How to Turn Gamification Into a Retention Powerhouse — Anton Derlyatka, Sweatcoin

David Barnard:

Welcome to the Sub Club Podcast, a show dedicated to the best practices for building and growing app businesses. We sit down with the entrepreneurs, investors, and builders behind the most successful apps in the world. To learn from their successes and failures. Sub Club is brought to you by RevenueCat. Thousands of the world's best apps trust RevenueCat to power in-app purchases, manage customers, and grow revenue across iOS, Android, and the web. You can learn more at revenuecat.com. Let's get into the show.

Hello, I'm your host, David Barnard, and with me today, RevenueCat CEO, Jacob Eiting. Our guest today is Anton Derlyatka, co-founder and CEO of Sweatcoin. One of the largest health and fitness apps in the world the past three years with more than 180 million registered users. On the podcast we talk with Anton about building sustainable viral growth loops at scale, how to effectively gamify user incentives, and why emotional connections drive more value than purely economic ones. Hey Anton, thanks so much for joining us on the podcast today.

Anton Derlyatka:

Thank you very much for having me. Pleasure.

David Barnard:

And Jacob, nice to have you on as well.

Jacob Eiting:

Excited to be here.

David Barnard:

So I wanted to kick things off with a little bit about Sweatcoin. I don't think our audience will be as familiar with Sweatcoin as they are with some other apps, especially because you're just now starting to layer subscriptions on, so it's not well known in the subscription app industry. But I think you have a lot of interesting things we're going to be able to talk about today. But why don't you just kick it off. Tell us a little bit about Sweatcoin, how it was founded and what the app is.

Anton Derlyatka:

Thank you. So Sweatcoin has a very simple concept at the score. We're great believers that physical activity is valuable and we wanted to create something that will help people develop a very healthy habit of continuously moving. We all know that it's very, very hard to be active. We all have been on the receiving end of that early January, blue Monday type of depression. You buy a gym membership, you give up, you install a new app, and you promise yourself that you're going to work out three times a week and then before you know it, you've forgotten about it. I mean, we all know this, right? Building a habit is difficult. And why is it so? And the funny thing, and that's one of the things that we kind of discovered very early on is actually we're not born to be active.

We are born to be lazy. Mother nature did not ever think that we'll have excess calories at some point in time. So actually did not build in any kind of behavioral mechanisms that would encourage you to be active, which is very different to some other behaviors like take procreation. We have orgasm, so we procreate. I mean easy, but well, as it turns out, we don't have orgasm for exercise and we almost kind of... Obviously the whole thing, I'm just making a bit of a joke, but I was really kind of fascinated. I've been in the sports fitness space for many years and one of the things that I was constantly fascinated by is that why motivations are not there for some people and they are for some others.

So obviously that the biggest and the best thing about this is intrinsic motivation, and many of us actually don't have a problem with that and we are really lucky. Truth is that about 70% of the world population do not have that ability and they need to be approached because all of the fitness industry is based on pretty much that very healthy concept of you need to get more responsible, you need to get moving and everything. And that's why there's so much success. You look around yourself, everybody's doing something, everybody's going for a walk to the gym and something. But the reality is 70% of the rural population do not buy into this. So we wanted to come up with something different.

We wanted to come up with something less intrusive, not like guilt-based or whatever, guilt trip based type of things, lazy bum, stand up, do a 5K and all this kind of jazz. And obviously loyalty programs had been around for ages, they're popular. And the initial idea was can we actually come up with some sort of a loyalty program, air miles, full steps. And this is where it all started, but that's kind of loyalty programs are not cool. You look at the air miles, they're praying. And then so obviously I started iterating, trying to come up with a different level of user engagement that could actually make people adopt a new habit. And then as I said, my initial claim is that physical activity is valuable.

And the idea was just very simply that physical activity is valuable literally because people who are more physically active, they are more productive, they're healthier, they destroy less value for the economy generally because they get ill less frequently. And if we were able to capture that value one way or another and somehow tokenize it and share it back with the user, it would create an ongoing flywheel. And that's exactly what we did. So yes, that's a long story. That's a story kind of materialized initially in a form of a loyalty program. Then I started chatting to a few friends. I think that I ended up with speaking to my now co-founder who was like, "Oh man, let's just take it all the way. Let's call it a coin."

And of course we were inspired by Bitcoin then, it was back in 2015, Bitcoin was still in its relative infancy. So we came up with this concept of creating a virtual kind of point system or token system. Next thing we knew is that it just exploded.

David Barnard:

That whole idea is super fascinating. A lot of people these days are trying to recreate Duolingo, the Duolingo for this or Duolingo for that and streaks is kind of an interesting way to do that. But this whole idea of this loyalty program of a coin is an interesting kind of spin in the other direction of incentivizing those things. So how does Sweatcoin actually work? And funny enough, I was telling my wife last night that I was interviewing the CEO of Sweatcoin. She's like, "Sweatcoin, that sounds kind of gross." And I was like, "Yes, but it's also really cool. It's like you earn coins-

Jacob Eiting:

I didn't think that for a second.

