Operating Like a Start-up inside the World’s Biggest Company — Ramit Arora, Microsoft

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.

David Barnard:

Hello Vegas. Good morning. It's nice to see your lovely faces so early in Vegas. I heard you all out drinking too late last night. This is a live taping that first stop on the Sub Club Podcast world tour. So we'll be in London, New York, San Francisco, Berlin later this year. So if you haven't heard of the Sub Club podcast, I talk to industry experts like Ramit Arora every two weeks on the podcast. And so looking forward to this chat today, I think there's a lot we can learn from one of the leaders of some of the biggest apps in the app stores. So yeah, my guest is Ramit Arora, he's a lead PM on monetization and Microsoft covering Office 365 and Copilot. Yeah, thanks for joining me on the podcast today.

Ramit Arora:

Thank you so much. Yeah, essentially I'm the growth lead for Microsoft 365 apps for macOS and I support growth for the mobile apps. So essentially the core apps, Word, Excel and PowerPoint, and also supporting a Copilot app and the Microsoft 365 app as well. So yeah, all of them big apps, so excited to talk about them and all views are my own and do not represent Microsoft's official stats and [inaudible 00:01:56].

David Barnard:

Of course, of course. One of the things when you and I were first started talking about having this conversation today that really struck me about our early conversations is that it really sounds like you and your team and even the kind of app team inside Microsoft is a startup inside a startup inside the biggest company in the world. I always thought of Microsoft as enterprise and people go to the web to download Word and it's a native app on Mac. And I kind of always thought the apps were almost an afterthought, but the more we talked it's like, I mean Microsoft is very serious about building fantastic apps and monetizing them on the app stores.

Ramit Arora:

Yes.

David Barnard:

Yeah, so tell me a little bit about that kind of approach and how you think about growing an app business inside the biggest company in the world.

Ramit Arora:

In the very, you would say like 2014 era, these apps started as companion apps to the next of apps. So there is always this concept of desktop task productivity, which is that you have a screen which is say an iPad or a desktop and that's where work gets done. And then there's mobile productivity where you have light edits. And then over time we start to see that mobile being the primary device of a lot of customers, that this is more true in Asia and other regions than US, but mobile being the primary device and not a shared device. So people have say in one family there would be two, everybody would have a phone and maybe they will have one backup. So we started to see people doing very long-form documents, sometimes up to 15 pages of documents from the mobile phone. So that's when we started to get very serious about this.

And then the other trend that we saw was that because App Store has a very, very frictionless experience for buying subscription, we started to see that Microsoft 365 subscription, especially with consumer like our personal and family subscriptions. And now Copilot Pro keeps seeing this trend that people just want to make the purchase from their phone. So it's kind of like how a lot of people buy from the Amazon app rather than from the website because it's just a more handy device when your credit card is attached. And we see almost a 5x higher trial to pay the commission rate on mobile and then on other direct channels sometimes because of very obvious reasons, like this credit card is already attached and there is a frictionless experience. People trust providers like Apple, Google, Amazon to essentially manage their subscription.

So while we have a very large direct business, we start to see that App Store has this real potential in terms of very high private paid credit card already attached. People having this as their primary device, that's where they're managing a lot of subscriptions from. So those were some of the things. And then we started to get very serious and App Store just gave us so much organic traffic that sure, we pay some percentage to the App Store, but anywhere you acquire you have to pay some percentage. So basically the organic traffic just blew our mind. And so we just invested it and there we are.

David Barnard:

It's so funny because Apple is so protective of their percentage and I think people discount just how much it being so convenient is actually increasing conversion rates and leading to new subscribers. So you just wouldn't subscribe on the web. So you hadn't told me that before sitting here on the stage that you had seen 5x increase in conversion for trial. That's incredible.

Ramit Arora:

Yeah. In some platform, obviously, we set across multiple platforms, I think only on consumer we have 10 different channels that we're setting up. So we have other channels that also perform very well, but App Store is one of the highest performing in terms of [inaudible 00:05:35].

David Barnard:

Yeah, that's amazing. And how many new for you competing on App Store though, as far as there are so many productivity apps, so let's say so many places that you can create documents and everything like that. How does a massive brand like Microsoft approach competing in this marketplace that is very different from the web?

