The rise of passive, anti-active usage products

Patrick Campbell Mar 26 2021

For decades we've been talking about active usage in the context of retention. After all, if someone is using the product, then they must be happy, right? Our market has changed though as we're able to measure outcomes better and automate more than we ever have before.

The result—our fixation on active usage may no longer be valid.

In fact, the data actually suggests that the least used products have the best retention, as long as they have a measurable outcome. I get that's a bit counterintuitive, so let's explore this concept with a nice framework, some examples, and of course the data to determine if you should be building a product for usage at all.




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First though, what is a product supposed to do?

You may think this is an obvious question, but it's fruitful to ask, because we want to get deeper into the first principles of why your product exists. No matter your industry, your customer, or technology, the product you create ultimately provides some sort of outcome for your user.

We have many frameworks and catchy phrases for this phenomenon - jobs to be done, level up your customer, value plus outcome - but it's all the same concept. Your product + your customer = an outcome your customer seeks.

 

activeusage.003

How do you measure that? Well, with a lot of products the outcome is tricky to measure. How do you measure joy for a game you're selling? If you don't have access to revenue data, how will you know the impact of your B2B app? Since we can't measure, we fall back to a proxy of active usage. Presumably active usage in Salesforce means you're making sales, right? Playing a game daily means you're getting joy, right? Basically, if they're using it, it must be valuable.

For a long time this was true, especially in the primitive SaaS 1.0 days where even measuring usage was hard. Expectations were different though. In a world where technology was difficult to build every product was magical. The alternative to salesforce was a spreadsheet or some old perpetual license software that got updated once every 18 months. Salesforce was updated almost weekly and gave you pretty graphs. In this world, the job of software and products was to show your boss you're doing work. If you're doing work, then an outcome should come, right?

Here's the problem though, a proper outcome isn't guaranteed with usage and that usage may just end up making the path to outcome onerous and long.

Continuing our Salesforce example, the main user is typically a sales rep of some kind who ends up needing to input endless fields of information to prove to the sales manager that progress is being made. The manager may be happy, but they're always chasing the sales reps to input the proper data under the right timeline. This data has no direct connection to getting a sale. It's merely tracking, which helps in the aggregate, but doesn't do much for the rep. It actually adds a tax to the work and the entire industries popped up around trying to make inputting data into Salesforce easier.

We were ok with these types of product until we weren't, especially when technology gave us the ability to not build these types of products. We've moved from an age of "show your work" to "just do the work for me."

Let's call this SaaS 2.0. These days you can't just throw a WYSIWYG editor and some forms on top of a database and call yourself a great product. Users are picky, because they have a lot of options. You can measure outcomes more easily and cheaply. You can even charge based on them (see value and pricing metrics content we've written). The result—we've changed "getting your customer to the outcome they seek" to "getting your customer to the outcome they seek as quickly and efficiently as possible."

Our response has been to fixate on the concept of "time to value"—getting your user to see the value in your product as quickly as possible. We've improved things like on-boarding, support, etc. Yet, I think we should be asking a more important question:

What if we just removed the usage? Why optimize for usage if we can give the customer value?

Let's go deeper here into a new framework for thinking through product in modern times.

 

Active usage or passive usage. Not the middle.

As to not bury the lede, I'm positing that we're heading into a world where your product needs to be daily usage by design—meaning you're a workflow tool. Or it needs to require no active usage to get value—meaning it's a passive tool. If you're somewhere in the middle, you will not succeed without going upmarket.

The reasoning here is that this comes down to baking retention into your product. If someone is using your product on a daily basis, your product is crucial to the work they're doing or they've been told they have to use your product. If the former, then you don't lose the customer unless some fancy new product comes along, but the customer will think twice because they have to disrupt their whole workflow. If the latter, then your end user isn't the real user you have to worry about, but if the end user keeps complaining about your product, you may be at risk.

Similarly, if your product ends up being passive and providing value, then there's no reason to cancel your product, because it's not causing undue burden on the user. We can model this phenomenon as the following.

activeusage.001

Remember this comes down to measurement too though, and products won't perfectly fall into one end or the other. So what's the framework we should use as a business? In my mind you have two key questions:

  • How measurable is your outcome and how much does your customer agree with your measurement?
  • How much can you truly automate?

