startup metrics for pirates: aarrr! (sxsw march 2008)

Startup Metrics for Pirates:AARRR!

Dave McClure, Master of 500 Hats

@ SXSW, March 2008

blog: http://500hats.typepad.com/

website: http://www.500hats.com/

slides: http://slideshare.net/dmc500hats/

* reminder: National Talk Like a Pirate Day is Sept 19th!

Panel o’ PIRATES!Dave McClure, 500 Hats (moderator)

Ted Rheingold, Dogster

Todd Vernon, Lijit

Hiten Shah, CrazyEgg

Lance Tokuda, RockYou

AARRRgendaPirate Warmups: EVERYONE!

Startup Metrics: Pirate Dave

Acquisition: Pirate Ted

Activation: Pirate Todd

Retention: Pirate Hiten

Referral: Pirate Lance

Revenue: (sorry, this one’s all you, landlubber)

Pirate WarmupsShip Ahoy!

Yo-ho-ho, Yo-ho-ho!

AARRR!

More tips: TalkLikeAPirate.com

Ship Ahoy!

Yo Ho Ho!Yo Ho Ho!

AARRR!

Why You Should Be A Web 2.0 Entrepreneur

Pirate! AARRR!

Pirate! AARRR!

BOOTY!

Startup Metrics for Pirates: 5 Steps to Web 2.0 Booty!

Acquisition: users come to site from various channels

Activation: users enjoy 1st visit: "happy” experience

Retention: users come back, visit site multiple times

Referral: users like product enough to refer others

Revenue: users conduct some monetization behavior

AARRR!AARRR!

Customer Lifecycle & ConversionCustomer Lifecycle & Conversion BehaviorBehavior

Website.com

4. REFERRAL

4. REFERRAL

Emails & widgetsEmails & widgets

Campaigns, Contests

Campaigns, Contests

5. R

evenue $

$$

5. R

evenue $

$$

Biz DevBiz DevAds, Lead Gen, Subscriptions,

etc

Ads, Lead Gen, Subscriptions,

etc2. A

ctivatio

n

2. A

ctivatio

n

Homepage / Landing PageHomepage /

Landing Page

Product Feature

s

Product Feature

s

1. ACQUISITION1. ACQUISITION

SEOSEOSEMSEM

Apps & WidgetsApps & Widgets

Affiliates

Affiliates

EmailEmail

PRPRBiz DevBiz Dev

Campaigns, Contests

Campaigns, Contests

Direct, Tel, TVDirect, Tel, TV

Social Network

s

Social Network

s BlogsBlogs

Domains

Domains

Q: Business Q: Business Model?Model?

“Business Model” can be one of the following:1. Get Users (= Acquisition, Referral)2. Drive Usage (= Activation, Retention)3. Make Money (= Revenue*)

* ideally profitable revenue

Note: *eventually* need to turn Users/Usage -> Money

Founder/CEOFounder/CEOQ: Which Metrics? Why?

A: Focus on Critical Few Actionable Metrics

(if you don’t use metric to make a decision, it’s not actionable)

Hypothesize Customer Lifecycle & Refine

Choose ~5 Conversion steps (tip: Less = More)

Delegate Each Key Metric to someone to OWN

Product / Engineering

Q: What to Build? Why?

A: Build Features that Increase Conversion

Wireframes = Conversion Steps

Measure, A/B Test, Iterate FAST (daily/weekly)

Optimize for Conversion Improvement80% on existing feature optimization20% on new feature development

Marketing / SalesQ: What channels? Which users? Why?

A: High Volume (#), Low Cost ($), High Conversion (%)

Design & Test Multiple Marketing Channels + Campaigns

Select & Focus on Best-Performing Channels & Themes

Optimize for *deeper* conversion, not just site/landing page

Low-Hanging Fruit: 1) Blogs, 2) SEO/SEM, 3) Landing Pages, 4) Automated Emails

Customer Lifecycle / Conversion BehaviorCustomer Lifecycle / Conversion Behavior

Website.com

Marketing Channels:• largest-volume (#) • lowest-cost ($)• best-performing (%)

SEOSEOSEMSEM


Affiliates

Affiliates

EmailEmail

PRPRBiz DevBiz Dev

Campaigns, Contests

Campaigns, Contests


Social Network

s

Social Network

s BlogsBlogs

Domains

Domains

Customer Lifecycle / Conversion Customer Lifecycle / Conversion BehaviorBehavior

Website.com

Activation Criteria:

• 10-30+ seconds

• 2-3+ page views

• 3-5+ clicks

• 1 key feature usage

do LOTS of landing page tests & A/B tests –

make lots of dumb guesses & iterate FAST

2. A

ctivatio

n

2. A

ctivatio

n


Landing Page

Product Feature

s

Product Feature

s


SEOSEOSEMSEM


Affiliates

Affiliates

EmailEmail

PRPRBiz DevBiz Dev

Campaigns, Contests

Campaigns, Contests


Social Network

s

Social Network

s BlogsBlogs

Domains

Domains


Website.com

Automated emails are simple, easy retention feature (but don’t overdo it)