David Barnard:

... for sweating, which is I think a really cool idea." So how does that actually work? And maybe it'd be interesting even to talk through some early iterations on what did work and what didn't work.

Jacob Eiting:

The question I was going to ask is how did you bootstrap that fly... You talk about exercise or sweat being inherently valuable, but actually create... There needs to be some arbitrage there that to actually capture and sort of tokenize that. So how did you go about bootstrapping the value for the customer and also for the partners?

Anton Derlyatka:

Brilliant set of questions. So let me answer them one by one. So I think firstly on the name, our original working title was Feetcoin. And then we thought it wasn't... It was too cozy, almost meaningless. We needed something a bit more polarizing. And lots of people, especially in the early days. Right now, it's become a little bit of a... Lots of people have heard about it and they don't have an issue. Here in the UK we have this brand called Sweaty Betty, and it's become such a kind of high street phenomenon that nobody thinks about Sweaty Betty. Everybody talks Sweaty Betty. That's it. That's fine. It's similar with Sweatcoin now.

David Barnard:

And I love the name, just to be clear, what was cool last night in the conversation with my wife was that it was polarizing and it led to a conversation. I said, "Sweatcoin." She said, "Ooh, that's gross or weird." And then we had a whole conversation about sweating and earning for sweat and stuff like that. So I think it's ultimately a really successful name in that way.

Anton Derlyatka:

We love it too. But the original, kind of the starting that... The app is very simple. You walk, we make sure that those steps are real. So we run a piece of software that we call a validator, actually ensures that you cannot put it on a dog, as some people suggest on top of a washing machine, or create a farm in Vietnam and fake the system. And then every thousand steps, give you a Sweatcoin and then you can turn those Sweatcoins into product, services, experiences, donate to charity, and send to your friends. So that's a very simplistic type of activity. Now coming back to your original question about gamification. Now look, gamification has been around for ages.

I think that first time I kind of consciously heard about it, it was back in, I want to say maybe 2005 when I had a course on Coursera called Gamification and all that kind of jazz. The streaks, the badges, leaderboards, it was all there. So humankind has known about gamification for ages, but it's just easier said than done. So I think Duolingo did really, really well. What they do is a different toolkit. They do gamification really, really well. And we went slightly down a different route, which is the use of incentives. Because one thing that fitness kind of lacks a little bit is that all the fitness apps, they're kind of similar. You are being requested to kind of do something that's generally unnatural. You don't want to...

Especially for those people who are not fitness junkies, but just do something and that's it. We wanted to take a slightly different angle and kind of make it fun. Essentially the promise there is that, "Look, you walk anyway, why don't you try and earn something useful?" So it's a very different concept, very different message. When we just launched, we intentionally... The product concept was that we didn't want to look like a fitness app. So the look and feel was much more of a financial app where you had the bullet and you'd had a marketplace and the very techie look. We had a very cool kind of generative graphics there. It was cold and was a bit... We definitely paid some tributes to the emerging crypto scene there because we wanted to congratulate the new movement and stuff like that.

So all of that, essentially we became the only financially looking app in health and fitness. So I think that created a lot of buzz. That was really, really interesting. Again, don't forget that we launched the app in 2016. It was very early days of crypto and some people would just have no idea. And then I think our first stage of growth, obviously timing, lucky as many products are, we launched in the ICO boom of 2017. But I think what was really, really important there as well, we launched and then the press, the media picked up on the story because it was fun. Lots of people wrote about us. We got our first initial whatever, 30, 40,000 users, which was great, amazing. But then obviously we hit a bit of a wall in terms of how do you continue to grow.

And finally, I remember we applied to Y Combinator, we made it to the very final round and then we got rejected and they said, "Guys, you need to grow faster." Because we were so happy and we were so proud that our retention was skyrocketing in terms of other health and fitness products because health and fitness is really difficult to retain users. And we were doing so well on our first 50,000 user base. So we thought that was good enough, but they said, "No, that's not good enough. You guys need to figure out growth." So we came back to the drawing board, that was November, I want to say November 16. And we said, "Look, we need to get to 300 users every day." And then we came up with this idea to actually turn things around.

We just realized that unlike other apps or products that actually if you want to build a referral program, all of a sudden you need to have quite a lot of cash to be able to fund it. Now we didn't have to do it because we had our own currency. We brought our own central bank, so to speak. So we created a user journey, a very simplistic one. So if you bought into this idea, you install the app, you see a very simplistic today screen, there's two things you can do to earn Sweatcoins. You can either start walking or you invite a friend for $500. And that created quite a lot of that intrinsic virality where we made essentially earning Sweatcoins is the user experience.

Of course, as in any kind of gaming economics, you need to provide ways for people to do something with those coins once they've been earned. But that happens usually later. And this is how we solved the cold start problem. So we've created that inherent loop that's ingrained into the core user experience. I think this is what's so special about our growth engine. And that kind of helped us to get over the line and we got to 300 users a day and then a thousand and then 5,000. And then as I said, gradually that the train gathered speed and we ended up just raising around, in about nine months later from Woodward's capsule.

