@andrewchen

I wanted to share Dave McClure‘s talk at Web 2.0 – it’s evolved over the last year, and shows some learnings from the Facebook world:

Some quick comments
In general, I agree with Dave’s view of the world, and he does a good job breaking down each specific component:

• Acquisition
• Activation
• Retention
• Referral
• Revenue

A couple notes on each section:

1) Acquisition
Dave’s slides list a multitude of acquisition options, from SEO to blogs and PR, to e-mail, etc. And while I was at MDV, I often saw pitches that incorporated a huge laundry list of acquisition strategies, which generally made me think the entrepreneur pitching didn’t have a strategy at all. In general, the main thing to focus on is that you have a scalable acquisition strategy. That is, you have a single strategy that has the potential to get you up to 1,000 users or 10,000,000 users or more.

The reason is that fundamentally, the science of acquisition requires that you specialize in a particular area, and invest resources such as:

• Building out analytics
• Conducting A/B or multivariate testing experiments
• Being creative and trying out different variations as strategies
• Keeping up with other folks who are using similar acquisition strategies

The point is, if you pick one of the really scalable techniques, for example Facebook/OpenSocial, or SEO, or e-mail virality, it requires an immense amount of time and effort to kick ass at it. Anyway, I don’t think Dave’s slides say otherwise, but I wanted to emphasize that acquisition is an entire area in itself, and is worth focusing on.

2) Activation
The activation slides are solid, and I’ve written about a similar topic except focused just on virality. To sum up my post and how it relates, the point is that if you have low efficiency, that actually hinders your growth substantially once you hit network saturation.

For example, in the Facebook universe (60 million users), even if you are growing exponentially, let’s compare an activation efficiency of 5% rather than 20%:

• 1 in 20: total universe of 3 million active users
• 1 in 5: total universe of 12 million active users

So even if you’re viral, once you hit network saturation, your traffic will begin to plateau and wane. On a related note, my friend Ed Baker noted that given most Facebook apps haven’t been able to sustain >12MM installs, it tells you that most apps are not able to achieve activation rates much higher than 20%, even after they’ve been acquiring users for months and months.

Because of this, it’s a smart idea to try achieve both virality and high activation efficiency – this will make sure you have the highest potential for a large base of users. This might mean reducing your spamminess level so that you don’t hit network saturation as quickly, and targeting your invites. Similarly, you’ll want to do all the optimization suggested in Dave’s slides in order to reduce friction throughout the activation funnel, so that people aren’t leaving from confusion.

3) Retention
Two words: Cohort analysis. :-)

Retention is actually one of those places where I think you can’t let metrics drive the conversation – it’s useful for validation, but the core product experience starts with understanding users. The reason is that unlike the acquisition process, it’s easy to be "on the wrong mountain" so to speak, and metrics will help you climb this wrong mountain, but not figure out the right one to be on. The problem is that choosing the right problem to solve for the customer has a lot to do with higher-level issues, like emotional needs, cultural perceptions, and nuanced social interactions.

In my humble opinion, the right community to look at here are design folks like IDEO. By clearly defining the target customer, understanding all the soft-values that go into motivating this group, and crafting an experience that’s compelling, I think this approach gets you onto the right mountain. For this reason, this community is all about hiring anthropolgists, cognitive psychologists, and other social scientists, and then throwing them in a room with engineers, business folks, etc. A comprehensive discussion of these techniques can be found in the IDEO book Designing Interactions.

Another really interesting community here is game designers, as well. After outsourcing their distribution for the last couple decades to a couple publishers, the community has grown to focus on the gameplay experience – making them experts in retention. Some of the most interests concepts revolve around how you build up a game using "core mechanics," and how RPGs structure their point systems to create compelling reward structures. My friend Dan Cook’s Lost Garden has a wonderful repository of essays on this topic.

4) Referral
It’s very smart for Dave to separate out referral traffic from acqusition traffic, though many people treat them as the same thing. Here’s the difference:

• Acquisition traffic is often one-time traffic
• Referral traffic can be continuously generated traffic

The reason, of course, is that referral traffic puts you on the SAME SIDE as your users – you’re aligned, because the better your user experience, the better you retain your users. And the better your user retention, the more people they refer.

The question just becomes, how well can you retain users, and how fast do their refer their friends? If you can get these variables to align, then off you go, you have a scalable traffic acquisition strategy.

5) Revenue
It’s very hard. And for advertising-supported businesses, don’t focus on it until you’re at many 10s of millions of pageviews per month, because it’s hard to generate substantitve revenues until you get to scale.

Conclusion
Hopefully my commentary added some value to the discussion – thanks to Dave for putting his slides up online.

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