How do you measure the success of an app? Customer engagement is key

How do you measure the success of a mobile app? At one time counting downloads was a sufficient way to evaluate the success of an app, but that's no longer the case. Download numbers do not necessarily reflect the actual number of people using an app, for example, nor the impact an app might have in a market.  

Click here to view the Fiksu app download charts for January 2012.

Today venture capitalists and mobile developers are focusing on customer engagement, or interaction. Companies can use engagement metrics to see, in very granular detail, how customers are using products and this can produce valuable information, such as the market value of an app. Companies can also use engagement data to understand how to build an audience of reliable and returning customers who either generate revenues for a company or support its business objectives in other, tangible ways.

"Engagement is king," said John Malloy, general partner and co-founder of BlueRun Ventures. "Fundamentally, the industry would benefit from talking about engagement and measuring engagement."

As an early-stage investor in entrepreneurial companies, Malloy needs engagement metrics to help characterize the performance and market value of mobile application businesses the company supports. One of these companies is Waze, a crowd-sourced traffic navigation app.

Waze has a community of 15 million drivers around the world who share traffic information in real time via their handsets. Adoption of the app is growing rapidly and its value will increase as its crowd grows to report traffic conditions and its drivers benefit from the user-generate information. But download data can't characterize the value of this app. Scope of traffic coverage matter to Waze and thus it is tracking the number kilometers driven every month by its commuters. Last month that number was a half-billion kilometers, Malloy said.  

"That metric really matters," he said. "For that particular company, the more people use it while commuting is a core value."

Long-term engagement is fundamental
While Waze and many other companies create engagement metrics specific to their businesses, the industry is beginning to identify engagement metrics that can have general relevance for understanding user behaviors and improving app effectiveness.

"Time is an important metric in mobile," said Brian Suthoff, vice president of strategy and business development at Localytics.

Suthoff said that many leading news publishers, for example, are tracking engagement time on their mobile apps to improve their publications for their readers. The companies are studying how much time readers spend with their publications overall and with particular sections of the publications and they are using these metrics to tailor the organization and presentation of content. They are even modifying the user interface and graphic design if necessary, in response to their detailed observations of customer activity.

Suthoff also encourages companies to track another type of time-related metric--the retention rate for apps over a period of time. Companies should use retention studies to cultivate "long-term engagements" with their customers because the longer-term engagements will lead to revenues, he said.

For example, Localytics recently studied the number of times customers engage with an app before making in-app purchases. The company found that 44 percent of customers did not make their first purchase until they interacted with the app at least 10 times. Further, customers who delayed their first purchase tended to make more purchases over time than those who bought something during their first session.

"For long-term success, you need people who download it to become long-term users of the app," Suthoff said. "The same thing would be true for advertising and publishers that rely on ad dollars. Obviously, if they use an app over and over again, they generate more ad revenue."

Linking engagements to revenues
Ultimately, businesses will need to apply the information they gain from engagement metrics to drive revenues and build profitable companies, and companies are finding interesting ways to do this.

Apsalar, a vendor in this market, can study end user behavior metrics to track behaviors such as customer progress in a game, when customers purchase and use virtual game currency, or when shoppers put items in a shopping cart. Apsalar can also calculate the average number of engagements per user, average revenues per user and overall revenues. One customer for the service, Gameview Studios, said it will use the metrics to guide its product and business decisions and build the lifetime value of its users.  

"The information is valuable to any app publisher who has real business goals beyond the download," said Michael Oiknine, CEO and co-founder of Apsalar. Companies also need to consider the many marketing costs required to acquire these customers and the value of those customers to the business.

Craig Palli, vice president of business development at Fiksu, a mobile app marketing company, recommends that developers use four metrics to evaluate and improve the financial health of their businesses: average revenues per user, the number of daily active users, the lifetime value of loyal customers and the cost to acquire those loyal customers through marketing activities.

The firm defines a loyal customer as someone who opens an app three or more times, although each business might have its own definition for this.

"Any business can be valued based on the lifetime value of a customer less the cost to acquire that user," he said. "I think that any app developer should start their app process thinking about [these issues]."