How Chamath Palihapitiya Dramatically Increased Facebook User Retention

‘7 friends in 10 days’ – yes, the most well known “AHA” moment on the face of this earth, made famous by former VP of User Growth at Facebook, Chamath Palihapitiya. We know people cannot predict correctly, but data certainly can and this, is the story of how Chamath and his team reached this groundbreaking insight.

First, we need to understand that “AHA” moments cannot be gut feelings, so how did Chamath do it, and why? Let’s dive into some data for insights!

LET’S START WITH WHY – WHY IS RETENTION IMPORTANT?

For a platform that relied on user-generated content for engagement, retention meant everything! Chamath and his team believed that nothing else mattered if you had poor user retention.

HIGHER RETENTION MEANS:

  • Increase of customer lifetime value à Resulting in the ability to allocate higher budgets for acquisition.
  • Increase promoters (virality) à Decrease of cost per acquisition, where your customer does the marketing for you!
  • Increase up-selling opportunities à Grow revenue and cut down on payback period.

You won’t simply receive just one of these benefits with higher retention, but all of them! 

HOW DID HE GET TO THE ‘7 FRIENDS IN 10 DAYS’ INSIGHT?

Let’s take a look at the retention curve. I do not have access to Facebook’s user data, however, the below diagram should be sufficient to get an idea of what a retention curve is and how it can be used to drive insights.

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The x-axis represents the number of days since the date of joining. For example 10 on the x-axis means that the customer has been using the platform for 10 days. Similarly, the y-axis represents the number of active users. For example, if you look at the red curve, it has about 30 new users, and around 20 users have dropped out within the first 10 days.

This is a consolidated curve. There can be people who join in January, February, March or any given month, and these curves can be mapped out individually on this graph. However to easily analyze we consolidate the data from all these months and create a single curve by adding these curves together. For example, 100 new users in January and 200 new users in February when consolidated will result in 300 new users on the 0th day.

IDENTIFYING ALL POSSIBILITIES

It is common to look at user source, entry path, technology, content type and persona for segmentation. For the sake of simplicity lets assume that the only variables/possibilities are the ones given below:

  • Channel – Search, Direct, Mailer, Referral
  • Actions – Updated photo, Updated bio, Added 1 friend, Added 2 friends, etc.
  • Time – Within an hour, Within a day, Within 5 days, Within 10 days,

We then create a combination of the above, and segment them together. These groups are known as cohorts.

Lets consider the cohorts with the following combination of steps.

Cohort 1

Within a day, Persona X

  1. Joined through search
  2. Updated photo
  3. Updated bio
  4. Added 1 friend

Cohort 2

Within 10 days, Persona Y

  1. Joined through referral
  2. Added 2 friends

Cohort 3

Within 10 days, Persona Z

  1. Joined through mailer
  2. Updated photo
  3. Updated bio
  4. Added 7 friends

Remember, it is essential that we look at every possible combination available! Once you have created cohorts for each possibility you can then map the retention curve for each of these cohorts.

The retention curves for our above-mentioned cohorts will look something like this:

img-2

The retention curve varies for each of these cohorts.

UNDERSTANDING THE RETENTION CURVE

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Let’s start with the green curve. As you can see the curve declines continuously to zero. This means that you are losing your hard-earned users. You might probably have a product/market fit issue. (A topic I look forward to covering in my future blog posts. Stay tuned!)

The blue curve on the other hand looks more promising. Certainly you have lost a few users overtime but you have flattened the curve after a certain number of days, ensuring that they remain for a longer period of time.

 FLAT CURVES ARE THE BEST RETENTION CURVES

Chamath and his team understood this, and the curve that had the best retention was of the cohort group that made 7 friends within 10 days. They actioned this insight by recommending relevant friends to new users through all the possible sources. By actioning this simple user-retention strategy, Facebook became the most successful social media platform in the world, ever.

3 Simple things. Measure, Test, Try ~ Chamath Palihapitiya

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ReapDigital Learnings

Insight

A leading apparel brand was struggling to retain their online customers, with their repeat customer rate being significantly low. ReapDigital created cohorts by Product Type (Shirts, Pants, etc.), and Product Size (S, M, L, XL, XXL). We analyzed the data and understood that customers who purchased XL and XXL sizes tend to have a higher retention rate, and carries out more repeat purchases than all other cohorts.

Action

Special discount coupons were given to first-time buyers that purchased any XL or XXL product, making sure they repurchased more items and continued to do so. We also saw a tremendous improvement in retention due to coupon codes, and rolled out coupon codes to all types of first-time buyers. This resulted in a 12% upward shift of the retention curve.

Insights are great, but also clearly useless unless you know how to action them. Let’s take a look at how we can use insights to drive growth.

HOW TO ACTION YOUR INSIGHTS TO DRIVE HIGHER RETENTION

What part of retention do we need to optimize?

This depends on who your customer is and what your end objective is. The diagram below shows the four main parts of retention and different strategies that can be used to optimize these different areas:

 img-4

 New User Experience

New user experience is the natural behavior of the product. So it is important to understand how people use your product. Chamath and his team realized that if you make 7 friends within the first 10 days, the curve will stop declining and will become flat. They pulled together all their resources to make sure users get to experience the core value of Facebook as quickly as possible.

“Tactics to impact this part of retention will help you shift your retention curve up, making sure more users will retain in the long run.”

  • Growth Hack: If you remember when Dropbox launched, they had two simple options on the home page; download the product or watch the video. If you had already downloaded the product it gave you 250MB of free storage when you watched the ‘What is Dropbox’ demo video. This ensured a majority of users watched the video and understood what Dropbox exactly was. That is their growth team getting you to experience the core value of Dropbox as quickly as possible. Using a simple video explaining what your core value addition to the user is, can help reduce the drop off and reach a flatter curve. 

Mid-Term Retention

Once you have allowed your new users to experience the core value it is important to create habits around this core value. By having multiple habits that trigger emotions will likely drive users to be very engaged and involved with the platform/product.

  • Growth Hack: ‘You’ve just been tagged in a photo on Facebook’. Familiar words? Did it excite you? Do you want to know WHO tagged you, and in what picture? Where was it taken exactly? A million questions and our inquisitive selves cannot wait to check this out. Our inquisitive selves cannot wait to find all the answers. We login to check the image, like it, comment on it, and if it’s a great picture, we might even share it. Before you know it, you cannot help yourself browsing through other pictures too, tagging friends and family by habit. In a nutshell, stimulate user emotions to build habits

 Long Term Retention

Once experiencing the core value has been turned in to a habit, it is important to make sure the users experience the core value as often as possible. Making the curve flat and making sure it stays flat without declining can be ensured through delivering an excellent experience.

  • Growth Hack: How many exciting projects have you been involved in through github? Quite a few I suppose? How often have you had help from the community, or discussed an idea or contributed in the git community? Creating a community that is vibrant and relevant to the product itself can guarantee long-term engagement and retention.

 Reactivation

There must have been some reason a user joined your service. If they didn’t understand the core value right away the chances are that they have become dormant. Remind them and reform their opinion. Resurrecting existing users are cheaper than acquiring new ones. Create triggers for them to start experiencing your product again.

  • Growth Hack: ‘We Missed You’ emails are becoming largely popular and no doubt you have received a few yourself. Dropbox sends a very simple email with a before and after illustration, which also speaks about the core value of Dropbox. Remind your users about the core value of the product and incentivize to get started with the product again

Understanding what part of retention you want to impact will be clear once you have defined your objectives. Creating a measurement framework will help you ensure that you have reached these set objectives.

“Your diamonds are not in far-away mountains or in distant seas; they are in your own back yard if you will but dig for them. – Russell Conwell 1862”

Understanding retention is pure joy, triggers all emotions of the data geek inside you.

Contact us and let’s understand how we can help you solve your retention problems to grow your business.