Our first question around measurement is important, because if you're building passive products, measurement will likely be the only value driver for you. Inevitably your customer will evaluate if they should still pay for your product they aren't using, and if they can't see the success they won't keep paying you. Measurement isn't as important in daily-usage products, but will increase in importance with more competition. Our second question is crucial simply because we don't want to do needless work anymore, and I'll show some data on this soon.

We can represent our two questions on a nice, classic 2x2 with outcome measurability on the X axis and automation on the Y axis. I've plotted some different products to show you how they fall into our framework.

activeusage.002

Within this model we have three main groups:

  • High outcome measurability, High automation—passive products

    This group is new and provides value with no work on your part apart from initial implementation. These products tend to succeed mainly because they're incredibly easy to verify as ROI positive. Short sales cycles and great retention.

    A good example here is ProfitWell Retain—our churn reduction software—you plug it into your billing system, install a snippet, and make money. That's it. We're also able to measure a baseline of before Retain and performance with Retain, charging on this measurement to perfectly align with the customer.



  • Medium outcome measurability, Medium automation—workflow products

    This group needs heavy usage for retention and oftentimes involves mission critical products.

    HubSpot is a good example of this group, particularly their marketing product. HubSpot can't perfectly measure outcome, because even if they get revenue data into HubSpot (which you can do using ProfitWell's free HubSpot integration - hint hint :)), your customer may not agree to the measurement because they wrote the blog post or sent the email. How much credit should they get versus HubSpot? The ROI validation still takes place so they do need to get the data in there, but it won't be as elegant as a passive product.



  • Low outcome measurability, Low automation—avoid these products

    These products tend to be useful, but not obviously useful, so they require heavy sales or "training of the market." I would avoid them unless you can raise a lot of money and go upmarket.

    A great example is the analytics and business intelligence world. Most companies start out with the premise of, "well you need analytics to get insights and make decisions, so let's build a BI tool." What happens is they just create a tool with a bunch of graphs that the customer then needs to do the work to actually get the value. All that work creates a weird value differential, which is why most analytics tools have to go upmarket to serve a sophisticated buyer. Even then they still have terrible retention. As a side note, this is why ProfitWell metrics is free.

Ok, but what about the data?

Enough theory talk though, what's the data actually say about these products? Well, let's jam. Below you're looking at a breakdown of net revenue retention based on the strategy employed. The percentages are the lift or gain in retention relative to the overall median. Basically you're seeing how these strategies correlate with retention performance.

A couple of notes:

  • Notice how products with high outcome measurement and no active usage have the greatest lift. These are products like Vend, MainStreet, and ProfitWell Retain.

  • Products that require active usage, but have medium outcome measurement still get pretty good lift. These would be products like Salesforce, a bit of HubSpot, etc.

  • Products without outcome measurement, but high active usage still do pretty well, but this is more table stakes. These would be products like gmail, your productivity app, etc.

  • Products without outcome measurement and/or active usage see the biggest relative drop. These would be products like the analytics market (ironically).

Reletive-Retention_Product-Type

 

What should you do for your business?

Ideally, you'd pick a side. Be a passive tool that has near perfect outcome measurement or be a workflow tool that still has outcome measurement, but focuses heavily on active usage. In reality, a lot of products tend to have elements of both, so in short:

  • Put measurable outcome into your product as much as possible

If your product drives revenue or saves cost, pull that data into your reporting. If you can't easily get the data, then do estimates. HubSpot does a really good job with this when it comes to SEO estimations by pulling in cost-per-click data and estimating how much the traffic would have costed with ads versus content.

If the point of your product isn't revenue or costs, then show some measure of value—a proxy for the outcome you're helping with through your product. A lot of productivity tools will show how much time they've saved or used the product, an indication of getting value.

  • Focus on active usage only if it's in a workflow

Active usage for active usage's sake isn't going to scale if a competitor can easily remove a step on the side of the customer. Remember, we don't want to just show our work anymore. We want to just have the work done for us. Some products are still going to need usage from your customer, but just re-evaluate every step with, "can we automate or eliminate this step?" You'll be surprised at the amount of work you can reduce.

 


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By Patrick Campbell

Founder & CEO of ProfitWell, the software for helping subscription companies with their monetization and retention strategies, as well as providing free turnkey subscription financial metrics for over 20,000 companies. Prior to ProfitWell Patrick led Strategic Initiatives for Boston-based Gemvara and was an Economist at Google and the US Intelligence community.

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