What Is the Value Of An Active User?

One year ago I wrote about the rise of B2C SaaS (or consumer subscription models). As businesses are moving from linear transactional channels (think buying Disney videos at a big box retailer such as the Virgin Megastore) to dynamic digital relationships with users (think Disney+), big changes are coming. It feels like big chunks of the $80 trillion economy are up for grabs for startups.

While it seems obvious that we are moving from an ownership to a usage economy, I sometimes feel like talking to a wall when I try to explain venture investors the value of user engagement, especially in the early stages of a digital consumer product. Most VCs still prefer to see MRR figures over the number of times an active user opens an 'app'. But the whole idea that people won’t pay for stuff (particularly digital services) they are using often is bogus... If you make a differentiated service that offers people something they can’t find anywhere else, then those people will be willing to pay for it, especially if they use it a lot.

So, what is the value of an active user?

Tien Tzuo, founder of Zuora, did a great job explaining the value of an active user in this blog post by referring to Google's widely discussed acquisition of Fitbit:

'Google just bought Fitbit for $2.1 billion, and the press seems to hate the deal. But I think all the objections are beside the point as they don’t address the real value in the deal.

Fitbit has sold over 100 million devices, but only has around 28 million active users. So, Google isn’t really buying a new technology platform (it already has plenty of those), it’s buying 28 million active users who obviously care a lot about their health. And it’s getting a really good price for them!

How much is an active user worth these days? Google just paid $2.1 billion dollars for 28 million Fitbit users, so in the context of that deal, a fitness user is worth around $75 dollars to Google. Last year, Netflix was buying new viewers is for around $100 a pop. Shortly after its IPO, Blue Apron was paying over $400 for a new user (not the best example, but still!). Active users are getting more expensive, but for a very good reason. 

I have a friend who is a Fitbit user, and she checks her app ten times a day. That kind of usage is incredibly valuable in a healthcare technology market with so many opportunities, including partnerships with insurers, hospital chains, and corporate wellness programs (not to mention clinical drug trials and behavioural research)...

And of course, there's one thing that would have made Fitbit's 28 million users way more valuable: subscriptions. (They only launched a program in August) Someone who checks their wearable ten times a day is probably someone who is willing to pay (at least) 5 bucks a month for additional features. 

Fitbit did their own study showing that roughly 14 million U.S. adults currently subscribe to a digital health and wellness service, and pay an average of $174 annually for a variety of different apps...

Value isn’t measured in individual device sales anymore. Value is measured in 'usership'. 

And by that dimension, Google got a steal.'

At the earliest stages of building a digital consumer product, you most often have to make a choice, monetise your existing user base, albeit small, or grow it efficiently (more on that in a later post). To maximise value, I suggest you focus on the latter.

So, what is an active user?

After having looked at many early stage (!) B2C SaaS products over the last year, I came to the conclusion that 3+ sessions / day is a great benchmark for apps with a strong social component (and I am not alone), 1.5-2 sessions / day for health and fitness apps and 2-3 sessions / week with 1+ hours of usage for content driven products.

Did you come across any interesting benchmarks? Please share below in the comments section or DM me. Thanks!

***

If you’re are building a B2C SaaS business or want to discuss benchmarks (!), please do reach out. I have lots of learnings from our portfolio companies and would love to talk.

#B2C #SaaS #Operator