Understanding the Word of Mouth Coefficient and its Impact on Growth

Understanding the Word of Mouth Coefficient and its Impact on Growth

In today's digital landscape, advertising dominance is often associated with platforms like Facebook, Google, and Amazon. These three giants account for 40% of all venture capital and a staggering 70% of a company's digital ad budget. However, recent developments, such as Apple killing user advertising IDs and Google decreasing the prominence of organic search results, have forced businesses to explore alternative methods of driving growth.

One such method is harnessing the power of word-of-mouth marketing. Word of Mouth (WOM) is notoriously hard to measure, as a significant portion of it happens offline. In fact, an astonishing 80% of online sharing occurs through dark social channels like WhatsApp, text, and email. This poses a challenge for companies trying to quantify the impact of WOM on their growth.

To tackle this issue, many companies turn to metrics like Net Promoter Score (NPS) and attribution surveys to measure the word-of-mouthiness of their existing users and track how new users discover their product. Additionally, social listening tools are used to crawl social platforms and the web to track mentions and engagement related to a brand.

However, simply measuring word of mouth is not enough. It is crucial to understand what drives it and how to leverage it for growth. This is where metrics like New Organics Per Daily Active User (NOPDAU) come into play. NOPDAU measures word of mouth as a function of what drives it and provides insight into the value of an active user in terms of revenue generation.

The key insight from analyzing the relationship between active users and new organic users is that product retention drives the growth of new organic users. The longer users engage with a product, the more word of mouth they generate. This highlights the importance of focusing on engaged users rather than solely acquiring new users. By increasing retention, companies can increase word of mouth and ultimately drive organic growth.

The concept of the Word of Mouth Coefficient (WOMC) further emphasizes the impact of engagement and retention on word of mouth. The WOMC is a ratio that represents the number of new organic users generated per week by each weekly active user (WAU). For example, a WOMC coefficient of 0.1 means that every WAU generates 0.1 new users per week through word of mouth.

While the WOMC provides valuable insights, it is essential to note that it does not solve all word-of-mouth challenges. The WOMC was popularized during the early days of social networks and social gaming when viral invite flows were highly trackable. However, in today's complex digital landscape, the focus should shift towards engaged users and building strategies around retention.

One interesting finding is that increasing word of mouth is directly correlated with increasing retention. This means that companies should prioritize strategies that improve user retention, as each new organic user has the potential to generate multiple future daily active users (DAUs) through the word of mouth loop.

Applying these insights to specific industries, we can see how optimizing in-product viral flows can be challenging for products targeting teachers in the edtech category. Teachers predominantly share information offline, making it difficult to track and measure word of mouth. However, by focusing on retention and building strong relationships with teachers, companies can tap into the power of word of mouth and drive organic growth.

It is also crucial to consider the stability and seasonality of the WOMC. While the WOMC remains relatively stable during the school year, it fluctuates based on school calendars. This pattern is similar to other core metrics like retention, monetization, and virality in e-commerce companies that experience seasonal fluctuations. As volume increases, the WOMC becomes more stable, indicating the importance of scaling and increasing user base.

Moving on to the topic of user activation, the time to value and product complexity play significant roles in shaping the activation rates. Reducing the time to value is crucial for improving activation rates, but it has its limits. No matter how streamlined the onboarding process is, it cannot compress weeks of value into minutes. However, it is essential to reduce the time to value as much as possible to enhance activation.

Product complexity becomes a crucial factor in the activation process, as complex products require a longer time to value. For example, Workplace, a complex product, typically requires a motivated first user with backing from top management to gain traction. Display ads, by nature, attract users with low motivation and intent, making them less effective for complex products like Workplace.

To address this disbalance between user intent and product complexity, it may be necessary to add friction to the activation process. This friction filters out users who lack sufficient motivation, ensuring that the onboarding flow is only experienced by those who genuinely want to use the product and understand its value. This personalized and sophisticated activation process becomes increasingly important as product complexity and time to value increase.

Creating a holistic activation system involves considering various components such as the product itself, sales teams, customer success managers, tutorials, educational materials, knowledge bases, case studies, and user acquisition and monetization models. All these factors contribute to finding target users, building relationships, creating awareness, and delivering value throughout the user journey.

In conclusion, understanding the Word of Mouth Coefficient and its impact on growth is crucial for businesses in today's digital landscape. By focusing on engaged users, optimizing retention, and leveraging the power of word of mouth, companies can drive organic growth. Additionally, considering factors like time to value and product complexity in the user activation process helps create a personalized and effective onboarding experience.