A helpful heuristic I use to evaluate consumer apps is the toothbrush test. I first learned about it in 2014 in a NY Times article:
When deciding whether Google should spend millions or even billions of dollars in acquiring a new company, its chief executive, Larry Page, asks whether the acquisition passes the toothbrush test: Is it something you will use once or twice a day, and does it make your life better?
The esoteric criterion shuns traditional measures of valuing a company like earnings, discounted cash flow or even sales. Instead, Mr. Page is looking for usefulness above profitability, and long-term potential over near-term financial gain.
Google’s toothbrush test highlights the increasing autonomy of Silicon Valley’s biggest corporate acquirers — and the marginalized role that investment banks are playing in the latest boom in technology deals.
Surprisingly, the toothbrush test is not very popular in 2020 Silicon Valley jargon. It might be that Larry Page doesn’t have a social media presence (cf. Elon Musk). Another reason may be there are fewer people working on new consumer apps vis-à-vis enterprise SaaS.
But if you think of most successful consumer apps they satisfy the test: search, email, messaging, social media, streaming media. Toothbrush test products usually are free, ad-supported services or subscriptions. One exception to this are ridesharing and delivery apps like Uber and DoorDash—they are usually used a few times a week and charge a fee.
Of course, there are successful consumer apps that don’t satisfy the toothbrush test: many marketplaces (e.g. Airbnb) have semi-monthly or semi-yearly cadence. To make up for the lower frequency of use, these marketplaces tend to charge a relatively large fee. For example, Airbnb charges consumers approximately 14% (in addition to a 3% fee for hosts).
Entrepreneurs and investors should determine whether a new consumer app has the potential to be used 1-2 times per day. If not, then will they be able to charge a premium fee to make up for the lack of frequent use?
First published on October 20, 2020
