The depressing math behind consumer-facing apps

You just hit your millionth active user -- congratulations! Unfortunately, getting to that next order of magnitude (10M) is going to be very difficult, costly or both. Unless of course you're inherently viral. There is a reason Twitter, Facebook, Instagram, Pinterest, Dropbox, Snapchat, etc. all are. It's the same reason USV has their investing thesis.

If you're not growing significantly organically, you have to use a traction channel and either go out and reach people (ads, press, etc.) or set something up so that they are coming to you (SEO, content, etc.). Either way you will have to convert them.

Conversion ratios for viral are awesome. Conversion ratios outside of viral are not.
In a mass-market setting, decent conversion ratios are 1-3% depending on vertical, 5% is amazing and 10% is essentially unheard of (please give counter examples in the comments if you have any). For your first million, you could be somewhat niche and get higher ratios in smaller-scale channels, but when you're going up to 10M you are really crossing the chasm and sadly reverting to the mean.

Let's say you're really good: 5%. You need 9M new users, divided by 5% is 180M highly-qualified impressions (math gets a bit complicated when you convert that to people and start accounting for overlapping campaigns and conversion ratios increasing with # of individually experienced impressions).

That is a lot of impressions. For example, an amazing NYT feature won't even get you close (unless it spawns a fire-storm of other mass media press). Their circulation is 2M on Sundays, higher if you count online, but back to that if you account for people actually reading your amazing feature (remember, it's highly qualified impressions).

You can begin to understand why AOL printed all those CDs. And if you have high churn, god help you. It's a little better if you have some monetization so at least you can afford all those CDs.

Otherwise, you better raise a boat load of money, if you can. It's an easy sell to raise a ton if you haven't figured out monetization but already crossed the chasm (Tumblr). If you haven't though, it's doubly risky with both high market and finance risk. (Yes, this my obligatory paragraph required for all startup articles in 2013 to relate in some way to the Series A crunch.)

Some sectors are better than others. If you have low churn and high monetization (e.g. finance) you have more options like being in the top ten advertisers on the Web. If you have high churn or thin margins, however, it gets tough as Fred Destin pointed out for e-commerce. In his words, what's your angle? Or if you are raising money, why now?

Either way, never count out organic growth in your traction plan. If your first million active users are truly actively engaged and have pretty wide demographic characteristics, there is hope for you after all. Cut through this depressing math with the community sword and bump up that conversion rate!

Update: some good comments on HN.


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