Is Daily Active Users a bullshit metric?
No doubt you’ve heard the term ‘Daily Active Users’ thrown around a lot lately. It seems like every company is bragging about how many DAUs they have. But what does that number actually mean? Is it an important metric? And more importantly, is it a bullshit, well, a vanity, metric?
Why is it then quoted often in stories about the hottest tech IPOs or quarterly results of publicly traded companies?
When the number of daily active users are growing, it’s an indication that the company is doing something right.
Growth in active users can come from two sources. One source can be newly acquired users, by investing in acquisition. The second source is existing users you already have, that keep coming back, which is what we call ‘the stickiness of a product’.
So, DAU can be seen as a way to gauge the potential of growth for a product. And for many companies (especially the ones dependent on advertising or networking effects), the more users are active, the more useful the product is- and that leads to more revenue.
Daily active users are thus seen by many industry people, analysts and product owners, as an indirect measure of stickiness and potential growth.
It’s then no surprise that when Facebook, the biggest social network of our time, announced that their DAU was declining for the first time since it started it led to the single largest daily decline of any stock in history.
Therefore, it’s a clear indication that growth has plateaued. And for a product with network effects, it can mean the start of a decline into becoming obsolete.
But while it’s nice to have a chart with DAU going up and to the right, it could still be a bullshit metric. Take, for example, an app that got a new round of investment and spends it all on user acquisition.
But this app is basically a leaky bucket; people use it once, but never come back. In this case, DAU growth comes purely from acquisition and not from having a sticky product with high retention.
But DAU can be used in combination with another metric. It will let you gauge the stickiness of a product, and transforms DAU to be less of a vanity metric.
Stepping away from vanity
In addition to DAU, we can also calculate weekly active users (WAU) and monthly active users (MAU). When we divide DAU by MAU, we get a ratio that represents the number of monthly active users that interact with your product or website on a daily basis.
This measure was popularized by Facebook, and is used as a primary indicator of how sticky your product is. The higher this ratio, the more your users are engaged with your product. It’s an important metric, because it shows how many people need your product, and can’t do without it on a regular basis.
The DAU / MAU ratio averages across all industries between 10% and 15%. But it wildly fluctuates between product types. For example, for B2C social apps such as Facebook, it’s at least 50%. While for B2B SaaS products, a ratio of 15% would be considered very decent.
According to MixPanel, here’s what average DAU / MAU ratio’s look like:
Source: MixPanel 2017
So while it can be said that DAU is close to a vanity metric, we can relate it to the number of monthly active users. This will make it more useful to gauge potential for growth, through measuring if people cannot do without your product.
DAU might not be the best metric on its own, but when used in combination with other metrics, it can give you a good indication of how sticky your product is. By understanding what makes users stick around and come back for more, you can work to improve those aspects of your product and see an increase in DAU – and hopefully ROI.