• lifecycle emails @ +3, +7, +30d

• status emails weekly/monthly

• event-based emails as they occur

• but: make it easy to unsubscribe

2. A

ctivatio

n

2. A

ctivatio

n

Homepage / Landing Page

Homepage / Landing Page

Product FeaturesProduct Features


SEOSEOSEMSEM


Affiliates

Affiliates

EmailEmail

PRPRBiz DevBiz Dev

Campaigns, Contests

Campaigns, Contests


Social Network

s

Social Network

s BlogsBlogs

Domains

Domains


Website.com

Encourage users to refer *after* they have “happy” user experience; avg score >= 8 out of 10

2. A

ctivatio

n

2. A

ctivatio

n


Landing Page

Product Feature

s

Product Feature

s

4. REFERRAL

4. REFERRAL


Campaigns, Contests

Campaigns, Contests


SEOSEOSEMSEM


Affiliates

Affiliates

EmailEmail

PRPRBiz DevBiz Dev

Campaigns, Contests

Campaigns, Contests


Social Network

s

Social Network

s BlogsBlogs

Domains

Domains


Website.com

5. R

evenue $

$$

5. R

evenue $

$$

Biz DevBiz DevAds, Lead Gen, Subscriptions,

etc

Ads, Lead Gen, Subscriptions,

etc2. A

ctivatio

n

2. A

ctivatio

n


Landing Page

Product Feature

s

Product Feature

s

This is the part *you* have to figure out… I don’t know jack about your business

4. REFERRAL

4. REFERRAL


Campaigns, Contests

Campaigns, Contests


SEOSEOSEMSEM


Affiliates

Affiliates

EmailEmail

PRPRBiz DevBiz Dev

Campaigns, Contests

Campaigns, Contests


Social Network

s

Social Network

s BlogsBlogs

Domains

Domains

Example ConversionExample Conversion MetricsMetrics(note: (note: *not* actuals*not* actuals… your mileage may vary.) … your mileage may vary.)

Category Conversion Status Conv % Est. ValueAcquisition Visit Site

(or landing page, or external widget)100% $.01

Acquisition Doesn't Abandon

(views 2+ pages, stays 10+ sec, 2+ clicks)70% $.05

Activation Happy 1st Visit

(views X pages, stays Y sec, Z clicks)30% $.25

Activation Email/Blog/RSS/Widget/Acct Signup

(anything that could lead to repeat visit)5% $2

Retention Length of Session / # of Clicks

(length/intensity of engaged visit, >180s)10% $1

Retention Email Open/ RSS view -> Click/Repeat Visit

(3+ visits in first 30 days)

3% $5

Referral Refer 1+ users who visit site 2% $1

Referral Refer 10+ users who activate 0.2% $10

Revenue User generates minimum revenue 2% $5

Revenue User generates break-even revenue 1% $25

MAARRRketing Plan

Marketing Plan = F(Customer Acquisition Channels, Campaign Themes)

3 Important Factors = Volume (#), Cost ($), Conversion (%)Measure conversion to target customer actionsTest audience segments, campaigns, Call-To-Action (CTAs)

Match Channel Costs to Revenue Potential Est. Conversion + Revenue PotentialAvg Txn Value (ATV), Ann. Rev. Per User (ARPU), Cust. Lifetime Value (CLV)Design channels that cost <20-50% of target ATV, ARPU, or CLV

Consider Costs & Resource TradeoffsActual expensesMarketing time & resourcesProduct/Engineering time & resourcesTiming of expense vs. revenue, profit vs. cashflow

Example Marketing ChannelsExample Marketing Channelsdisclaimer: estimates of vol, cost/user, time & effort are subjective – actual costs are dependent on your specific business

AARRRgenda

Acquisition: Pirate Ted, Ship Dogster/Catster

QuickTime™ and a decompressor

are needed to see this picture.

Marketing Initiative Feb ‘07

Goal: 2,000 New Registrants a DayMarketed sites via AdSense and BlogAds

1st - Linked ads to our homepages

2nd - made a general landing page with intro info and big link to register

3rd - made dynamic landing page with relevant text and registration form.

Meeee….AARRR!

LANDING PAGE Daily Candy

LADING PAGE Dog Info

A Registrant is Not

Always a MemberWe started getting to 2,000 registrants a day.

BUT only 60% were activating.

REGISTRATION PAGE -Activate

Activants Aren’t Always

Members EitherOf those new members only 8% were making a pet page vs. 80% for people who found our sites naturally.

Within 3 months we halted all ad spending.

