The difference between conversion and retention
Picked up a piece of analysis today from my newsfeed regarding Twitter audience. Nielsen has posted information about Twitter's month-to-month retention (40%) and compared that to Facebook's and MySpace's. Pete Cashmore over at Mashable promptly misread the basic information and came to an entirely wrong conclusion about the stats, titling his post about it as "60% quit Twitter in the first month". A simple misunderstanding of basic audience analysis like this is the crucial difference between explosively growing traffic and a failure. That's a fail for you, Pete.
What's wrong? Well, retention is a separate matter from conversion. 40% conversion from a trial registration to being a continuing active user to the second month would not be a bad conversion rate. It's not stratospherically great, I've seen better, but I wouldn't be terribly unhappy about such a figure. However, Nielsen didn't say anything at all about first-to-second month conversion. This is what they DID say: "Twitter’s audience retention rate, or the percentage of a given month’s users who come back the following month, is currently about 40 percent."
That's pretty plain English when you take the time to read it. Month to month, regardless of visitor lifetime, not first to second month. On this metric, 40% retention is not good at all, and will definitely be a limiting factor to Twitter's traffic and audience size over time, just the Nielsen article points out (and shows the math for). For any given retention rate, there just is a certain maximum audience reach beyond which any new traffic can't overcome the leaving base, since new traffic is not an inexhaustible supply.
And since today is a busy day, that concludes the free startup advice. Take the time to understand the difference between these metrics, you'll thank yourself for it later.