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Tech’s favorite metric may be broken

Kai Ryssdal and Ben Johnson Jan 13, 2015
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Tech’s favorite metric may be broken

Kai Ryssdal and Ben Johnson Jan 13, 2015
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COPY

Twitter bucked the downdrafts on Wall Street today. Shares picked up half a percent or so, to almost $40 apiece at the close in New York.

Dick Costolo, CEO of the 140-character social network, has sold $25 million worth of company stock since November amid rumors of that some big investors aren’t all that pleased with Twitter’s numbers.

Not strictly numbers from the bottom line, though. Instead, it’s the numbers that measure how often you and I  and millions of others – are on Twitter and every other online site. In industry speak, monthly active users, or MAUs.

“This is an important number,” Marketplace Tech host Ben Johnson says. “Someone went to your site, used your service, played with your app, once a month.”

For investors in quickly growing companies, like tech startups, it’s a useful way to distinguish the total amount of attention a company has received from the longer-term love people show a service or social network as they repeatedly return to the site.

But even that is too little information, according to Evan Williams,who runs the publishing platform Medium and is a cofounder and former CEO of Twitter. 

“You can land on a website and stay for three seconds, or you can land there and read something for five or 10 minutes,” Williams says. “When you talk about the dimension of people who stop by as the only thing you talk about, what value are you measuring, either to the people or the company?”

Spending quality time with a product, service, or app, is something the monthly numbers simply don’t reveal. But since the monthly active user measurement is the industry standard for venture capitalists, user numbers start to stand in for value. Particularly for companies that are not publicly traded and have yet to make much revenue.

The metric was important when news broke that Instagram had surpassed Twitter in its total number of MAUs — 300 million to Twitter’s 285 million. Twitter investors started getting nervous, another reason Twitter CEO Costolo may soon be on his way out. 

But Johnson warns that MAUs probably won’t always be the end-all, be-all. Investors and advertisers are ultimately looking for ways to reach the right customers, at the place and time they are completely engaged. Namely, on their phones. And blanket monthly numbers aren’t nuanced enough to reach them. 

“In the next few years, we’re going to see the things we do on our phone really, really fragment and go niche, and we’re going to see advertisers actually start to use the data they’re collecting on us all the time, to create ads that are actually useful to us,” Johnson says. 

Their hope? More money for advertisers, better ads for consumers. 

In other words: “The next generation of advertisers isn’t going to be buying ads for the Super Bowl. It’s going to be buying ads for curling equipment for the curling championships.”

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