a16z Podcast: The Basics of Growth 2 -- Engagement & Retention

Key takeaways

Post-acquisition, user demographics evolve, and engagement patterns must be analyzed through cohort studies.
Cohort analyses reveal trends in user engagement, highlighting the significance of experiences that lead to 'aha' moments.
Real network effects can be demonstrated by improving cohort performance over time.
Effective engagement strategies require deep understanding of user segments and tailored interactions.
Retention metrics must reflect actual user behavior patterns to provide insights into business health.
Businesses must innovatively compete for user attention in a market dominated by major incumbents.

Summary

Understanding User Engagement After Acquisition

This section delves into the intricate dynamics of user engagement following the initial acquisition phase. Andrew Chen and Jeff Jordan discuss how user demographics evolve over time, leading to varying engagement patterns. They illustrate this with examples like rideshare platforms, which transitioned from urban-centric users to broader suburban demographics, affecting overall engagement and lifecycle value (LTV). The takeaway is the importance of moving beyond acquisition, emphasizing the necessity to foster user engagement once the initial user base has been established.

Cohorts and Tracking User Activity

A robust analysis of user engagement through cohort studies is presented. The hosts explain how businesses can segment users into cohorts based on the week of acquisition to compare engagement over time. They describe typical engagement trends, where user engagement often starts high before tapering off. Successful products not only keep users engaged but can also trigger a resurgence in activity through effective user experience design that leads to an ‘aha’ or ‘magic’ moment.

Network Effects and Cohort Performance

The conversation transitions to the concept of network effects and how they impact product value and engagement. The general partners highlight that businesses with strong network effects should display improving user engagement metrics over time. For example, platforms like OpenTable see higher reservations as more users contribute to the ecosystem, which enhances its value. They stress that simply claiming network effects isn’t enough; real data showing improving cohort performance is critical.

User Segmentation and Engagement Strategies

The podcast outlines strategies for segmenting users within their respective engagement journeys. By visualizing users as moving through a kind of ‘state machine’, businesses can effectively map out user behavior and tailor their engagement strategies. The hosts provide practical suggestions on how to nurture users through content targeting, financial incentives, and optimizing product design to increase interactions. They highlight the importance of refining understanding of user needs and behaviors through detailed data analysis.

Retention Metrics and Their Importance

The later sections focus on retention metrics and what they signify for a business. The hosts explain that retention isn't just about users still being active; it's also crucial to understand how often users engage with a product. Various metrics, including daily active users (DAU), monthly active users (MAU), and insights from histograms of engagement are discussed. They emphasize that retention metrics help evaluate product vitality and the user experience.

The Future of Engagement in Competitive Markets

The podcast concludes with reflections on how the landscape for user attention and engagement has changed. With competition from major platforms like Facebook and Amazon, companies must adapt and enhance their offerings to capture and maintain user engagement. The need for companies to not only understand but also anticipate user journeys becomes paramount in an increasingly crowded marketplace.

Show notes

with Andrew Chen (@andrewchen), Jeff Jordan (@jeff_jordan), and Sonal Chokshi (@smc90)

Once you have users, how do you keep them engaged, retain them, and even "resurrect" or re-engage them? That's the focus of this episode of the a16z Podcast, which continues our series on the basics of growth from user acquisition to engagement and retention -- covering, as always, key metrics and how to think about them. Especially as many products and platforms evolve over time, so do the users, some of whom may even use the product in different ways... so what does that mean for engagement, and how can startups analyze their users? "Show me the cohorts!" may be the new "show me the money"...

Featuring a16z general partners Andrew Chen and Jeff Jordan, in conversation with Sonal Chokshi, the discussion also covers everything from how network effects come in to play (is there really a magic number or "aha" moment for a product?) to who are the power users (and the power user curve for measuring, finding, and retaining them). Because at the end of the day, you don't want a leaky bucket that you're constantly trying to fill up. That doesn't work, and definitely won't scale.

The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

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