How do you measure if your product is providing real value? It’s enough to measure if your user is using it.
In this post, I want to make two arguments:
- Usage is positively correlated with Real Value.
- To measure if the user is getting Real Value from your product, it’s good enough to measure if the user Is Using your or Is Getting Nominal Value from your product.
For any product, two generic things to measure are (1) Usage: Is the user using it? and (2) Value: Does the user get the intended value from using it?
2-Usage vs Value
- Value is direct and is what we want to provide. But it’s hard to measure.
- Usage is less direct and is more of a proxy measure of the value we want to provide. But it’s easier to measure.
3-Why we give up on measurements
(1) Usage can often be measured,
(2) But because usage is not value, and
(3) Value is hard to measure,
(4) We often end up giving up on measuring anything at all.
After all, what’s the point of measuring something that can be measured (usage), but does not indicate the real thing (value)?
Below, I want to argue that the point of measuring usage is because it correlates positively with real value.
4-Nominal Value vs Real Value
In economics, there is a concept of Real vs Nominal.
From Investopedia, “The term real, as opposed to nominal, expresses the value of something after making adjustments for various factors in creating a more accurate measure.”
5-Introducing the Deflator
Deflator = Nominal / Real
In a world where the Nominal Value is greater than the Real Value, the deflator is a constant >1 number that adjusts Nominal Value to more accurately measure Real Value.
For example, your salary is €100. If it only allows you to buy €50 worth of goods (for example, because of inflation), the deflator is 2.
6-From economics to product
I want to propose that in Product, the same equation applies
(A) Deflator = Nominal Value / Real Value
(B) To derive Real Value: Real Value = Nominal Value / Deflator
Let’s say Usage, the thing we can measure but does not indicate the value accurately is Nominal Value.
So: Usage = Nominal Value
Substituting Usage for Nominal Value in equation (B):
Real Value = Usage / Deflator
We can say even if Usage != Real Value and Real Value != Nominal Value
Still, Real Value // Usage, where I use
// to mean “parallel” or that Real Value varies directly with Usage. If Usage increases, Real Value increases in parallel.
In the end, in the absence of an accurate measurement of Real Value, Usage is a good enough proxy to measure Nominal Value. This is because Nominal Value is positively correlated with Real Value. If Usage trends upward, you can safely say Real Value is also trending upward. Therefore, measure Usage.
You can also observe the constant, Deflator. I see this as the user being a constant Deflator of Nominal Value to compute Real Value. In product, it (how the user derives value from usage) is mostly out of your control, but it doesn’t matter because it’s a constant.
Say you provide a fitness product.
The Real Value and what you hope to measure is if people are becoming fitter. It’s difficult to measure if people are becoming fitter, but what you can measure is Usage, if people are using your product.
I’m saying even if Usage != Real Value… Still, Usage = Nominal Value. And the user is a constant deflator of Usage to Real Value (Real Value = Usage / Deflator). In other words, if the user is using it, you can conclude that the user is getting a proportional real value from it, even if it’s deflated. And the more your user uses it, the more real value she gets.
Therefore, measure and optimize for Usage. It is a good enough way to optimize for Real Value.
(Reversal: You can make the argument that Facebook and other addictive products went over the deep end, optimizing usage way past providing real value. I’d say the equation still holds and that usage still correlates positively with a specific type of real value they wanted to provide of “social connections”, but that maybe it’s not optimal or humane to provide social connections past a certain point. Also, most companies don’t have this problem of users using their product too much. So don’t worry about it.)