I stopped using Twitter and Facebook, but shareholders wouldn’t know

In their quarterly reports, publicly listed social networking companies highlight several key performance indicators (KPI). One of the metrics they often emphasize is “daily active users” (DAU). Facebook reached 1.28 billion DAU on average for March 2017. Snapchat reported 166 million DAU for Q1 2017. Twitter doesn’t specify the number of DAU in its quarterly reports, mentioning only a “14 % year-over-year increase” for DAUs for the most recent quarter, and 328 million monthly active users (MAU).

The DAU metric is useful to evaluate young companies with still a comparatively low number of users, since it clearly shows the growth rate over time. For maturing companies which have been around for a while, I’d argue that the DAU metric is a weak measurement of a company’s ability to engage and retain users. Here is why:

In November, I stopped tweeting and reading my Twitter timeline. Early 2017 I significantly reduced my use of the Facebook app (not counting Messenger, Instagram or WhatsApp, of course). I’d estimate that I cut the time I spend with both services by 90 %. But if you only look at the DAU, this drastic reduction would not be reflected. Because I still almost every day check both apps at least once in order to have a quick look at the notifications. Just in case. If you, like me, frequently publish stuff on the Internet, you might get mentioned/tagged somewhere, and it’s nice to know.

Nevertheless, my contributions to the bottom line of these two apps have shrunken dramatically, because I hardly see any advertisements anymore. I don’t scroll through the news feed nor the timeline. On most days, I spend no more than at max a few minutes with Facebook and Twitter. On average, Facebook earns $17,07 per year from a user in the U.S. and Canada, and $5.42 from a user in Europe. Assuming that my usage of Instagram, WhatsApp and Messenger (the latter two are essentially not monetized at the moment) remains stable in 2017 and that my usage in 2016 was completely average, then this year, Facebook will generate significantly less revenue with my activity compared to last year’s $5.42.

The DAU metric masks negative changes in user patterns of long-term users, but these are in fact what matters when evaluating the outlook for mature social networking services. Only the radical step of deleting one’s account would be reflected in the DAU metric, at least in aggregate terms. I’d argue that this is not how most people actually behave. Rather, they’d grow increasingly tired and decrease their usage over time, while still wanting to be able to do quick checks on notifications, events, live streams or whatever. While these users are not totally lost (and Facebook is doing a brilliant job of keeping them engaged through their other apps), they nevertheless mean a reduction in revenue potential for the particular service. Even if this would be the case for millions of users who reduce their usage, shareholders would not see it when looking at the DAU.

Therefore, as much as publishing DAU numbers can be considered an improvement over the totally useless MAU, it’s still just an arbitrary vanity metric that masks actual changes in user behavior in order to entice investors.

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2 comments

  1. Hi Martin, while your argument has great merit for your Facebook and twitter examples, I disagree with your conclusion.

    I think every metric we can come up with has weaknesses or cases in which it is deceiving if looked at in an isolated way.

    For example, while “time spent” might seem more honest, it would – like many other engagement metrics – penalize efforts to make a service more efficient for the user.

    I believe DAU is just about as honest as it gets – e.g. Facebook obviously still has a strong grasp on you as a user across its services. As shareholder I am interested in the monetizing potential, and for that a regular use like you describe is still a great base.

    By all means though, we should always look at such metrics in context. E.g. Facebooks and twitters ad revenues development relative to the DAUs would probably reveal Facebook is still engaging its users in a more meaningful way (at least to shareholders ;)

    • “For example, while “time spent” might seem more honest, it would – like many other engagement metrics – penalize efforts to make a service more efficient for the user”
      That’s a good point. Yet, I can’t get myself to agree with describing DAU as “as honest as it gets” if it fails to capture a changing user behavior of the type that characterizes my described usage pattern. Technically, yes I am still a “DAU”. But the value of that information for those who evaluate the performance of the company is not given if it cannot capture and show these changing user patterns.

      That of course would not be a problem if the DAU metric wouldn’t receive so much attention and perceived relevancy.
      Having said that, I am under no the illusion that there could be the perfect metric. But I found it necessary to point out this weakness in the DAU metric. Next time when the latest DAU numbers are reported, one might keep it in the back of one’s head that what looks like growth can technically be used to mask a potential reduction of total user activity.

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