“Vanity Metrics and Decision Making In The Era Of Information Overload” – Part 1

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Every day we are confronted by headlines blaring that some publication has a million subscribers or that somebody on Twitter has a million followers. We see impressive numbers that unfold great success stories. People who read this would in all likelihood assume that each article would have a potential million readers or that each Tweet would have a million impressions!

But the dismal fact might be that with Twitter’s algorithm, as little as 1% to 2% of their followers would ever see that individual Tweet. Actual impressions are thus vastly overstated in most cases where impressive, even intimidating numbers are being cited.

The term ‘vanity metrics’ has been buzzing in both the business world and the world of academics in recent years. A ‘vanity metric’ refers to a number that looks great on paper, but does not necessarily play a significant role in the big picture. Large numbers tend to create the impression of great accomplishments. However, if only a small portion of those numbers are of real significance to the concerned organisation, it is questionable whether so much time and effort should be spent on them.

Vanity metrics are those statistics that marketing people spout at the drop of a hat – rising numbers of site visitors, social media followers, newsletter subscribers and the like. Vanity metrics are metrics that sound good like the number of ‘Likes,’ ‘Shares,’ ‘Page views’, Downloads’, Subscribers’, ‘Clicks,’ ‘Web visits,’ ‘Click-thru-rates’ (CTR), ‘Reach,’ ‘Site visitors’ and ‘Impressions.’ All that these figures achieve is a feel-good factor when they go up. Vanity metrics make the progress of a business organisation appear great, without giving any meaningful insights.

vanity metrics

 

Metrics and Decision Making

Metrics are critical in understanding different processes and operations of organizations with a view to improving them, but they are difficult to establish. Business and organisational leaders need well-defined metrics for data-driven decision making. Metrics such as Time taken, Errors, Repetition of errors, Rework, Return on Investment, Cost, Annual Labour Turnover rate, etc. help in identifying key risk indicators so that organisations can address them as soon as they arise. In the absence of clear metrics for informed decision-making, critical decisions might be taken on the basis of gut feelings, opinions or untested hypotheses.

 

Vanity Metrics and Decision Making

  • In May 2015, Snapchat co-founder Evan Spiegel declared publicly that his app was “approaching” 100 million daily active users in developed markets. The fact was that as per their own S-1 filing[1]in June 2015, Snapchat averaged 89 million daily active users overall.
  • Twitter only shares monthly active users, not daily ones. It has also been known to email inactive users, pushing them to sign in.
  • Snapchat only shares data regarding daily active users, not monthly active users.
  • Facebook has the most users, but it is not easy to compare other platforms to the social media giant.
  • In September 2016, Facebook over-estimated its video views and misled advertisers who purchased video time based on that metric for two years.
  • In January 2017, Uber paid a fine of $20 million after its software exaggerated how much its drivers could earn, while downplaying the real cost of car financing.
  • In August 2017, Google issued refunds for creating advertisements with fake web traffic.
  • In October 2017, Twitter admitted that it had over-counted its user numbers over three years.

Tech companies thrive or die by metrics. Many private tech companies choose to selectively release their numbers, before they start raising money to become public companies.

In earlier times, investors used to depend on information obtained through audited final accounts of businesses to evaluate their profits and revenues, before deciding to invest in them. But businesses that are startups today and are actively looking for funding, cannot present such information. So investors are inveigled by different user numbers that can be manipulated using what is called ‘growth hacking’ to boost their numbers.

It is not just startups that misuse vanity metrics. Big tech companies have also been using vanity metrics to inflate their numbers and present a rosy picture of their present position and their future profitability. Thus investors are lured into taking decisions which might be based on misleading information. Vanity metrics enable businesses to put forth numbers that make even startups appear to have the potential to earn billions of dollars!

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[1] S-1’s are the forms used in an Initial Public Offering (IPO) to notify the Securities and Exchange Commission (SEC) of the upcoming public offering of the company. The S-1 form contains the relevant information about the company and offering it is making. This is usually less informative to investors, but also less biased than the corresponding prospectus that is used to create investment in the newly public company.

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References

· Ries, Eric (2011) “The Lean Startup -The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses”. 1st ed. Random House.

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prospectusthatis used to create investment in the newly-public company.

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