--- title: "Referral Programs bring you the worst users" id: "35435" type: "post" slug: "referral-programs-bring-you-the-worst-users" published_at: "2024-02-01T21:55:08+00:00" modified_at: "2025-01-03T17:18:56+00:00" url: "https://www.buyapowa.com/blog/referral-programs-bring-you-the-worst-users/" markdown_url: "https://www.buyapowa.com/blog/referral-programs-bring-you-the-worst-users.md" excerpt: "Or so writes Andrew Chen. Now he’s only the guy who built Uber’s super successful referral program and since has gone on to become a General Partner at Andreessen Horowitz. Now at first blush, when someone with so much hands-on..." taxonomy_category: - "Thought Leadership" taxonomy_post_tag: - "Referral Program" - "Return on Investment" - "ROI" taxonomy_translation_priority: - "Optional" --- [Back to Articles](https://www.buyapowa.com/blog/) - [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) # Referral Programs bring you the worst users Last Modified: 03/01/2025 **4 min read** [https://www.buyapowa.com/blog/author/peter-cunningham/](https://www.buyapowa.com/blog/author/peter-cunningham/) **Author:** [Peter Cunningham](https://www.buyapowa.com/blog/author/peter-cunningham/) - Marketing Director of Buyapowa Or so writes [Andrew Chen](https://www.linkedin.com/in/andrewchen/) . Now he’s only the guy who built Uber’s super successful referral program and since has gone on to become a [General Partner at Andreessen Horowitz](https://a16z.com/author/andrew-chen/) . Now at first blush, when someone with so much hands-on experience with referral programs writes that, that’s hard reading when, as the leading global enterprise provider of referral programs, you have a decent amount of skin in this game. He writes that users from referral programs etc, are much worse than those from organic sources and have ‘*worse LTVs, worse conversion, [are] less engaged, and so on*.’ **Ouch!** But actually when you read more closely what Andrew writes, he’s drawing on his experience with [the Uber referral program](https://andrewchen.com/worst-users-referral-trials-coupons-gamification/) , where he says that incentives attracted ‘*a different type of marginal user that wouldn’t have signed up earlier. They are less qualified, more discount seeking, and behave differently. There is negative selection*.’ It would be hard to argue that Uber’s referral program was not very successful in getting people to try a new product. One of the hardest things in business is to get people to change behaviors and so offering free or subsidized rides through referrals is a surefire way to get early adoption. The same way Airbnb’s referral program encouraged people to try this, at the time, new idea of forsaking a hotel to stay in someone else’s house. But he goes on to write that: > “This is especially true when the product has been out there for a while and the core market has mostly been saturated. You also see significant amounts of fraud as users scheme to profit from the incentives. This could be as simple as creating a new account to grab an incentive or it could be something much more organized and nefarious.” And he continues that: > “Not only did the rider-side referral programs perform worse over time, and perform worse than other channels, in fact, the users were much worse than even users bought from paid ads. It was millions of dollars of spend that didn’t need to happen.” **Ouch, ouch, ouch.** Or maybe not. We actually agree with what Andrew writes. Because it’s all about the design of your referral program. Giving stuff away for free or at a deep discount can help get your business off the ground, but it’s not a sustainable business model. You will attract discount junkies and people gaming the system to get a free ride, your Gmail email referring your Outlook account to get the free giveaway etc. And that’s why we advise our clients not to give away stuff until you know you have a fully verified and valuable conversion. It helps that we work in industries like [telecommunications](https://www.buyapowa.com/blog/leading-telecoms-referral-programmes/) , [insurance](https://www.buyapowa.com/blog/examples-of-insurance-referral-programs/) , [energy](https://www.buyapowa.com/blog/utilities-referral-programs/) , finance, [gaming](https://www.buyapowa.com/blog/examples-of-referral-marketing-in-online-gaming/) and high end retail where referral rewards and incentives are often substantial. Which is why we design programs where rewards are paid, not on a soft conversion like Uber’s refer-a-friend program, but only after a conversion has been validated, the cooling off period has passed, know your customer checks have been done and a contract signed and a premium or bill payment made. So Andrew, we agree with you and would say that it all comes down to the way you design your referral program. We’re in awe of what you did with your referral program at Uber and think it was great to get the business rolling and we understand why it maybe didn’t work once the business was established. But with the right design, the