The Network Effect of Mobile Liquidity

Ok, so you have a mobile app or game, and you've got some users too. Maybe you've even figured out how to make money. Nice work. In some of my past articles (can be found on medium.com) I've talked about how to make mobile advertising work in your app. Building on some of those insights, I want to share specifically about “chat” as a behavior that drives significant engagement, but more importantly has the potential to cause a “network effect” in pumping up ad revenue in your app.

Chat, or mobile messaging comes in many flavors, and there are an increasing number of companies out there delivering the technology to add mobile messaging to your app. In many ways, the tech is becoming commoditized. Companies like Layer and Pubnub do just this, and they do it well. But getting the tech right has little to do with engagement and even less to do with liquidity.

The most common messaging use case is one-to-one direct messaging seen in many of the hugely popular apps like WhatsApp, Kik and Facebook Messenger. But what I want to talk about is traditional group chat — yeah, like the old school AOL chat rooms style chat. Group chat is not nearly as common on mobile, in fact, there are only a handful of reasonably successful apps that focus on this behavior and I dare say any “unicorns” as we love to talk about in the venture world.

The main reason I believe group chat hasn’t “blown up” is because it’s not a viral behavior. If you go into a chat room, your essentially talking with strangers. You really have no reason to invite your friends. This contrasts sharply with apps like Snapchat, which are essentially useless without a friend, so after downloading it, you are compelled to invite them. That’s why these apps grow so fast.

But this article isn’t about user acquisition or virality, it’s about engagement and turning that engagement into revenue — and group chat is arguably the best mechanic for that purpose. And, it’s one that can cause a network effect when liquidity reaches critical mass.

Try not to get confused; I’ll get it all flushed out for you. Let’s circle back to the mobile app or game you launched. If your app is designed for a single user, like most games, you really have no way of creating mulit-user engagement. And even if your app is fundamentally “social”, you probably know how hard it is to create user liquidity (only slightly less difficult than acquiring users the first place).

Maybe I should define liquidity as it relates to this article. Liquidity refers to the total amount of people actively using an app, at the same time. Also known as concurrent users. DAU refers to the total unique users for the day, but doesn’t correlate directly to the number of users concurrent users you have. Usually we think of liquidity being important in marketplaces where there must be enough people there at any given time to make everything work. But liquidity applies to other user behaviors too, in particular, group chat.

Think about it. If you have a chat room with 1 person in it, then he or she is talking to nobody. Can you hear the crickets? Even if that room has 3 or 4 people in it, there may not be enough liquidity to spark a real meaningful and lasting conversation. In fact, the whole premise of this article refers to the effect increasing liquidity has on engagement — it’s not linear, its exponential. In other words, the more simultaneous users you have chatting, the more people are compelled to chat.

Ok, so lets say you integrate Layer or Pubnub and start letting your users chat with each other. How do you increase the liquidity and hence the engagement? Yes, you can add users, but you’re doing that anyway and it’s hard enough to get them to play our game or consume your content.

The thing about group chat is that it doesn’t need to be compartmentalized to your app alone. Chat rooms can easily be distributed and accessed from literally anywhere (an app, a website, desktop, etc.). So theoretically, 3 users in a chat room could be talking with each other from completely different platforms. Yes, this could be built with Layer and Pubnub, but it’s not inherent to these platforms.

Introducing Talkchain. Talkchain is a distributed chatroom platform that is accessible from within any app or website. It functions much like Tumblr in the sense that users come in one door, but may end up inside a room that is somewhere else entirely. The concept was not something I intentionally developed; in fact it was somewhat accidental. While building white-label chat apps for 3rd parties, I discovered how difficult it was to create enough liquidity to drive intense chatting sessions. I also observed that in the cases where liquidity did occur, there was a multiplier effect on engagement. Let me illustrate.

For an app with 1000 unique people chatting, users sent an average of 10 messages per day. When DAU increased to 2500, users sent closer to 20 messages per day and at 5000 DAU, they were sending nearly 50. This is partly due to the fact that more users leads to more discussions, but it also means that more people develop friendships. and that leads to one-to-one direct messaging. So the combination of group and direct messages grows exponentially.

This insight was somewhat shocking to me ultimately lead to a total shift in thinking around monetization.

If you read my post about CPM being BS on medium, I talked about the key to mobile advertising being impression volume more than CPM. I realized that as users sent more messages per day, that behavior generated more impressions too — so revenue per user went up. I quickly saw that we needed to figure out how to increase liquidity to optimize for impression volume. That’s where the idea for Talkchain came from. Because Talkchain is a “connected” network of people chatting, when a new app integrates our SDK or launches a white-label on our platform, they immediately have access to the hundreds of thousands of users already chatting. So their very first user that goes into a chatroom immediately finds people to talk to. In a sense we’re “spoofing” DAU because users are shared and each app is additive to the network, which increases liquidity and thus impressions per user. Voilà, exponential engagement and incremental revenue for the app.

It doesn’t matter if your app is a game, utility, content oriented or whatever — all apps can benefit from empowering their users to chat with other users on the network. And the entire Talkchain network is organized by topic, so users can create and join chat rooms based on their specific interests. And incidentally, even though I’m not a CPM thumper, advertisers like targeting — and having an interest graph leads to higher performing ads and thus better CPMs.

Circle of love people.