Ramit Arora:

Yeah, I mean it has been a bit of a learning for sure. But one of the things I will say, so competing on App Store, you just have to operate like a start-up because if you see any other distribution channel like a web or say even retail partnerships, those kind things, we have some advantage there that okay, we have an exclusive deal with a retailer. We have a website that has say millions of users that are coming on on App Store. It's very democratic. But App Store, I like to think about it like YouTubers, like Paramount Pictures and a YouTube Influencer, they're pretty much competing for the same eyeball. So we don't get a lot of advantage. Of course, there is some brand value that we do get. So when we do our ASO, for example, we have branded keywords, so that's part of our strategy and then unbranded keywords.

But absolute is unlike anything else in the sense that a startup can start in [inaudible 00:06:49] and start taking the spot on some keyword and start showing up upward. We have to be at our best game and we try to retain at least the top three spots in most of the categories. And to your other question, being a massive brand, so think of this as startups are kind of like department stores and we are the Costco. So we have all the scenarios we have. I mean, if you look at our Microsoft 365 apps specifically, it has Word, Excel, and PowerPoint, Notes, PDF signing, and there's a scanner. So there is so many scenarios that are there. So from a value perspective, the value density is very high for our app. So for $9.99 for the family, and $6.99 for personal, just the value that we can back into one app and those prices are obviously US prices, some countries different rate, but just the value that we can pack into one app, it can be up to 50 to 60% cheaper if you go and buy all those scenarios individually versus you buy an M365 subscription.

I know I'm giving a very department store type of methodology, but if you just see how much value we can pack into one app, it just blows. Yeah, I mean if you try to buy, say a scanning subscription, et cetera, et cetera, it would cost you a lot more than buying one from Microsoft. And the other thing that it also helps us is that a lot of productivity scenarios are very one-time. So for example, in one month you have one scan in use case, in one month you'll have one say two block use case, but then you combine everything together in one app, then your retention is maintained because you may have a standard use case today, but you may have a document use case, then you may have a... So overall on a suite level, we see good retention because on a suite level there is that retention which maintained for different use cases that people haven't used for, yeah.

David Barnard:

So with the app store being so competitive, and I think this applies to any app these days, it's so commoditized, there's so many apps in every category, I have a weather app project and there's a hundred weather apps. And so I'm constantly thinking how do I differentiate and how do I stay ahead? As Microsoft, you've got way more resources to be able to think about those kind of things, but how do you approach that differentiation and adding enough value and staying ahead of the curve?

Ramit Arora:

There's no one good answer to something like this. But in general, if I have to talk about from a framework perspective, you're trying to maintain a leadership position, and this applies to broader than App Store, then you have to think about neutralization. So this is a framework that one of our VDs used to talk about a lot. So you have to keep neutralizing any competitor, for example. Then you have to keep differentiating, then you have to keep incubating and you have to keep maintaining on. So for example, Apple releases dark mode, Apple releases Vision Pro. So we always maintain a leadership position in the sense that our apps are already on Vision Pro day one, we were day one dark mode, we were day one on most of the new innovations that come out. We are day one there. So as soon as something gets launched in say WWDC, we are thinking, "Okay, how does it apply?"

And then depending on the stage of your app, if you are a mature app versus a startup, you can do different percentages. Now say we do 30% incubation because we are more mature app. In the past we were more bothered with neutralization and differentiation, but now we can just do a lot more incubation because we have a base and now we are focusing on, okay, how can we bring AI? How can we bring some of the more advanced features that can pretty much help people do complete documentation on their mobile? And they don't. If you think about what AI can do these days, you don't need 10 apps. You can just pull all the information in one place and create any artifact, like a document, video, etc. So we are very focused on that.

David Barnard:

I want to talk more about AI. But before we move on, I wanted to really kind of state that because I think a lot of apps can use this when you're competing, thinking about it neutralizing, so when you see another app come out with a very differentiated feature, you might not copy that. I mean, especially you're in Microsoft, but as an app developer, finding a way to neutralize that in that find your own way to differentiate or have some form of functionality that handles aspects of those use cases. And then differentiate, make sure that you create new things that are differentiated, maintain that leadership position, and then incubate, constantly be talking to users, doing user research and trying new things. And it is cool to hear that. Again, the biggest company in the world thinks a lot like a startup and thinks through these kind of frameworks about neutralizing, differentiating.

Ramit Arora:

Yeah, I mean, if you have an app on the App Store, so it's not like a bond you bought and it'll keep paying dividends, you have to keep working on it. You have to keep at it and you have to keep thinking about the next thing and the next thing and the next thing because it's a pretty competitive marketplace. And the other thing that I would also say is that when you are thinking about these four things, I think it's very important to think about them from the lens of jobs to be done rather than say this competition brought something and then we copy, they never copy. We generally, first see, okay, is this job even important for the customer? So I think that's super important to have a very clear, even the largest app.

