In these digital times it sometimes helps to explain things in analog terms. How to tell about a web 2.0 start up to people who associate business on web with selling dog food at a loss to huge number of potential (vs. buying) customers? One solution: find an analogy from the “real” world. Here’s my case example:

Building a web site is somewhat similar to creating a new paper magazine. In both cases you follow the same steps:

1. Print or publish the first version of your content.
2. Attract readers to sample the content you provide.
3. Do your best to convert the first time random readers into subscribers or returning users.
4. Sell advertising space on your medium.

Once you get the reader base big enough you’ll be able live off the advertising and/or subscribtion revenue. The same goes for a web site. Of course there are a number of other proven business models but I find this local newspaper analogy easy to explain when my grandma asks what my company does… ;-)

Okay, so the business depends on getting readers and converting them to “subscribers”. Andrew Chen introduced an interesting metric useful in this context: activation efficiency. In his blog, Andrew says:

So let’s define a new metric, which I’ll call “Activation Efficiency,” using the marketing parlance of how many contacts you can “activate” into leads and then into sales:

• Activation Efficiency = total retained users / total acquired users

where:

• Retained users means total # of users that had 2 visits or more, let’s say
• Acquired users means the total number of uniques that come in through your viral loop

Now that sounds like a metric to keep an eye on! As he points out, it doesn’t matter if you get 1.000.000 users if only 0.1% activate. Better to acquire 100.000 visitors and activate 10% of them!