As you can see here, the model is substantially underpredicting our holdout data. We scratched our heads, and we ended up finding the culprit: clumpiness! (No, really, that’s the term). It basically means that our users don’t have a constant probability of using the app every day. Some weeks you’re with friends sharing payments left and right, other weeks you’re heads down at the library studying for finals and barely going out.
Can we measure clumpiness? Of course we can! Some more good folks at Wharton have come up with a measure based on the familiar notion of entropy. When we calculated it for our users, we found that a huge number of our users were “clumpy.”
So, basically, our users are binge-users of Venmo. This jibed well with the data that our user base was turning over significantly. It also meant that a critical assumption of the Pareto/NBD model was violated. On the bright side, we learned something new about our users.
Segmentation
With the stochastic modeling route closed off until someone (or we) make inroads into extending customer lifetime value calculations to customers with hidden states (in a way that’s computationally feasible), we turned to segmenting our user base, including clumpiness as a segmenting variable.
You may be wondering, “what is segmentation”? Basically, it’s an attempt to classify your users into different types. You may know of “soccer moms” and “nascar dads” from the political arena. Same thing. For example, some people on Venmo are in college and use it when they go out with their friends; others are older and use it only for rent. We found these archetypal users by using a technique called model-based clustering.
Conclusion
In addition to working in R, I really enjoyed a few other things about this summer. The first is pairing. Venmo has a ton of pairing rooms where you can sit next to a teammate and work off the same computer. My mentor Mike and I spent countless hours working together on problems - sometimes as simple as going through an academic paper or writing an email - and we were at least five times as productive as we would have been individually.
The other thing I really enjoyed about Venmo are demo days. Every other Friday the various Product, Engineering, and Design teams will demo what they’ve been working on. Over the summer I demoed a few times. At first I was a bit hesitant that people would be interested in this quant-heavy marketing stuff, but was very pleasantly surprised to find people really enjoyed it.
Finally, Venmo was just a plain fun place to work at. I mean, I was so into playing dodgeball that I basically threw my arm out: