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PRESENTATION OVERVIEW
Relevant background

Why Lifetime Value
Importance beyond social media
Virality
Retention
Monetizati...
THREE EXITS IN THREE YEARS
Co-founded Merscom CCO, led all marketing/sales/distribution
• Grew to top-5 casual game compan...
BASED ON THREE PERFORMANCE METRICS

Monetization
Virality
Retention
INTERDEPENCE
RELATIONSHIP BETWEEN LTV AND CPA

LTV > CPA

• Success
LTV < CPA
• Failure
THINK OF LTV STARTING DAY 1

Green-light

Design and
develop
focused on
LTV

Beta and
other testing
to optimize
LTV

Post ...
ONLINE OFFERINGS
Netflix
Ebates
Farmville
B2B

Square

Rackspace
Bronto
SAAS
Salesforce
HootSuite
Basecamp
RETAIL
Restaurants

Department
stores

Car dealers
DEFINITION OF VIRALITY
K-score
K=i*conv% (conversion percentage), where “i” is the number of invites sent
out by each new ...
AN ADVANCED LOOK
IMPORTANCE OF VIRALITY

Lowers cost
of customer
acquisition

Exponential
growth
IMPROVING VIRALITY
K=i*conv%
Increasing I
• Generate virality quickly
• Cater to Connectors

Increasing conv%
• Quality of...
DEFINITION OF RETENTION
Customer
lifetime

N-day retention
Churn rate
IMPORTANCE OF RETENTION

If they do not come
back, monetization
improvements are
virtually useless
IMPROVING RETENTION
Product quality
Get in their heads
Make it social
Make it global
Use email and
advertising for
re-enga...
DEFINITION OF MONETIZATION
ARPU (Average
revenue per
user)

ARPDAU
(Average
revenuer per
daily active user)

Average
trans...
IMPORTANCE OF MONETIZATION
IMPROVING MONETIZATION
Product
quality

Promotions
and sales

Value

Shopping
experience

More
selection

Balancing
COST DRIVERS
Running Costs
•Hosting
•Support
Payment Processing
•Platform fees
•Payment processors
Software Royalties
•Eng...
COHORTS

Time of year
Stage of product lifecycle

Holidays
SEGMENTS
Age

Sex

Income

Interests
SOURCES

Incentived
ads
Virality

Targeted
search ads

Television

Press

Cross
promotion
UNCERTAINTY PRINCIPLE
Quantum Mechanics
• The universe is random
• Perfect predictions are impossible if the universe is r...
RISK VS UNCERTAINTY
Risk

Something you can put a price
on

Uncertainty

Risk that is hard to measure

Do not
confuse
unce...
THE MAJOR DIFFERENCE BETWEEN A THING THAT MIGHT GO WRONG AND A THING THAT
CANNOT POSSIBLY GO WRONG IS THAT WHEN A THING TH...
DO NOT DISCOUNT QUALITATIVE INFORMATION
More data is better than less
This includes non-quantitive measures
Billy Beane ha...
AVOID OVERFITTING

Mistaking noise for signal

Fitting a statistical model to
match past observations

Test how much of th...
SOLUTIONS
Create LTV range
•Think probabilistically
•Distribution shows honest uncertainty
A/B Test
•Can validate assumpti...
Groundworks presentation on ltv
Groundworks presentation on ltv
Groundworks presentation on ltv
Groundworks presentation on ltv
Groundworks presentation on ltv
Groundworks presentation on ltv
Groundworks presentation on ltv
Groundworks presentation on ltv
Groundworks presentation on ltv
Groundworks presentation on ltv
Groundworks presentation on ltv
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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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Transcript of "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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