How Consumer Subscriptions May Perform in a Recession — Eric Crowley, GP Bullhound
The Sub Club PodcastOctober 26, 2022
49
00:50:3446.34 MB

How Consumer Subscriptions May Perform in a Recession — Eric Crowley, GP Bullhound

On the podcast we talk with Eric about the largest consumer marketplace that’s ever existed, the growing exit opportunities for Consumer Subscription Software businesses, and why the CSS industry may be relatively recession-proof.

On the podcast we talk with Eric about the largest consumer marketplace that’s ever existed, the growing exit opportunities for Consumer Subscription Software businesses, and why the CSS industry may be relatively recession-proof.

Top Takeaways
👀 Simply occupying eyeballs isn’t the game plan anymore
💰The CSS space could be recession-proof
👴 The data and tooling landscape has matured, making it easier to build and grow subscription businesses

About Eric Crowley
👔
Partner at GP Bullhound, a global technology investment and advisory firm for entrepreneurs and founders
👨‍💻 Coming from an executive software startup background, Eric primarily focuses on M&A, capital raises, and advisory transactions at the firm
💡  “If the entire focus of your team is adding value and not just making sure information flows from stack one to stack two, you're going to build a better business, because you're out there listening to your customer [and] watching them use your service”
👋 LinkedIn and Twitter

Links & Resources
‣ Check out the Consumer Subscription Software (CSS) 2022 report
GP Bullhound

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David Barnard
Jacob Eiting
RevenueCat
Sub Club

Episode Summary

With more than five billion users able to instantly download more than 6 billion apps, it seems anything is possible. Tech investment banker Eric Crowley takes a deep dive into the Consumer Subscription Software (CSS) 2022 report and what it means for the biggest consumer marketplace ever created. 

As a partner at GP Bullhound — which invests in companies like Spotify and Whoop and boasts clients such as AllTrails, Pinkbike, and Lingoda — Eric provides capital and advice to CSS leaders. Eric’s insight is all the more important with public CSS valuations dropping to 4-5X revenue.

But while we could be heading for a macro slowdown, there are opportunities: The CSS industry just might be (at least somewhat) recession-proof. And if there was ever a time to exit, it could be now. Investors are starting to see the value of the subscription app space, and service providers like RevenueCat are amplifying that value. From PE to small companies, everyone wants to acquire.

At the same time, eyeballs aren’t everything now. Non-game revenue passed game revenue for the first time ever — standing at $85B on the App Store and $48B on Google Play. App developers are beginning to realize that there might be more value in subscription apps than just hooking people up with “luxury goods,” such as in-game currency, and commanding attention for as long as possible. 

Services that run in the background and provide real added value might be the answer for subscription app developers looking to ride out a looming recession while still growing.

👀 Simply occupying eyeballs isn’t the game plan anymore.

Consumer tastes are broad, and so are consumer niches. Selling subscriptions to 10 million people is very big business. And now, non-game revenue has surpassed game revenue for the first time ever.

The gaming industry has always dominated mobile subscriptions — both monetarily and in terms of total usage. Consumers have been more likely to interact monetarily with games rather than software, and that’s where most of their attention has gone, too.

This is huge because CSS services typically don’t operate by occupying as much time as possible. There’s been a fundamental shift away from an ad model of eyeballs and clicks in order to pay publishers. CSS is there to provide a service that often functions in the background — and these businesses are sometimes worth billions. “That's the whole beauty of this CSS model,” Eric highlights.

💰The CSS space could be recession-proof.

Inflation tends to lead to recession, which is almost never good for business. Consumers are negatively impacted, too. 

In-app purchases can be seen as luxury goods. But viewing CSS business in this way has benefits. “Generally, they are an enhancement at an affordable price,” Eric explains.

A subscription app for $100 a year is far less likely to get cut from a consumer’s budget than something costing that much per month. On top of that, digital delivery attracts consumers who are looking for cheaper luxuries.

During the last recession, for example, Netflix anticipated high churn rates but actually rode it out —  because people just stopped going to the movies instead. The same thing will happen with subscription apps that offer real added value for little cost when times are tough.

👴 The data and tooling landscape has matured, making it easier to build and grow subscription businesses

CSS entrepreneurs are looking for major appeal and big success. They’re like gold miners — and meanwhile, there are companies building and selling founders pickaxes and shovels. 

Five years ago, app developers had to build out more tooling and had much more limited insights into subscription monetization data. Everyone was pioneering.

Now there are customized tools for subscription management, like RevenueCat, and payment options like Stripe. Reporting analytics offer a window into business operations like never before. What used to be a massive engineering project is now out-of-the-box. Even compared with 10 years ago, the rate of maturation within data is overlooked.

Any CSS business knows the 10 to 15 tools it needs to integrate. This means entrepreneurs can now focus on content and how to find customers — the two most important parts of a CSS business — instead of how all the underlying infrastructure works. And that means you’re adding real value.

Episode Highlights

[1:58] Mind-blowing CSS report insights: Apps are instantly downloadable and purchases are immediate for 5 billion people around the world.
[5:10] What the internet was meant to be: Apple is the new cross-border cash clearing house, and apps are leveraging some of the most advanced technology we have today.
[7:39] The end of apps?: There’s a reason to be bullish on the subscription business model. David explains why.
[10:52] Record-breaking non-game app revenue: For the first time in 2022, people are spending more on apps other than gaming.
[13:27] Having fun with luxury goods: With a downturn on the horizon, will in-app purchases take a hit? Why spend money on Candy Crush when you can still have fun for free? GP Bullhound sees CSS businesses as “enhancements at an affordable price.”
[20:09] Where’s the value?: During a recession, the bar for added value increases. Where does that leave subscription services? If it makes you better at your job (like Grammarly does for Eric), it’s a winner.
[21:40] On bankers hating averages: Eric talks overvaluations, undervaluations, and the sturdy infrastructure of the industry. (Hint: DuoLingo, Dropbox, and Bumble will be here in five years.)
[28:22] Cashing in on subscriptions: The cash efficiency of the consumer subscription model is finally beginning to show. Eric highlights that CSS entrepreneurs are gold miners, with plenty of companies selling them shovels and pickaxes.
[35:13] Exit stage right: From PE firms to small investors, opportunities to exit apps are many. Eric explains what that looks like for brands, consumers, and founders.
[40:38] Philosophy of selling: Eric sets out the thought process founders go through and the questions they should answer before moving ahead with a sale.