Season 5, Episode 19: The power of cohort compounding (with Nilay Patel)
May 6, 2025
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Nilay Patel, head of product at Kohort and an expert in mobile gaming and user acquisition optimization, dives deep into the transformative power of cohort analysis. He addresses common pitfalls in lifetime value estimation and discusses why cohorts are crucial for evaluating product economics. Nilay also explores how companies can effectively incorporate cohort monetization into user acquisition models and the importance of handling outliers in data. His insights reveal how adapting to cohort performance can drive improved monetization and user retention strategies.
Cohort analysis empowers digital-first companies to make informed decisions across disciplines, enhancing marketing ROI and overall strategy.
Addressing user acquisition inefficiencies, effective cohort monetization plays a crucial role in optimizing budget allocation and performance forecasting.
Identifying and managing outliers in revenue models helps gaming studios refine engagement strategies while maintaining user retention and satisfaction.
Deep dives
Real-Time User Engagement with Context Platform
The Context platform allows apps to respond to user behavior in real-time rather than relying solely on historical data. By utilizing on-device AI, the platform can detect signals such as user motion, device state, and time of day, which helps it to better understand user intent. This capability allows for timely offers that significantly increase the likelihood of user engagement. For example, one client experienced an impressive 80% increase in conversions by simply improving the timing of their offers.
Challenges in User Acquisition and Budget Management
Many game studios face the challenge of inefficient user acquisition (UA) spend, leading to excessive waste of resources. With an estimated $6 billion wasted annually in gaming due to ineffective UA strategies, optimizing spend is crucial for growth. The Cohort company aims to address these challenges by offering analytical tools that assist UA managers and finance teams in making informed decisions about budget allocation. The integration of machine learning models helps to analyze cohort unit economics, ultimately facilitating more effective budget management.
The Importance of Cohort-Based Analysis
Cohort-based analysis is critical for understanding the performance of mobile gaming products throughout their lifecycle. This approach allows studios to evaluate the effectiveness of different user acquisition channels and the retention patterns of diverse user groups over time. The distinction between new and older users is essential, as the gaming experience evolves, which impacts retention and monetization rates. Recognizing these variations enables studios to better tailor their strategies for user engagement and monetization.
Navigating Outliers in Gaming Revenue
Outliers can significantly impact revenue models in the gaming industry, particularly when a small percentage of users generate a large portion of revenue. Accurately identifying and contextualizing these outliers is vital for creating effective cohort analyses and monetization strategies. To manage outliers, studios must analyze a substantial volume of data to differentiate between typical behaviors and exceptional cases. This comprehensive view helps to inform better decisions regarding user engagement and revenue generation.
Continuous Improvement and Monetization Strategies
Studios must continuously update their LTV models and strategies to adapt to evolving market conditions and user behavior. While maintaining existing user engagement is crucial for long-term revenue, studios must also focus on innovations in live ops and monetization features to enhance overall user experience. Balancing improvements without alienating older user cohorts is essential, as excessive monetization pressure can accelerate churn. Thus, a nuanced approach that considers behavioral insights and user feedback is necessary for sustained success in the mobile gaming landscape.
My guest on this episode of the podcast is Nilay Patel, the head of product at Kohort, a cohort analytics platform (full disclosure: I'm an advisor to the company). In our conversation, we discuss the profound power of cohort analysis in decision-making, not just related to marketing spend but across all disciplines within a digital-first company. Among other topics, we cover:
The aspects of LTV estimation that companies most often get wrong;
Why cohorts represent the most appropriate atomic unit to use in assessing a product's unit economics;
How cohort monetization can be used as an input to a user acquisition cash flow model;
How to handle outliers in cohort analysis;
How companies can approach this type of prediction / forecasting if they don't spending significant amounts of money on user acquisition;
How companies should think about monetization improvements over time when they project cohort performance;
How the user acquisition channel mix contributes to cohort performance over time.
Thanks to the sponsors of this week’s episode of the Mobile Dev Memo podcast:
ContextSDK. ContextSDK uses over 200 smartphone signals to detect a user’s real-world context, allowing apps to deliver perfectly timed push notifications and in-app offers.
INCRMNTAL. True attribution measures incrementality, always on.
Interested in sponsoring the Mobile Dev Memo podcast? Contact Marketecture.
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