Finally enough, one of my interns, about nine months later in the summer of 2017, he said, "Do you guys mind if I reapply to Y Combinator?" I said, "I don't think it's needed, but hey, why don't you get it? Go ahead, do it." So he did and we ended up being accepted. By that time we already kind of signed a term sheet. I really wanted to get into Y Combinator, but on our terms, that wasn't acceptable for them. So we kind of passed on them. So it's a funny one. Things changed in 12 months a lot. No, but I think that credit to them, the conversation was really useful.

Jacob Eiting:

Just a point of clarification. So from the beginning, this Sweatcoin, is it a literal crypto coin? Is it on a chain? No, it's a virtual currency essentially.

Anton Derlyatka:

The moment we launched, there was only two blockchains out there. The first one is Bitcoin,

Jacob Eiting:

Right. Ethereum was just starting.

Anton Derlyatka:

Ethereum was just a startup. We met Vitalik and went for a walk down the River Thames, the South Bank. He walks very, very fast by the way. But we concluded there that we were not in a position to build our own blockchain. No need.

Jacob Eiting:

I mean I think it would've been then obviously the user experience challenges were crazy. They still are.

Anton Derlyatka:

It was slow, it was expensive, it was everything. So it was only in '22 when the technology was of age and we were ready to essentially partner with Sweat Foundation to launch a crypto proposition, which is a separate thing to Sweatcoin. There's no connection, but we are partnering with their organization and some of our users who actually decide to opt in, they can convert their steps into a Sweat token. But that's a separate story. Sweatcoin continues to be a health and fitness app. It's disconnected from Sweat Foundation.

Jacob Eiting:

But essentially, it's a fiat currency, right? With the app of Sweatcoin, you control-

Anton Derlyatka:

Well, technically speaking it's an in-app currency. And then our job is just to make sure that it's useful for our users to earn that Sweatcoin because they find it useful.

David Barnard:

I wanted to dig into that idea of the Sweatcoin being valuable to users. It just dawned on me while you were talking that I created a form of Sweatcoin for my son. He's 16, super into AI, and computers and he'd rather just spend all day on his computer. And so just this weekend I made his allowance contingent upon getting certain physical exercise. I created my own Sweatcoin, I should just get him on the Sweatcoin app instead. But for him now, there is direct monetary value to him doing exercise and that's highly incentivized for him. How did you, early on and then how has it evolved in making the Sweatcoin actually valuable and something that people actually want and are incentivized to get?

Anton Derlyatka:

So look, let me rephrase the question again. So lots of people basically question, how is that possible? Where does the value come from? And when we just started, so obviously we researched the graveyard of other companies that try to do something similar and what they failed. The most obvious answer there is that, I need to find a backer. I need to find somebody who provides the value. Because in your example, you are the backer of whatever the value that your son is creating by being active. And the most obvious answers are one of the three. It's either a healthcare provider, it's a health insurer, or it's an employer. All those stakeholders are potentially interested in you being active. The approach with that, it wasn't...

And we were not excited about any of the three. I mean when you start up trying to penetrate the healthcare system, unless you've got some competitive advantage, it's near impossible, same applies to health insurance and with employer, corporate wellness is a red ocean. It's a very busy area, lot of competition. The check size is small, revenue retention is low, it's hard to compete. So we kind of went back to the drawing board. We said we need to find something different. And we kind of concluded that our best shot really is to create such a sticky user experience that users would love the experience and as a result the brands, the partners that were hoping to partner with, they'll be able to provide lots of value in kind to make it worth their while.

So I mean the way we designed the user experience, we didn't want to create an Amazon kind of way you can exchange your sweatcoins for thousands of different products, not because we didn't want to, because we knew we couldn't get all those products in. Who would give them to us? So we created a small curated list where there would be four products only every day and there would be a new product every day. So essentially 12 products weekly. And we had a good enough network to find 12 different brands that would give us some value in kind because they love the idea. And this is how we reserved the cold start problem. And we started getting those users and the number of users gradually started to increase.

And then at some point in time we just realized that some of those vandals, as we used to call them, they actually were queuing outside the door saying, "Oh guys, when can you feature us? We had you to be featured next November, can we actually move it forward couple of months?" And this is when we realized that the number of users and the attention span we were generating, the level of engagement was big enough for us to start monetizing those views. And then the other kind of thing that we did at that stage, we just realized that we were very anti-ads and I'm still anti-ads because whenever you think about ads, you think about the bloody banner and something completely irrelevant.

And then we discovered that, and there's this practice of rewarded video, some of our users, their retention and engagement improved considerably when we let them watch a video where they are limited to decide whether they want to do it or not. So essentially we introduce a product where you could get one sweatcoin if you watch the video till the end, but you don't have to do it, A. And B, we would restrict the number of times that you'd be able to do it. Initially it was just once a day. And so then we experimented to some users actually, the threshold was three times a day. And then if you try to allow them to watch it more frequently then the retention drops, but actually one to three times retention and engagement improved.

It's completely counterintuitive, but the people in the gaming world, and then obviously I started researching much more into this. People in the mobile gaming world know this, so sometimes there's a group of users, so about 20% of our users, they engage with us, they love it. The rest of them hate and it's fine. These were the early kind of the things then. So again, we solved the of the cold start problem, and then we were really lucky to pass through that value of death where you have too many users to have negligible costs. And we went on the other side of the kind tunnel and then already we had scale and we were able to monetize somewhat.

