HOW LIFETIME VALUE DETERMINES YOUR SUCCESS AND HOW TO IMPACT IT

Lifetime Value

Presentation Overview

Relevant background

Why Lifetime Value

Importance beyond social media

Virality

Retention

Monetization

The Cost Side

LTV varies among customers

Uncertainty of LTV

FROM START-UP TO BIGCO

Relevant Background

• Grew to top-5 casual game company • Initiated and negotiated sale to Playdom, which was then rolled into $570

million Disney acquisition

Co-founded Merscom CCO, led all marketing/sales/distribution

• Responsible for Europe, Latin America, Russia and India• Grew it from scratch to 25 percent of Playdom’s revenue

GM of Playdom’s International Publishing team

• Joint venture of EW Scripps and Capitol Broadcasting• Launched Facebook and mobile games

CEO of FiveOneNine Games

• Lead UA, analytics, monetization and community• Social Casino space

Currently Chief Growth Officer at Spooky Cool Labs and Chairman of Globalization Committee at NC Central’s School of Business

Been there, done that

THE THREE MOST IMPORTANT LETTERS FOR YOUR BUSINESS: LTV

Why Lifetime Value

Based on three performance metrics

Monetization

Virality

Retention

Interdepence

Relationship between LTV and CPA

• Success

LTV > CPA

• Failure

LTV < CPA

Think of LTV starting day 1

Green-light

Design and develop

focused on LTV

Beta and other

testing to optimize

LTV

Post launch to focus on improving

LTV

CRUCIAL TO ANY BUSINESS

Importance beyond social media

Online offerings

NetflixEbatesFarmville

B2B

Square

Rackspace

Bronto

SaaS

SalesforceHootSuiteBasecamp

Retail

Restaurants

Department stores

Car dealers

WORD OF MOUTH’S EXPONENTIAL EFFECT

Virality

Definition of virality

K-scoreK=i*conv% (conversion percentage), where

“i” is the number of invites sent out by each new customer and “conv%” is the percentage of invites that convert into costumers

An advanced look

Importance of virality

Lowers cost of customer acquisition

Exponential growth

Improving Virality

K=i*conv%

• Generate virality quickly• Cater to Connectors

Increasing I

• Quality of communication• Provide value for virality

Increasing conv%

CRUCIAL AND HARD TO FIX

Retention

Definition of retention

Customer lifetime

N-day retention

Churn rate

Importance of retention

If they do not come back, monetization improvements are virtually useless

Improving retention

Product qualityGet in their headsMake it socialMake it globalUse email and

advertising for re-engagement

SHOW ME THE MONEY

Monetization

Definition of monetization

ARPU (Average revenue per

user)

ARPDAU (Average

revenuer per daily active user)

Percentage of customers

who monetize

Average transaction

Average number of monetization

events per customer

Importance of monetization

Improving monetization

Product quality

Value

More selection

Balancing

Shopping experience

Promotions and sales

DO NOT FORGET VARIABLE COSTS

The Cost Side

Cost Drivers

Running Costs

• Hosting • Support

Payment Processing

• Platform fees• Payment processors

Software Royalties

• Engine, such as Epic’s UDK• Analytics

IP Licensing

• Properties• Talent

THERE IS NO SINGLE LTV

LTV varies among customers

Cohorts

Time of year

Stage of product lifecycle

Holidays

Segments

Age

Sex

Income

Interests

Sources

Incentived ads

Targeted search ads

Television

Virality

Press Cross promotion

IT IS A PREDICTION

Uncertainty of LTV

Uncertainty Principle

Quantum Mechanics • The universe is random• Perfect predictions are impossible if the universe is random

Not a function that creates a value

You are predicting a future event

Create a range, not a number• Albert Pujols is likely to hit 30-40 home runs is more accurate than

Pujols is likey to hit 36 home runs

Models are simplifications of the world

Risk vs Uncertainty

RiskSomething you can put a price on

Uncertainty Risk that is hard to

measureDo not confuse uncertainty for risk

Correlation of past data does not create certainty

The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at

or repair,” wrote Douglas Adams in The Hitchhiker’s Guide to the Galaxy series.

Wrong assumptions can have profound effects• Independence of variables• Mortgage industry

Chaos Theory• Not a synonym for the game industry• A small change in initial conditions can produce a

large and unexpected divergence in outcomes• Major risk when modeling against past

performance

Do not discount qualitative information

More data is better than less

This includes non-quantitive measures

Billy Beane has dramatically increased scouting

The Smell Test

Avoid Overfitting

Mistaking noise for signal

Fitting a statistical model to match past

observations

Test how much of the variability of the data is accounted for by your

model

Solutions

• Think probabilistically • Distribution shows honest uncertainty

Create LTV range

• Can validate assumptions

A/B Test

• Regularly (weekly or monthly) compare data with predictions• “When the facts change, I change my mind”, John Maynard Keynes

Surveillance

Avoid Overfitting

Include qualitative data

LLOYD@VERUSENTERTAINMENTGROUP.COM

WWW.LLOYDMELNICK.COM@LLOYDMELNICK

Thank you