LIFETIM

E VALUE

  H O W L I F E T I M

E V A L U E D E T E R MI N E S Y O U R S U C C E S S A N D H O W

T O I MP A C T I T

PRESENTATION OVERVIEWRelevant backgroundWhy Lifetime ValueImportance beyond social mediaViralityRetentionMonetizationThe Cost SideLTV varies among customersUncertainty of LTV

RELEVANT B

ACKGROUND

F R O M ST A R T - U P T

O BI G

C O

THREE EXITS IN THREE YEARS

•Grew to top-5 casual game company • Initiated and negotiated sale to Playdom, which was then rolled into $570 million Disney acquisition

Co-founded Merscom CCO, led all marketing/sales/distribution

•Responsible for Europe, Latin America, Russia and India•Grew it from scratch to 25 percent of Playdom’s revenue

GM of Playdom’s International Publishing team

• Joint venture of EW Scripps and Capitol Broadcasting•Launched Facebook and mobile games

CEO of FiveOneNine Games

•Helped lead sale of company to Zynga•Lead UA, analytics, monetization and community

Chief Growth Officer at Spooky Cool

•Social casino team•Product, analytics, user acquisition

Senior Director, Zynga

WHY LIFE

TIME VA

LUE

T H E T H R E E MO S T I M

P O R T A N T L E T T E R S F O R Y O U R B U S I N E S S : L T V

Monetization ViralityRetention

BASED ON THREE PERFORMANCE METRICS

INTERDEPENCE

RELATIONSHIP BETWEEN LTV AND CPA

• Success

LTV > CPA

• Failure

LTV < CPA

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

IMPORTA

NCE TO ANY

BUSINESS

C R U C I AL T

O AN Y B

U S I NE S S

ONLINE OFFERINGSNetflixEbatesFarmville

SquareRackspaceBronto

B2B

SAASSalesforceHootSuiteBasecamp

Restaurants

Department stores

Car dealers

RETAIL

VIRALITY

W O R D OF M

O U T H ’ S E

X P O N E N T I AL E

F F E C T

DEFINITION OF VIRALITYK-scoreK=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

AN ADVANCED LOOK

Lowers cost of customer acquisition

Exponential growth

IMPORTANCE OF VIRALITY

IMPROVING VIRALITY

K=i*conv%Increasing I• Generate virality quickly• Cater to ConnectorsIncreasing conv%• Quality of communication• Provide value for virality

RETENTION

C R U C I AL A

N D HA R D T

O FI X

DEFINITION OF RETENTION

Customer lifetime

N-day retention

Churn rate

IMPORTANCE OF RETENTION

If they do not come back, monetization improvements are virtually useless

Product quality

Get in their heads

Make it socialMake it globalUse email and

advertising for re-engagement

IMPROVING RETENTION

MONETIZATI

ON

S H O W ME T

H E MO N E Y

DEFINITION OF MONETIZATION

ARPU (Average

revenue per user)

ARPDAU (Average

revenuer per daily active

user)

Percentage of customers

who monetize

Average transaction

Average number of

monetization events per customer

IMPORTANCE OF MONETIZATION

IMPROVING MONETIZATIONProduct quality

Value

More selection

Balancing

Shopping

experience

Promotions and sales

THE COST S

IDE

D O NO T F

O R G E T VA R I A

B L E CO S T S

COST DRIVERS

•Hosting •Support

Running Costs

•Platform fees•Payment processors

Payment Processing

•Engine, such as Epic’s UDK•Analytics

Software Royalties

•Properties•Talent

IP Licensing

LTV VA

RIES AMONG

CUSTOMERS

T H E R E I S N

O SI N

G L E LT V

COHORTS

Time of yearStage of product lifecycleHolidays

SEGMENTSAge

Sex

Income

Interests

SOURCES

Incentived ads

Targeted search

adsTelevisio

n

Virality PressCross

promotion

UNCERTAINTY

OF LTV

I T I S

A P

R E D I CT I O

N

UNCERTAINTY PRINCIPLEQuantum 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

RISK VS UNCERTAINTYRisk Something you can put a

price onUncertainty Risk that is hard to

measureDo not confuse uncertainty for risk

Correlation of past data does not create certainty

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 industryChaos 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

DO NOT DISCOUNT QUALITATIVE INFORMATION

More data is better than lessThis includes non-quantitive measuresBilly Beane has dramatically increased scoutingThe Smell Test

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

SOLUTIONS

•Think probabilistically •Distribution shows honest uncertainty

Create LTV range

•Can validate assumptions

A/B Test

•Regularly (weekly or monthly) compare data with predictions•“When the facts change, I change my mind”, John Maynard Keynes

Surveillance

Avoid Overfitting

Include qualitative data

THANK YO

U

M E L N I CK . L

L O Y D @G M A I L

. CO M

L L O Y D M E L N I CK . C

O M