David Barnard:

So you mentioned an abstract like partnering and creating value in kind. Those partners, are they giving full products? What is the actual value? Is it a discount on gym equipment or?

Anton Derlyatka:

The original idea that I had is that, look, nobody's going to be excited to get access to a coupon because you could go to Groupon and get a discount voucher. So early version was it could be just a hundred percent paid in Sweatcoin, just real product. I remember we secured a deal with our friends at Vivobarefoot, the flat sole running shoes. Very, very cool. And they say, "We'll give you a hundred pairs of our last year's collection." And we put them on the marketplace and the users were ecstatic. But then obviously as you continue to scale, as you go global, it becomes a bit less kind of manageable from a complexity perspective.

So we do have discount vouchers, but we also make sure that whatever you can find on Sweatcoin is pretty unique. Of course, it depends very much on the geography as well. So there's a wide range of different things and some of the things you can get only for Sweatcoins, like a hundred percent of it, and then you can get some discount vouchers. There's plenty of different stuff.

David Barnard:

And so then the value for the brand, like Vivobarefoot, they gave you the shoes, but then essentially it becomes kind of like an ad for them and that the tens of thousands of people see Vivobarefoot and then they go look for, "Oh, maybe I actually just to purchase this." And then those that get it for free, then maybe over the next decade they buy 10 more pairs of Vivobarefoot shoes after getting it for free.

Anton Derlyatka:

Well, that happens even more immediately because you have a way of just going straight into Vivobarefoot's website and just buy whatever, use whatever you got because this is how we do fulfillment. We don't do fulfillment ourselves. It's done by our partners. From that perspective, if you went there, bought a pair of shoes and maybe also bought something else. There's always not the revenue generation opportunity.

David Barnard:

Any other fun examples of partners that you've worked with? This is just so fascinating to me, again, thinking through this idea of coins and retention and gamification that you're giving real products to people for exercising. Any other fun examples?

Anton Derlyatka:

I mean obviously in Covid everybody was so excited about digital experiences. It was just amazing for us because we didn't... One of the potential kind of difficulties is always that redemption process and the fulfillment because we are in the game of instant gratification. And if you can only get your product after a few days, that's not instant, is it? But when you get a subscription, we work with whatever, Spotify, Apple Music. And this guy is... Basically the propositions that you can get the first three months for Sweatcoins and then the rest of it is paid through fiat or cash. And that was just amazing.

So we really absolutely loved it, but there was lots of people who would at some point in time in some markets, our positioning was that we are a product discovery platform and there were, without traffic, lots of new startups doing some really cool things in the health and wellness space, innovative, kind of the wearable, sensors, apparel and stuff like that. And they would always struggle with distribution because you do when you start from scratch. And we would be that kind of really, really welcome partner for them because we would be just showcasing that product to our user base. And the user base was very attuned and receptive to this and it was just great.

David Barnard:

That's so fascinating. So it's really interesting to me that the next layer that you layered on there, so you talked about this referral program where you give five Sweatcoins for somebody who invites a friend, but now you have a whole influencer hub. What does that look like and how did you layer that on?

Anton Derlyatka:

I mean, one thing leads to another as it usually happens, and kind of early stage, we just noticed that there were some users that would bring in massive numbers. And I'm not talking about 10, 20, 30 invites. We're talking hundreds, sometimes thousands. So obviously we started digging and we realized that some of our early users would have a considerable following on social media. They were earlier doctors, they loved it. And then they just... Because we provided that functionality, they were able to share the link on their profiles and then lots of users would come in because everybody loved the idea. It was so fresh and everybody kind of loved it and people love to share.

And when we realized that there were people like this, we also realized one really interesting thing. At that stage, it was just the beginning of the influencer movement and there were big influencers and there were everybody else. And there were some people that maybe had 10,000 followers, which is not insignificant, but there was no way for them to monetize. I'm not sure how familiar you're with the influencer business, but if you're an influencer, there's two major things that are really annoying. Firstly, when you work with a brand, usually do that through an agency unless you're a massive influencer. And that's a hassle because the works as a bridge and they tell you what to do, what not to do. So it takes lots of iterations and [inaudible 00:24:33]

And then the second thing, even if your contents got okayed by the brand, then it's very, very hard to see what kind of efficiency, whether you drove any results, installs. And if you did, how much and when are you going to get the money? So the money, the cycle is very, very low. So what we realized is that there was a gap that wasn't essentially covered by anyone of that mid-cap, so to speak, influence. And those guys... And when we discovered that we created a special marketplace or a special level that would only open up to a user, they invited 30 people successfully. So you just install the app, you start working, and then once that number by which we counted internally, all of a sudden you kind of reach more than 30 invites.

Then a secret section of the marketplace opens up and you can convert your installs into a bigger, better range of prizes. And we would have a thousand invites would buy you a PlayStation and 5,000 invites would buy you a flat-screen TV or something like that. I'm making up those numbers up. But that was the idea. And when we did that, that basically started spreading like wildfire because lots of people with anywhere between five and 50,000 followers, which is again not massive, but it's not insignificant either. They kind of had a way of essentially turning their following into something very tangible very quickly.

