I read this piece on GigaOM the other day about what VCs look for when investing in gaming start-ups, and this bit caught my eye:
Hyatt’s number one metric for games that interest him as investment prospects: Day-one retention, i.e. whether new users come back the next day to play. This is an especially important way for Hyatt to evaluate games he might not personally “get” himself. His rule of thumb: Anything below 13 percent day-one retention is bad, while a great target is toward the 60-percent range. (If a game remains below 13 percent after a couple months despite attempts to grow retention, it may be time to kill it.)
While I agree that day-one retention is a meaningful metric and should be reported on a high-level dashboard, I don’t think it’s the most important metric.
First of all, I don’t like reporting retention metrics individually; I think retention should be presented as a retention profile, simultaneously reporting day-one, day-seven, and day-thirty retention rates. Day-one retention relays very little information, and focusing on this metric exclusively could lead to spurious conclusions being drawn about the success of the game. Day-one retention is basically a reflection of how good a game’s tutorial is and how compelling its graphics and initial gameplay mechanics are; day-seven is a good datapoint for evaluating the game’s core loop and progression; day-thirty is an indicator of whether the product catalogue and achievement curve are robust enough.
Second, while I’ve said in the past and firmly believe that retention is the most important aspect of a game’s success, I don’t think it’s the best overall indicator of a game’s performance; day-one retention without any context provides no insight into how well a game monetizes. If I was building a metrics dashboard for a game, I’d without a doubt put the retention profile at the very top — but if I had to choose only one metric to be reported each day about a game, I’d ask for Lifetime Customer Value.
If a developer tells me his game boasts an 80% day-one retention rate, the only assumption I’d feel comfortable making about the game is that its average player lifetime is longer than most (extrapolating 80% out against the normal retention profile pattern — 80%, 40%, 20% / Day One, Day Seven, Day 30 — I’d estimate the lifetime to be about 67 play days). But day-one retention doesn’t give me any information about monetization, which is how I’ll decide if the game is actually making money net of marketing and development costs. If I don’t know anything about monetization, how can I know if the game is profitable?
Lifetime Customer Value, while controversial, serves as a proxy for both retention (lifetime) and monetization (customer value) and a very durable gauge for whether a game will be able to profitably scale with marketing expenditure. If a game developer tells me his game boasts a 10$ LCV, I’d assume that the game both retains and monetizes well and that he can scale it with further marketing spend (LCV moves inversely with marketing spend, but at 10$, the game has considerable margin to surrender with scale).
I wouldn’t recommend focusing on one metric: build a dashboard and report everything. But I do recommend building out the infrastructure to track LCV and investing thought into its calculation before relying myopically on the individual metrics that are easiest to report on.