think hybrids, once they mature, will spring a massive consumer upgrade and may reduce production costs, but for right now, the companies making them are too big to grow that fast. The Prius is sold-out everywhere, but that makes up a small percentage of Toyota's sales. Its buzz, however, is unmistakeable.

It's great to finally catch a glimpse of an example of hot product stickiness, or the addictiveness that a product can provide the user. Applied to some small tech stock (like, say, Blackberry's RIMM, or Google's GOOG (when it IPO'd), and taking into account when a tipping point actually occurs (as opposed to when the early adopters start hyping it), you could make a bundle of money.

Perhaps if Toyota can release hybrid models of its entire line of vehicles (it has a new Lexus SUV with two electric motors and about 30mpg coming soon), all with the same feel on the pedal, it will begin to really spark some interest. It can unify the Toyota experience and create a feel that customers will become loyal to. But since people don't go out and buy cars or play with a friend's Prius the way people would an iPod, Toyota would need to be concerned about just reaching as many possible customers as possible through word of mouth, promotional test drives, and print ads.

Read the Wired article. Learn more at the official Prius site. Or sign up to the Y! Prius owners group.

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