And that's something that essentially prompted the idea of an influencer hub, which is in effect, this is a separate version of the app that's available for people who are very region invoice, which is a very similar app, but there's an extended functionality, there's extended range of prizes and there's extended service, so to speak. Think of it as a VIP version of the app.

David Barnard:

It's so fascinating. Have you since then also layered on any kind of native ad content or viral content on top of that that you directly work with influencers or has it all been through that influencer hub?

Anton Derlyatka:

I mean obviously we started with influencer hub and we got ourselves in the position where we did not do any paid acquisition at all.

David Barnard:

Which is just so incredible. I mean people are going to be listening to this and [inaudible 00:26:50]

Jacob Eiting:

I mean I'll challenge giving away a flat-screen TV as a form of paid acquisition, with more steps.

Anton Derlyatka:

I agree with you. Yes. But then again, I think that was probably accounted for 5% of all our users.

Jacob Eiting:

And it fits into the model. It's part of the core loop anyway.

Anton Derlyatka:

It's really interesting. It's really interesting because then at that stage, and right now it's been written about very widely. I think lots of people talk about it because there's lots of viral products out there. The issue with viral products is that you can create an explosion, but when it dies down, you are not in control of things because virality is uncontrollable. It's like nuclear synthesis. It's basically a nuclear reaction. You can have an explosion, but how do you create a nuclear power station where you can control the nuclear reaction? And that was the biggest challenge for us because we could have that massive spike like 30,000 users daily and then it would just go back to two or three.

I remember then I was talking to one very, very smart data scientist and I said, can you build us a model that would help us understand how we create a virality? And he was a specialist in stochastic processes, whatever that means. And he said, "Look..." He did some studying. And then he said, "Well, one thing I can do, the only thing I can do, I can tell you that the virality or the viral spike is inevitable. One thing I cannot do, I cannot tell you when." And that wasn't particularly kind of useful because fair enough, we just sit there just waiting. Maybe it's going to happen tomorrow, maybe it's going to happen in three months, but you don't know. So anyway, we started building that sort of approach.

Now what we did then is we just realized that there are certain stages in creating that controlled nuclear reaction. And the first stage is you need to kickstart the process. You need to create what we call a ground swell. The ground swell where you create a little bit of that noise around the brand so that people who have some following, they start listening. They know about the product, they've heard about it because that's important and that is best done when you do it through the influences that you're friendly with. But those influences need to develop a content that's very native to the channel they use because at the very early days of Instagram it was very different.

Lots of people would post content that would be not necessarily seen as genuine, lots of professionally developed content early days. Again, we now know that for example, TikTok is famous, you cannot fool users. They will spot a fake a mile out. So we started experimenting, we started working with those influences that we were friendly with, and then when you start developing that content, you become really attuned to what the users need in those channels. And then slowly but surely we've developed that expertise where we were able to work with influencers, then take the consent, there was a winning content they would produce and we would share it with other influencers to help them develop their own, to just give them some ideas.

And some of them we started using in our pet advertising, like our paid ads constitute right now around 10% of the total still only, but that's a very important kind of starting point. This is how we create the groundswell. From the groundswell, we then accelerate it and what's really important, probably the key, the truly unique part of the growth engine is that when you create the virality, then the velocity of invites drops sharply. What that means, what's velocity is the time that is between one user installing, inviting another one, the next user installing. Because guess what? When the velocity of invites shrinks, you could have six or seven people or sometimes more in the chain happening within 24 hours.

And when that happens, the algorithms start to pick you up and you get lots of kind of organics through app stores and Google and everything. So essentially just creating that, the sequence of steps where you start creating groundswell, where you get the influencers working with you, they develop native content, then it's being picked up because again, our user-to-user virality is very strong. The moment you create that spike, then it's being picked up and maintained by the user-to-user virality and then the organics kick in and you become the number one health and fitness.

Happens occasionally, globally, we were the number one app globally in the US, Brazil, 65 other countries if I'm not mistaken. So of course you cannot sustain it, but you can sustain the number one place in the category, for example.

Jacob Eiting:

I mean you can't sustain any one spike, but this sort of goes back to just app store marketing in general, which is getting featured or whatever. If you can create a somewhat repeatable process of knowing, "Oh, we'll generate so many viral spikes a year." That starts to become somewhat of a reliable channel.

Anton Derlyatka:

That's not easy. And we kind of fine-tuned this growth engine over the years and right now literally, we don't have that many spikes, almost at all. We're very stable. But it takes time, it takes experimentation.

Jacob Eiting:

We haven't seen it. There was a period there during 2020, '21 where we would see a lot more viral spikes in apps. I don't think we see that as much, David. I mean our famous... WidgetKit is our friend, a very famous example, went mega viral. Was that in 2021? 2020 something? And just nothing I'd ever seen before in terms of how fast it went. It's been a little bit, I feel more metered since then. I don't know, maybe it's more people have rushed into influencer marketing and stuff like that. It's become a little more competitive, but it's an interesting observation.

