I have previously written about a conceopt that I call The Growth Trap: a flawed product strategy in which teams optimize product and feature development against the small subset of the product’s total addressable market (TAM) that discovers it organically. To avoid the growth trap and thus capitalize on the total opportunity of a product, a team must optimize the product for the totality of the large and diverse spectrum of users for whom it is relevant, not the smaller and more fanatical subset that adopts the product organically.
This can only be done by introducing users to the product through paid marketing. At some point, if the team wants the product to ever be appealing to the users that haven’t discovered or won’t discover it organically, the team must acquire some sample of those users in order to optimize the product for them. Without doing this, the team makes the product increasingly more functional and satisfactory for enthusiasts, which could conceivably alienate all other users from it, inhibiting user base growth.
A related but not quite logically inverted product strategy mistake is what I’d call the Monetization Trap: ratcheting up monetization pressure for some existing user base, which increases revenue but degrades user retention to an extent that engenders a total dependency on paid marketing for immediate-term revenue. This strategy might also simply be categorized as short-term thinking: users are acquired and monetized quickly, to such a degree that they don’t retain.
The flaw here is fairly obvious: a product can run out of easily acquirable users after enough time, and absent retention, DAU will plummet if the new user spigot stops running. But this strategy can work for product categories with very large total addressable markets: the canonical example is the hypercasual games space. Developers of hypercasual games publish lightweight, superficial apps that relentlessly bombard users with ads, but the economics are such that user acquisition can be profitable despite short user tenure. But the developer is stuck in a monetization trap in which it must continuously acquire new users, who are expected to churn very quickly for any single game, and when that game’s total addressable market is depleted, the developer must publish a new game and start the process anew.
Exogenous market factors can fatally disrupt this strategy. One example is a forthcoming policy change from Google that will exclude certain ad formats — such as full-screen interstitial ads that cannot be closed — from Android. Android is the primary market for hypercasual games in terms of installs, and these types of ad formats (but again, especially non-closeable full-screen interstitials) proliferate there. The monetization trap can create scaleable economics for a product, but market conditions can easily disrupt that, and retention is the real value proposition for any consumer app.
Without retention, a product can generate revenue but no real value; sacrificing retention for short-term unit economics, even in a business model that can be operated profitably, subjects a developer to existential risk related to very specific market shocks like the Google decision above. Retention is the primary driver of value for any consumer product: monetization can be experimented with and tuned to perfection, but without strong retention, the product might lack a meaningful surface area of engagement from which monetization can be yielded. As I write in What to think when DAUs decrease but ARPUs increase:
Another component of this dynamic is the immediacy of generating revenue for the company. When a product is growing dramatically with sticky, committed users, maximizing per-user revenue is usually of a lower priority than maximizing engagement and retention. Heavy-handed monetization techniques can increase churn if they’re not rolled out thoughtfully and experimented with systematically: a retained user can always be exposed to a finely-tuned monetization mechanic or ad placement, but a churned user is inaccessible. When a company is rushing to optimize unit monetization, it implies that they feel that growth — at least growth of that most-relevant, most-likely-to-be-engaged cohort of core users — may be difficult to achieve.
Maximizing short-term monetization such that retention is degraded is a case of “eating the seed corn“: retention is essentially an investment, and raiding it in service of short-term revenue increases can pose dramatic and irreparable risks to the long-term health of a product. I’ve written extensively about the supremacy of retention as an optimization metric, but it always bears repeating given how alluring the monetization trap can be in order to meet short-term revenue targets. And it can work, and perhaps even sustainably, but always with the risk that either the product’s TAM is saturated or an exogenous factor breaks the business model.
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