I was confounded the other day by Andrew Ross Sorkin’s criticism of Facebook’s IPO figures, which he wrote up in the New York Times. On the face of it he looked naive and distinctly non-digital when he wrote:
On the first page of Facebook’s prospectus for its sale of stock to the public, it pegs the number of its “monthly active users” at a whopping 845 million people. The social networking site arrives at an even more astounding number when it comes to “daily active users”: 483 million people. [But] Those eye-popping numbers should have an asterisk next to them. […] According to the company, a user is considered active if he or she “took an action to share content or activity with his or her Facebook friends or connections via a third-party Web site that is integrated with Facebook.”
The default view of us digitalistas is “So what? Of course active Facebook users aren’t always on the website. They’re clicking the Like button, or logging on to a site with their Facebook account. Get with the programme, daddio.” Jeff Jarvis also cast doubt on the way Andrew spun his piece, when he tweeted:
Read @andrewrsorkin from bottom up & you may conclude Facebook is smart to be distributed & gain data from users
But it turned out Andrew wasn’t manufacturing scandal — he went on to quote equities expert Barry Ritholtz:
Think of what this means in terms of monetizing their “daily users.” If they click a like button but do not go to Facebook that day, they cannot be marketed to, they do not see any advertising, they cannot be sold any goods or services.
Suddenly it made sense. And I was annoyed that I’d been caught out at my own game. Metrics for the sake of it are pointless. Asking why you need those metrics makes all the difference.
To me, discounting off-site Facebook users is silly — those people still contribute to the size of the service. But investors actually want something tangible, not just numbers for academic satisfaction. If you want to make money out of Facebook how you count your users suddenly really matters… and you’d come up with a different method.
Similarly, I was speaking to someone the other day who wants to know the value of the stock in their warehouses. That’s something they should know, but getting to the answer requires first asking the question “Why do you want to know that?” This will determine whether they count items already sold and waiting to be sent out, items due to be returned, items broken or withdrawn and therefore not saleable, items in their agents’ warehouses, items already bought but not yet received, whether the number has to be up to the minute or up to the month, and so on.
Asking “why” is also at the heart of the lean startup approach. Asking why you want something determines whether you should prioritise it or not, which is essential when you’re trying to minimise your spend. Two startups in the same space will almost certainly turn out different if they keep asking themselves “why” — they’re likely to find they’re focusing on slightly different users, with slightly different needs, and will therefore become very different entities.
Asking why changes (almost) everything.