David Barnard:

It's so fascinating building that growth engine. I love the analogy too of controlling a nuclear reaction and then figuring out how to get that spark and then how to keep getting that spark to maintain that growth. But I think that the next question then is, "This is an incredible growth engine and being able to acquire so many users at such a relatively cheap cost compared to a lot of other folks in the industry is just an incredible leg up." But then how does Sweatcoin actually make money? How do you then monetize those for users that you've brought in?

Anton Derlyatka:

I mean, as I said, the two main monetization channels is the commercial partnerships with brands and then the ads that are described, which we've fine-tuned over the years. However, it was very, very clear that the advertising model will only take us that far. Even the much bigger user base type of products, they struggled with it a little bit. Look at Twitter, they decided to pivot. And I think that for us it was essential to be independent from the healthcare partnerships, the insurance partnerships, the corporate wellness. We know we'll go there one day, but I think there's a much lower hanging fruit and that is subscription.

Because with subscription, I think the name of the game is how cheaply you can acquire users at scale because everybody at one point or another, they face the music, they end up in a situation where you continue to grow your [inaudible 00:34:04]. It's very, very hard. It probably took us a bit longer because I think that we probably got a little bit too excited about the fact that we got the profitability at the time when everybody else was just essentially crashing and burning. We got the profitability at the very beginning of Covid, and I think that I probably just got a little bit overexcited as I said. So I think that we probably took that decision to go a subscription maybe a year, 18 months too late in retrospect.

But I think right now what's totally amazing is that we launched a very basic subscription. We did a very, very, very low grade type of development and we already have considerable amount already. So from that perspective, that's the really important and exciting opportunity there. And then beyond that subscription, so of course you've got that... We worked with the NHS, which is the National Health Service in the UK. These guys, essentially the number one spend line for them is diabetes type two, 11% of the total budget of the NHS goes into diabetes two. And the NHS developed what they call the National Diabetes Prevention Program, NDPP, and that's administered to users through the kind of private providers.

And that NDPP actually works, it's administered to people with pre-diabetic state, and that aims to essentially drive them away from the edge of the cliff. The problem with the existing program is that its completion rate is very low. It's about 20 to 25%, which means that the other 75 to 80% of patients, they end up with diabetes two with probability close to one. Now, when Sweatcoin participates and plays a role of an engagement platform for the NHS, that completion rate goes from 25% to 89%. This is how we work well with a partner that essentially provides the extra liquidity, so to speak.

They provide an extra range of products that makes the whole experience for the user even more exciting because on average, a Sweatcoin user becomes 20% more active using a free version of the app. But let's say in case of the NHS, when they come in and fund an additional range of prizes and other incentives, that number goes up to 45% and users lose about 6% of their body weight in 10 weeks and all this kind of jazz. So the model is there, but the B2B is a very different beast.

Jacob Eiting:

Is the NHS doing anything to promote actual installation?

Anton Derlyatka:

I don't want to go into discussing how good NHS is in terms of digital.

Jacob Eiting:

Well, I don't know. Are they handing out QR codes at doctor's offices and stuff for you guys? But it's purely their funding...

Anton Derlyatka:

No, it's a little bit more complex than this. It requires a deeper integration. But why I'm saying this is that there's unlimited opportunities in the B2B space, but I think that just generally speaking, we still want to continue to be true to our roots of the B2C. And from that perspective, the paid subscription is such a no-brainer. Look at this stage, we are running about two thirds of all our user base is actually free, and we onboard anywhere between 60 and 80,000 users every day. It's a massive scale. As is for any health and fitness product, retention is the name of the game. You kind of move retention by 1% and that's a massive uplift. But just coming back to that pay subscription conversation, look, there's lots of opportunity in there and we've just started with scratching the surface.

There's plenty of stuff. I think that the good thing there is that lots of people, as you already mentioned, in the subscription base space, they start with subs and then they hit the ceiling and then they try to diversify into other [inaudible 00:37:39] streams. I think with us, subscriptions in a funny way, it's a much more well understood path and lots of people have done amazing things, so it's relatively easier for us just to take a couple of pages from their book and continue to build.

Jacob Eiting:

I'm just looking at the premium offering and much more matches what you would see like a Pokemon Go or some other games that layer on subscriptions, which is you get premium access to stuff that people don't get. It's not necessarily a content and feature unlock. It's like a boost to your ability to play the game, which I think fits really well and it kind of becomes a no-brainer for somebody who's very serious about this to put in a little bit of money and you'll get a lot of leverage out of your usage.

Anton Derlyatka:

You think of all things like a family subscription. One of the things that very early days, Michael Founder actually packed his pocket money to his kids to the number of Sweatcoins they were generating.

David Barnard:

I got to do this.

Anton Derlyatka:

There's so much we can do because at the end of the day, walking is the type of activity that's available to almost everyone. That's almost like breathing. And it's such an endless area of opportunity and physical activity. And again, because of many of my friends who are in technology sector, we are moving less and less because we're slaves to convenience. It all started with a remote control, but right now you don't have to step outside to buy food anymore. You don't have to almost do anything. So before you know it, we're all in WALL-E, We'll all move in those capsules.

