Groundworks presentation on ltv

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Presentation to Groundwork Labs incubator in Durham, North Carolina about LTV and data quality

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Groundworks presentation on ltv

  1. 1. PRESENTATION OVERVIEW Relevant background Why Lifetime Value Importance beyond social media Virality Retention Monetization The Cost Side LTV varies among customers Uncertainty of LTV
  2. 2. THREE EXITS IN THREE YEARS Co-founded Merscom CCO, led all marketing/sales/distribution • Grew to top-5 casual game company • Initiated and negotiated sale to Playdom, which was then rolled into $570 million Disney acquisition GM of Playdom’s International Publishing team • Responsible for Europe, Latin America, Russia and India • Grew it from scratch to 25 percent of Playdom’s revenue CEO of FiveOneNine Games • Joint venture of EW Scripps and Capitol Broadcasting • Launched Facebook and mobile games Chief Growth Officer at Spooky Cool • Helped lead sale of company to Zynga • Lead UA, analytics, monetization and community Senior Director, Zynga • Social casino team • Product, analytics, user acquisition
  3. 3. BASED ON THREE PERFORMANCE METRICS Monetization Virality Retention
  4. 4. INTERDEPENCE
  5. 5. RELATIONSHIP BETWEEN LTV AND CPA LTV > CPA • Success LTV < CPA • Failure
  6. 6. THINK OF LTV STARTING DAY 1 Green-light Design and develop focused on LTV Beta and other testing to optimize LTV Post launch to focus on improving LTV
  7. 7. ONLINE OFFERINGS Netflix Ebates Farmville
  8. 8. B2B Square Rackspace Bronto
  9. 9. SAAS Salesforce HootSuite Basecamp
  10. 10. RETAIL Restaurants Department stores Car dealers
  11. 11. DEFINITION OF VIRALITY K-score K=i*conv% (conversion percentage), where “i” is the number of invites sent out by each new customer and “conv%” is the percentage of invites that convert into costumers
  12. 12. AN ADVANCED LOOK
  13. 13. IMPORTANCE OF VIRALITY Lowers cost of customer acquisition Exponential growth
  14. 14. IMPROVING VIRALITY K=i*conv% Increasing I • Generate virality quickly • Cater to Connectors Increasing conv% • Quality of communication • Provide value for virality
  15. 15. DEFINITION OF RETENTION Customer lifetime N-day retention Churn rate
  16. 16. IMPORTANCE OF RETENTION If they do not come back, monetization improvements are virtually useless
  17. 17. IMPROVING RETENTION Product quality Get in their heads Make it social Make it global Use email and advertising for re-engagement
  18. 18. DEFINITION OF MONETIZATION ARPU (Average revenue per user) ARPDAU (Average revenuer per daily active user) Average transaction Percentage of customers who monetize Average number of monetization events per customer
  19. 19. IMPORTANCE OF MONETIZATION
  20. 20. IMPROVING MONETIZATION Product quality Promotions and sales Value Shopping experience More selection Balancing
  21. 21. COST DRIVERS Running Costs •Hosting •Support Payment Processing •Platform fees •Payment processors Software Royalties •Engine, such as Epic’s UDK •Analytics IP Licensing •Properties •Talent
  22. 22. COHORTS Time of year Stage of product lifecycle Holidays
  23. 23. SEGMENTS Age Sex Income Interests
  24. 24. SOURCES Incentived ads Virality Targeted search ads Television Press Cross promotion
  25. 25. UNCERTAINTY PRINCIPLE Quantum Mechanics • The universe is random • Perfect predictions are impossible if the universe is random Not a function that creates a value You are predicting a future event Create a range, not a number • Albert Pujols is likely to hit 30-40 home runs is more accurate than Pujols is likey to hit 36 home runs Models are simplifications of the world
  26. 26. RISK VS UNCERTAINTY Risk Something you can put a price on Uncertainty Risk that is hard to measure Do not confuse uncertainty for risk Correlation of past data does not create certainty
  27. 27. THE MAJOR DIFFERENCE BETWEEN A THING THAT MIGHT GO WRONG AND A THING THAT CANNOT POSSIBLY GO WRONG IS THAT WHEN A THING THAT CANNOT POSSIBLY GO WRONG GOES WRONG IT USUALLY TURNS OUT TO BE IMPOSSIBLE TO GET AT OR REPAIR,” WROTE DOUGLAS ADAMS IN THE HITCHHIKER’S GUIDE TO THE GALAXY SERIES. Wrong assumptions can have profound effects • Independence of variables • Mortgage industry Chaos Theory • Not a synonym for the game industry • A small change in initial conditions can produce a large and unexpected divergence in outcomes • Major risk when modeling against past performance
  28. 28. DO NOT DISCOUNT QUALITATIVE INFORMATION More data is better than less This includes non-quantitive measures Billy Beane has dramatically increased scouting The Smell Test
  29. 29. AVOID OVERFITTING Mistaking noise for signal Fitting a statistical model to match past observations Test how much of the variability of the data is accounted for by your model
  30. 30. SOLUTIONS Create LTV range •Think probabilistically •Distribution shows honest uncertainty A/B Test •Can validate assumptions Surveillance •Regularly (weekly or monthly) compare data with predictions •“When the facts change, I change my mind”, John Maynard Keynes Avoid Overfitting Include qualitative data

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