So even if you take an app such as Word, there's a very defined set of jobs that Word needs to do for a user. People should be able to create a resume, they should be able to create a notebook, they should be able to write a book. I can list out 10 things that Word should be able to do. Excel should be able to create a spreadsheet, a budget, or an invoice. So if the app is able to do all of those things on any form factor even when we move an iPad or desktop, it's super important that we focus on that aspect that what are we trying to do? And then they will always be more. So we are horizontal from product side. When we have more horizontal solution, there will always be more vertical solutions. For example, somebody would have a very, very tight invoice in average will have many, many things like bank connections, etc. I mean, Excel will not go that deep into something like this. But then of course there could be add-ins that things support something like that. So there is that horizontal versus vertical focus that you have to think about. You can't go too focused on one vertical if you're trying to build up more horizontal presence.

David Barnard:

All right, so now I want people want to get to AI. I think so many people, I mean, such of us where there's so many AI apps doing really well and so many people thinking what should our AI strategy be as an app? And I think too many people are throwing it in as a gimmick and not deeply thinking through what is this new paradigm of AI mean for our app and how can we introduce it into the app in a way that actually increases the value and people actually use it instead of just being some kind of gimmick you throw in so that your title can say whatever AI. And then Microsoft, it's like you get working on Copilot and then being at Microsoft, you've got a front row seat. But not only that, but you work with a lot of teams across the company. You use research and other folks to really understand how to take the best of AI and implement them in a thoughtful way that actually brings value. So what's that approach? How do you take this new hot technology and actually make something meaningful from it?

Ramit Arora:

Yeah, so first of all, I'm myself kind of [inaudible 00:14:53]. And secondly, whatever I would say will be irrelevant in one month. Yes, it is going so fast right now and things are changing so fast. But I mean let's just go down particularly to say generative AI. AI is very hard, make this machine learning. But generative AI has a few things, and that's my opinion. It has a few things that are interesting. I think one of them is summarization. It can really summarize meetings. It can summarize, for example, any document can get summarized. It can do an outline based creation, so you can give an outline. And then some of these things are already sort of available in there, Microsoft 365 now. So outline to document is something.

And it's also a change in habit that has to happen. So I think the features and the capabilities are there. People also need to now start to learn how to use them. There's a big emerging prompt engineering field out there. One more thing which I find is very interesting is RAG, the Retrieval Augmented Generation. So at least in the context of say a document or note type of scenario, you can potentially pull a bunch of information on a smaller device now from different parts of the web. So in the past if you were trying to say author something, you're going to Wikipedia, you're going to 10 websites, now you can ask Copilot to bring some of that information to you and also reference it and so on. So I think Retrieval Augmented Generation is pretty powerful and people are using... I have seen many startups that are using it very successfully and that could be a pretty big thing. And then there are some of the other scenarios like translation, which has been around for a while now.

So I think it's very, very important that in the context of whatever your app you're building, how do these new capabilities help? Because there's a problem map like how I talked about jobs to be done. And then there's a solution map. So in the past we used to have Create, Read, Update, Delete. If you think about it, most of the apps were kind of like CRUD apps, and then databases came, Kafka, the big data came. And so capabilities increased. You could process all the data. And now it's AI. So I think it is an increase in solution map, but ultimately it's on the developers and how they make it useful for the jobs to be done. You can throw in a bunch of AI, most apps just go and integrate with OpenAIs API, but there has to be some meaning.

It's almost like saying that, "Oh, I have an app and there's this new database like 10 years back, 20 years back." There were apps that would just do some kind of location or a live location or database because databases were cool at the time. And so similarly, AI is cool at this time, but ultimately the companies that win will have to find a very meaningful use case that uses these. There will be some companies that will not find them because for some companies, summarization or RAG is not relevant and that's okay. It's not the end of the world. There's a lot of hubris, right? If I don't do anything with AI, my investor will not find me. My career will go nowhere. So I think that's a very scary approach. The problem map and solution have to align.

David Barnard:

One of the things we talked about a few weeks ago, and I just love the way you framed it, and this is the way I think a lot of people could think about how to bring AI into an app, is that whatever somebody might want to go to their computer to do, how can AI help do that in an app? How can we bring more desktop-class experience? And a great example I've seen in the market is Photoroom, they do background removal. It's like historically that was like, you got to go into Photoshop. You're not going to do that on your phone. You're going to do that on a desktop with a big monitor and you're going to have the tool and you're going to do the outline, it was like a ton of work. And Photoroom came along and just makes it seconds inside an app. And so I like that framework of thinking of how do we bring these desktop-class productivity into mobile on the small screen by using these new tools and these capabilities. And again, like you said, it's not just about ChatGPT-style, large language models, it's also about using other algorithms and other technologies that are springing up around the ChatGPT. So what are some other examples at Microsoft of bringing those desktop-class experiences into mobile that have shown to be really useful to customers?