Jacob Eiting:

I got to go to a Sam's Club and ride one of the scooters the other day. Unrelated but related, so I got to experience it.

Anton Derlyatka:

That's scary, man.

Jacob Eiting:

I know. I was like, "Oh." Your point earlier about there being no natural incentive to... I was like if everybody had a scooter, you just would. Superior.

David Barnard:

For those who have zero contacts on Twitter, Jacob broke his foot a month ago and had a massive surgery. And so even more sedentary than usual.

Jacob Eiting:

You wouldn't have to give me a dang Sweatcoin. I would love to go walk 10 miles right now, that'd be amazing. But now I have double reason.

David Barnard:

So Jacob kind of alluded to it, but I wanted to dig a little deeper into how you thought about layering value into the subscription. And as you mentioned, even you are doing the reverse of what so many people in the industry do of spending a ton on paid ads, putting people right into subscription. A lot of apps are even doing hard paywalls now. Apps are switching to hard paywalls, but then you hit a ceiling and then you have to figure out, "Oh gosh, how do we get our customer acquisition costs down? How do we layer on a premium product?"

So you've kind of done this in the opposite, but I think it'd be really interesting to hear how you thought about creating value for users in that subscription. What's that kind of primary motivation for somebody to actually pay when the premium product is so good?

Anton Derlyatka:

Look, first of all, we've built that product with inherent limitations. There's only that type of products that the free version can afford, so to speak. We would always set a ceiling on the number of Sweatcoins you can earn on a given day. So because of that, we needed to create a kind of economy that would be sustainable. So we introduced a bunch of restrictions early on that we actually can lift or remove. One of those restrictions, so to speak... Because we talked a lot about the ads and I was kind of very excited about it. But then let's face it, some of the users, even those users that do not engage with the ads, they see the ad and it's not necessarily the ideal experience.

So I think removing ads to some users, that's a massive value proposition. I'm not saying that's the only thing we're going to do, but essentially just removing the restrictions that are inherent to the free experience. I think that's a massive one. But then there's a bunch of other features that are, so to speak, more expensive and cannot be justified for the free user. A case in point, we are working on a walking coach. Someone who essentially helps you, provides the nudges, provides those not necessarily inside, no a robot, of course, not a human. You cannot justify realness of users. So there's a bunch of different things that can only be available to a paid subscription and that arises very naturally from the user experience.

Because we always think about Sweatcoin as a platforming experience on top of which you can build so much more. And literally we've built that very platforming use case where it's very simple, you walk, your steps are being converted, Sweatcoin has been issued, and there's a bunch of basic things you can do with them. That's all. And then you can stop building. There's other ways, alternative ways to earn, there's alternative ways to spend, there's alternative ways to kind of do something with that Sweatcoin. And that all very nicely feeds into the pay subscription idea. Now, the way I like to think about this, and I know it sounds a bit controversial because most of the market will say you can start at top and then you launch a more expensive car, and then you can create a mass market car.

But sometimes you can launch a Southwest and then you can create a premium experience, and the premium experience will be the same plane, just wider seats, better quality food, better service, and people would be prepared to pay. Because at the end of the day, all our users, we divide them broadly into two groups. The ones that come for rewards and the ones that come for health. The ones that come for rewards, they're less sticky, but a considerable chunk of them, actually, they qualify into what we call come for reward state for health. They come for the free stuff and then before you know it, they go like, "Oh man, I'm walking 40% more. Wow, that's cool. I'm no longer kind of interested.I'm past rewards, but you know what, I'm hooked up on walking."

Jacob Eiting:

How do you distinguish, what are the signals you see that tells you what category somebody's in based on behaviors?

Anton Derlyatka:

I mean we do lots of user research. We observe lots of user behavior patterns, like those users who engage with ads more, they tend to be more rewards focused, though there are some users... Actually, it's incredible how the balances itself serves as a progression system because essentially what we've done, and it's really amazing, we just reframe steps. We used to have Fitbit and Fitbit is wonderful, but then you got 10,000 steps, next morning, zero, 2000 steps. Afterwards, man, come on. It's the same thing again.

The moment you reframe and you say, these are not steps, these are coins, and here's your balance. And your balance keeps on growing and you're actually quite rich. And I know it's for myself. Even now I'm looking at my balance, my balance is whatever, 15,000 sweatcoins. Makes me feel good.

Jacob Eiting:

And bought in. There's literal lock in there.

Anton Derlyatka:

Man, [inaudible 00:44:38] what the Sweatcoins, I really want to get to 20,000. I'm rich. So I think that reframing, that's major, that's massive, that's a very powerful thing. And I think that's coming back to what we started with understanding behavioral economics, behavioral science generally. I think it's useful.

Jacob Eiting:

I mean I think there's lessons there for anybody building an app. It doesn't necessarily have to be direct to a coin or some analogy like that, but the more that a user's experience can vary with relation to the amount of time and effort they've invested into your app, you'll create those hooks and that has downstream effects on retention. And it doesn't even have to be all... There's no logic there. There's no literal value. But I guess literal value is not a thing. It's all in the eye of the beholder. So if you value having a high balance, it now has value, right?