AARRR!…(F)

HOMEPAGE - Current

CRAZY EGG Referring sites

CRAZY EGG Searchers

HOMEPAGE - Current

Tracking ToolsGoogle Analytics (Bounce rate, Filters, Goals/funnels)

CrazyEgg (Click tracking from all types of visitors)

Common SEO tools (Keyword density, Spider Simulator, Search engine ranking tool)

Internal tools (anything we can think could be interesting, we track)

AARRRgenda

Activation: Pirate Todd, Ship Lijit

Old Signup Process1. Enter email, user name

2. Enter blog URL

3. Enter account names for other user generated content (18)

4. Enter URL’s of other blogs in your network

5. Do the one click Typepad Install.

38

Signup Time ~ 15-20 min Conversion Rate ~ 0.1%

New Process – Automate almost everything

Use automation to remove over 95% of required tasks.

Make the process entertaining and a little mysterious

Create a situation where we reward the user at each step, winning one more click.

Don’t require any typing until the last step.

Signup Time 15m -> 2m

Conversion 0.1% -> 4%

39

Change #1: Used MBL Widget to discover Blog URL

40

1. User hits site and blog URL is automatically entered into input field using JS call to MBL Widget (running on our homepage)

Change #2: Use Blog URL to inspect blog

Lijit Networks, Inc.

1. Extract commonly used account name(s) from Widgets2. Read Blogroll – Use for default social network

Change #3: Find other User Generated Content

42

1. Using discovered Acct name(s), find other content2. AJAX Screen entertains prospect during discovery

ValidationSignup Time 15m -> ~2m

Conversion 0.1% -> ~4% (40x)

Users Comments“Easy to install”

“Took me only a few minutes”

“You’re freaking me out, how did you get my blog URL.”

43 http://ouriel.typepad.com/myblog/2007/08/execution-is--1.html

AARRRgenda

Retention: Pirate Hiten, Ship CrazyEgg

Retention

Before

Results

Before After

AARRRgenda

Referral: Pirate Lance, Ship RockYou

AARRR!R for Referral

QuickTime™ and a decompressor

are needed to see this picture.

“To engage the world through social applications”

The RockYou Mission

0

10

20

30

40

50

1 3 5 7 9 11 13 15 17 19 21 23Months (1)

Source: eBay Investor Presentation, RockYou(1) eBay starts Q2 98, PayPal starts Q1’00, Yahoo! starts Q1’95, AOL starts Q1’92, Facebook starts Q4’04, and RockYou Starts Q4’05(2) Facebook data represents active users, which was disclosed on 12/05 and 12/06. Undisclosed active user data is extrapolated by applying an average active user penetration to

global Unique Visitors (per comScore Media Metrix)

Facebook platform launch

(2)

Reg

iste

red

Use

rs (

MM

)R

egis

tere

d U

sers

(M

M)

RockYou Growth: Fastest Ever.

Referral traffic is key for viral growth

Primary sources of referral traffic

Install flow

Engagement flow

Install flow example for Bumper

Sticker

Engagement flow example

for Friends for Sale

Metrics for viral loop

UserCall to action to

invite friends x = invited friends

Accept?

No

Yes

y% = accept rate

x * y > 1 gives you viral growth!

Typical viral numbers

Install flowx = 5 (friends invited on average)y = 22% (acceptance rate for invites)Viral factor = 5 * 0.22 = 1.1 VIRAL!!!

Engagement flowx = 20 (friends invited on average)y = 6% (acceptance rate for invites)Viral factor = 20 * 0.6 = 1.2 VIRAL!!!

Use multiple flows and channels

Install flowx = 5 y = 10%Viral factor = 5 * 0.1 = 0.5

Engagement flow, invite channelx = 3 (invites)y = 10% (acceptance rate for invites)Viral factor = 3 * 0.1 = 0.3

Engagement flow, notification channelx = 6 (notifications)y = 5% (acceptance rate for notifications)Viral factor = 6 * 0.05 = 0.3

0.5 + 0.3 + 0.3 = 1.1

VIRAL!!!

Important tips

Install flow should generate most of your referralseveryone installing will use that flow so make it gooduser test different calls to actionsif all else fails, offer $10,000 for invites =)

Engagement flows supplement viralitynot everyone will engage, generally weaker than install flowconsider having the primary flow invite new friendsuser test different calls to actionsif all else fails, offer $20,000!

Decayinvite rate decreases as you saturateacceptance rate decreases as you saturateengagement tends to decaycontinuous improvement required!

AARRR!Any Questions, Ye Scurvy Dogs?Additional References:

• “Influence: The Psychology of Persuasion”, Robert Cialdini (book)

• “Putting the Fun in Functional”, Amy Jo Kim (etech 2006 preso)

• “Futuristic Play”, Andrew Chen (blog)

• “Don’t Make Me Think”, Steve Krug (book)

• “A Theory of Fun”, Raph Koster (book, website)