Ramit Arora:

I mean, so far what I talked about summarization, like meeting summarization, RAG, recurring login integrations. Those are interesting scenarios. And I think in consumer there are a lot of things that people are trying and some with more success, some with less success. Some funny example is you can now create a song for your loved one and it will be in any language. You can go to Bing and just tell it to create a song for event. It's a bit gimmicky, but it's a real thing. I'm sure some developers will probably find a use case for something like that algorithm because that algorithm can do things. I don't think that right now any real songs are already created by AI, but that day will happen. So I think that's a more consumer-y thing.

On the more business-y side, I think meeting transcriptions, recapping meetings, those are some very interesting scenarios. You enter a meeting a little bit late, you didn't get a recap of what has happened, your meeting notes are sent to you, task items are sent to you. So I think those are good examples of things that are actually useful because now you don't need that. And I think one word, which is very interesting, which I tried is writing status updates. So essentially I do my work in Word files, Excel files, et cetera. And then Copilot can actually pull a lot of that information and write a status on a given topic. So if I can prompt it properly, it will write a whole status that I can then send out to be, or at least 90, 80% of which is pretty good. It's a big time saver. I think it just becomes super useful when it gets connected with all the apps that you are working on. And then it can pull data from your context because that's live data that is pulling and then it can really help you drive content. A lot of people are writing books these days with AI. I think you may have seen Otter plus AI.

David Barnard:

Those specific examples aren't going to apply to a lot of apps, but I think the thinking behind it is how you have to think about it. And a couple of other examples you had shared with me were slide generation in PowerPoint being able to, on your phone, create a more sophisticated presentation quickly using AI and then getting insights from Excel. If you're on a desktop computer, what are you going to do? You're going to sit there with your keyboard and mouse and create complex equations and you're going to reference the web to figure out how do I do this exact equation in Excel? And now in Excel, there's capability to use AI to get some insights from that data. And so the way to think about it is that jobs to be done. It's like what are the things that people would do on desktop that they can't do in the app? I thought those were some really good examples. The other thing I wanted to talk about is your approach to growth and the way you think about it. And again, I was surprised when we started talking that your team just in the past few months implemented an MMP for the first time.

Ramit Arora:

Yeah, yeah.

David Barnard:

And so you think Microsoft's got everything together and the biggest company, they got all the resources, they're super sophisticated, but you're on the learning curve like a lot of the people here in the audience and who are going to be listening on the podcast of like, "Okay, we need to find new channels to explore." So how do you think about growth and starting to really push as y'all have seen more and more success in selling these solutions to consumers on the App Store? How do you approach that growth?

Ramit Arora:

I think one of the things which is... I'll specifically keep it to mobile and Mac and app stores for this talk, but I mean we see the App Store as the channel which can bring us a lot of organic traffic and it can enable frictionless in Apple chain, for example, and to grow that, we are doing pretty much what all of the other people are doing. And you're right, we are not advanced as think so we have a pretty good App Store story in general. We have user research that informs us what kind of scenarios are important. We also get a lot of Gen Z trend and those kind of things. And then we are able to take that and put it in our keyword optimization. And then we also have a jobs to be done approach. Okay, we think that, okay, these are the 10 things that we really want our apps to rank for.

And because it's a very broad app, we also become good at, okay, what are the things that people are willing to pay for? So I think it's important to know that. And just going a little bit deeper into keywords, what kind of customers do you want to acquire? The ones that will actually find value enough that they're going to pay for the payment subscription. So we are getting better there. And then we are integrating with an MMP. I mean, I think one of the things that happened in 2015 to 2018, we got MMP, we got an engagement platform, et cetera, and we kind of misimplemented some of that because one of the things... I mean, it was a combination of a lot of things.

So what happened in that time, privacy laws changed a lot, like GDPR came along and we are under more scrutiny than any other app and we have empathized customers. So we extend one app. It's one app for all customers, enterprise and consumers. So I think the implementations, they were not done in such a way that it could handle GDPR and handle. And also a lot of the software companies, most of them in this conference, they were also pretty young back then. The solutions weren't very advanced. So at that time we had an MMP, we had an engagement platform, and one of the things that we kept facing was... Actually two things we kept facing. One was privacy issues because privacy laws were changing really, really fast. And the second thing that we also faced at that time was just value that we were getting from this software because we were paying these big bills because we had a very big multi-active user base even at that time.