Anton Derlyatka:

Correct. Most of that, because lots of people get a little bit too literal talking about the value of Sweatcoin, and we always like to think and differentiate the rational value element and then the emotional value. What's really interesting is that we run this test when we ask users, so how much do you value Sweatcoins at?

Jacob Eiting:

What's the exchange rate?

Anton Derlyatka:

How much would you buy for somebody else's Sweatcoins? And people then would say, "Anywhere between one and 5 cents." And then we ask them, how much would you sell your Sweatcoins for? And guess what the answer was?

Jacob Eiting:

I'm going to guess higher.

Anton Derlyatka:

50 cents to a dollar, which means that basically your role steps, or actually I bet David, the steps of your son are going to be far more important to you than let's say my steps or somebody else's that you don't even know.

Jacob Eiting:

That's really interesting considering it's fully fungible.

Anton Derlyatka:

Oh man, there's endless possibilities there. And we are just scratching the surface there.

Jacob Eiting:

I mean, it tells you you haven't really created a currency because it has no currency, it has no bidirectional trade value. It's got an asymmetry in bidirectional trade.

Anton Derlyatka:

A really interesting conversation we had a long time ago when we just started with a dean of one of the top business schools, and he said, "I'm not sure that you guys necessarily want to go crypto because then the magic will disappear." I think actually it's a fair point because there's this discrepancy in that the market value versus the perceived value.

Jacob Eiting:

You don't want to shatter anybody's perception, right?

Anton Derlyatka:

So I think there's lots of really interesting stuff, and I appreciate that we are just scratching the surface here and we're probably not digging deeper into it, just yet.

Jacob Eiting:

I just valued all my Pokemon cards for when I was a kid and it destroyed me. I wish I'd never done it. In my head it was worth thousands of dollars and now turns out, not really. Held on them for 25 years for nothing.

David Barnard:

In talking through that, it actually reminded me of a conversation we had with somebody who was really early at Tinder and how this idea of the economics inside of an app can help fuel the monetization. So with Tinder, and you're talking about how certain things are limited within the app, and then you buy the subscription to uncap that. And it's similar with Tinder, when they really exploded with monetization was when they layered on, you get one boost a month for the subscription, but then you can buy additional boosts to get attention.

And this whole idea of creating an economy inside of an app where, and Jacob said it, it's like you pay to be more effective playing the game. It is just such a fascinating concept for an app to build this economy inside the app.

Anton Derlyatka:

Well, I think the gaming companies are very good at it, and they've been at it for 10 decades, and they're very good at building the experiences which create that scarcity naturally. So I think that... And a good friend of mine who is a very successful serial founder in the gaming space, his thesis is that the gaming, the mobile gaming, hyper casual, casual casual, they know so much about the user that all that information, all that knowledge should be transferred into the app world.

And there's so much to learn for us in the app space, and that's happening as we speak literally. And actually everybody mentions Duolingo, they're doing exactly that. They're just using SNUM. And let's face it, that's a very basic gamification mechanics that's been known to the humankind for decades and they're just implementing and they're killing it.

Jacob Eiting:

And doing it really tastefully too, right? They've done very little at the right amount at the right time, and they've maintained a brand alongside of it, which I think is rare. I think probably some amount of nose turning in the app world to some of the techniques that are used in hyper casual some of it's not all that great, but at the core of it, there's a lot of stuff there that if you bring over appropriately can really supercharge.

Anton Derlyatka:

So one thing I want to say about gamification, some people want to stick it pretty much into every hole. The reality is that in order for gamification to work well, there's got to be an underlying experience that's actually good for the people and they know it. If the gamification is used for you to watch more ads, you may be successful short term, but long term is not going to work.

I think that's why is Duolingo so successful, they layer that gamification on top of the fundamentally good thing, which is learning a language. For us, it's being more active and that's why people, they agree to be slightly manipulated because people are not stupid. I mean, they understand that this streak is... But they play the game, they play the ball. So I think that's my view in gamification. I think gamification can be super successful if applied properly to the right underlying experience.

David Barnard:

I love it. You guys are pushing, being more active. Duolingo is pushing learning. I think that's a great place to wrap up. But as we wrap up, anything else you wanted to share? I'm going to link to... I know y'all are actually hiring for a lot of roles right now, but anything else you wanted to share as we're wrapping up?

Anton Derlyatka:

No, I think that it's exciting times for us in the space of behavior change. I think it's really, really exciting that there are some successful products there. I'm really excited about the right mix of incentives and gamification and building a long-term sticky product. And then of course, subscriptions is an area that we are doubling down on right now. And would be great to catch up with you guys again in another six to nine months maybe and see how we're progressing.

David Barnard:

Absolutely. Thank you so much for joining us. This is such a fun conversation.

Anton Derlyatka:

Thank you very much, guys. David, Jacob, everyone, thanks a lot for having me.

David Barnard:

Thanks so much for listening. If you have a minute, please leave a review in your favorite podcast player. You can also stop by chat.subclub.com to join our private community.