right software and the right partner you can avoid these issues. It was also interesting to read the recent research from [Rachel Gershon of UC San Diego and Zhenling Jiang of the University of Pennsylvania](https://www.buyapowa.com/blog/referral-contagion/) which looked at 41 million customers from a large US mobile brand and found that referred-in customers were 32% more valuable than customers recruited through organic or paid search, affiliates or paid social. And, in addition, they found that to fully appreciate their value we have to take into account that referred-in customers are themselves more likely to refer in new customers. If not, we risk underestimating their value by a third. Our own recent [The Referral Myth Debunked research](https://labs.buyapowa.com/the-referral-myth-debunked) also showed that referral marketing does bring in incremental customers, with less than half of respondents saying that they knew of a brand before it was referred to them, and nearly a fifth saying that the brand referred was better than their existing choice of product or service. So in short, we think it’s all about how you design your referral program. Andrew, we’d love to discuss this more with you. ## Free eBook Referral Codebreakers Fill in the form & Unlock the science behind the world’s most successful & influential referral marketing programs ##### Categories ## Related Articles ### [Referral, Loyalty & Switching Risk in Italy’s Energy Market](https://www.buyapowa.com/blog/referral-switching-italy-energy/) - [Energy](https://www.buyapowa.com/blog/category/energy/) , [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) [Read More](https://www.buyapowa.com/blog/referral-switching-italy-energy/) 17/08/2026 15 min read ### [The 42-Point Referral Gap: Why Greek ISPs Need Campaigns, Not Passive Programs](https://www.buyapowa.com/blog/greece-isp-referral/) - [Communications & Media](https://www.buyapowa.com/blog/category/communications-media/) , [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) [Read More](https://www.buyapowa.com/blog/greece-isp-referral/) 17/08/2026 5 min read ### [When Everyone Offers Free Spins, Nobody Stands Out](https://www.buyapowa.com/blog/european-casino-referral/) - [Gaming](https://www.buyapowa.com/blog/category/gaming/) , [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) [Read More](https://www.buyapowa.com/blog/european-casino-referral/) 17/08/2026 6 min read ### [Beyond the Free Bet: What European Sportsbook Customers Want from Referral](https://www.buyapowa.com/blog/european-sportsbook-referral/) - [Gaming](https://www.buyapowa.com/blog/category/gaming/) , [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) [Read More](https://www.buyapowa.com/blog/european-sportsbook-referral/) 17/08/2026 5 min read ### [The Recommendation Gap in Canadian Car Insurance: Advocacy Is High, but Price Confidence Holds It Back](https://www.buyapowa.com/blog/referrals-canadian-car-insurance/) - [Insurance](https://www.buyapowa.com/blog/category/insurance/) , [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) [Read More](https://www.buyapowa.com/blog/referrals-canadian-car-insurance/) 17/08/2026 6 min read ### [The Trust Transfer in Canadian Credit Unions: Members Are Ready to Refer—and Ready to Listen](https://www.buyapowa.com/blog/canadian-credit-unions-referrals/) - [Banking & Finance](https://www.buyapowa.com/blog/category/banking-finance/) , [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) [Read More](https://www.buyapowa.com/blog/canadian-credit-unions-referrals/) 17/08/2026 5 min read ### [The Quiet Loyalty Problem in Canadian Home Insurance: 62% Will Refer, but 31% Could Still Be Won Away](https://www.buyapowa.com/blog/canadian-home-insurance-referrals/) - [Insurance](https://www.buyapowa.com/blog/category/insurance/) , [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) [Read More](https://www.buyapowa.com/blog/canadian-home-insurance-referrals/) 17/08/2026 7 min read ### [The UK Pet Insurance Loyalty Paradox: 66% Plan to Stay, but 44% Could Still Be Won Away](https://www.buyapowa.com/blog/uk-pet-insurance-loyalty-paradox/) - [Insurance](https://www.buyapowa.com/blog/category/insurance/) , [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) [Read More](https://www.buyapowa.com/blog/uk-pet-insurance-loyalty-paradox/) 12/08/2026 5 min read ### [Powering Referral Marketing for Canada’s Finest](https://www.buyapowa.com/blog/canadas-finest-referral-marketing/) - [Use cases](https://www.buyapowa.com/blog/category/use-cases/) [Read More](https://www.buyapowa.com/blog/canadas-finest-referral-marketing/) 11/08/2026 5 min read ### [30 Tips to Generate More Customer Referrals](https://www.buyapowa.com/blog/tips-encourage-customer-referrals/) - [Thought Leadership](https://www.buyapowa.com/blog/category/thought-leadership/) [Read More](https://www.buyapowa.com/blog/tips-encourage-customer-referrals/) 11/08/2026 40 min read ### [Referral Is Already Influencing Insurance Decisions. 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