So we were paying these big bills, but we were not really using it because on one side we were just figuring out the products because at that time the products were not at a place where you could start doing optimization. So optimization comes much after your product market fit is there. So we obviously had product market fit in a big way on desktop, but it took some years to get that same stickiness on mobile where we saw, "Okay, our mobile apps, our iPad apps are now at a point where we can now start doing optimization." So I think now the pendulum is starting to again, now we are, "Okay, we are at a point where the apps have good product market fit and now we are optimizing."

So MMP is there, ASO strategy is there. We try to use all of Apple's promotional offers, promo codes and vintage and pricing is a new thing. We are looking into that. So we try to be as up-to-date with whatever we can do with these apps. One of the problems that we always run into is just justifying the business case for some of these things.

So when you have an app that has double or triple digit million now, then most of the time the magnitude of opportunity has to be very high. So it's like the team size doesn't grow the same way how your mouth is growing, because also team size cannot grow because to add one engineer, say to add 10 engineers who also need a manager, team size doesn't exactly grow and all that. So our thinking has to keep growing as our mouth is growing, we have to think bigger and bigger. And then our prioritization has to be more and more strict because if you have double or triple digit million now you can't be spending time on an organization that will impact million users. You have to be spending time on something that relaxes you. It could be 100, whatever, it is a big number.

So our framework, our VP is very, very strict about this estimating impact. Any kind of vendor we have to bring in or anything that we have to do, any kind of organization, he's like, "Okay, give me the estimating impact." And then we have this huge list of ideas that come from all sorts of places. And then we are like, "Okay, let's triage." A lot of times you'll be surprised that the biggest ideas are the simplest ones. Like, okay, let's do something on purchase or let's do something on the first user experience. Because if you have an app that big, then sometimes the simplest things like performance, reliability, file open speed, size of the app, those things matters. They do matter a lot. Are we able to a hundred percent transaction completion? Because with that kind of numbers [inaudible 00:27:39] at one point we were seeing five, 6% transaction failure. So we first have to fix that. So I think that is where it becomes different from startups.

David Barnard:

Yeah. It's not all that different. That's what I was thinking the whole time you're talking is that I think too many small apps don't have that prioritization framework in place. I hear apps all the time, they're like a hundred thousand dollars a month in revenue, orders of magnitude smaller than what you're working on. But then they go try and like, "Oh, we got to have win back campaigns." It's like, "Well, if you're only at a hundred thousand dollars a month and you only have thousands or tens of thousands of users, that's not low hanging fruit." And so from the smallest apps in the app store to the biggest apps in the app store, you really should be thinking about these prioritization frameworks.

And you show that every feature that you're working on, every tool that you're going to implement, every strategy that you're going to put in place, you should be thinking and have a hypothesis. What's the real impact going to be through our business? And again, if you're like, "Okay, we got to do win back." That's a huge thing. Well, okay, if a thousand people are going to turn from your app over the next six months and you can hope to win back five to 10%, how meaningful of an impact to your business is that compared to so many other opportunities that you can't have much higher impact in your business? I think that's actually a great way to think about it. So as we wrap up, we're going to look into your intent, but anything else you wanted to share? Is your team hiring or anything you wanted to share from your end?

Ramit Arora:

I'm actually not sure my team might be hiring. I actually don't have that information to talk about that.

David Barnard:

That's fair. That's fair.

Ramit Arora:

But yeah, I mean, please feel free to reach out for any questions or discuss any app growth strategy. I'm pretty active on email as well.

David Barnard:

Awesome. And then for those of you here in the audience, as I said earlier, the Sub Club podcast, we talk to folks like Ramit Arora every two weeks and we actually talk everybody from indie apps who are scaling up mid-market apps who are having the same struggles. And then of course I do work for RevenueCat and these kind of conversations, I don't talk a ton about it, but we're a secure demonetization platform that helps with all this kind of stuff, kind of that base layer of infrastructure that does push the data to win back. And again, I'm here on stage saying, don't focus on wins back early, but as you grow, that's a really important thing and our data and RevenueCat can really help push that. So yeah, thank everybody for joining and hope you enjoyed the conversation today and check out the Sub Club podcast and RevenueCat. [inaudible 00:30:13] work out.

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.