The Future of Subscription Apps (Why We’re So Excited For 2024)

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. On the podcast we talk about RevenueCat's 2024 State of Subscription Apps report, the state of the app industry more broadly, and why a slight drop in renewals in 2023 isn't as bad as it might seem. Hey, Jacob, ready to talk quartiles, medians and lots and lots of numbers today?

Jacob Eiting:

I am now. You didn't tell me we're going to talk quartiles and medians today, David. It's my favorite subject. Especially as it pertains to applications on phones. So let's go.

David Barnard:

So we're about to release the 2024 State of Subscription Apps report, and as is now the tradition, year two, you and I, just you and I, get to go over the numbers together.

Jacob Eiting:

Is this what it takes for us to get some one-on-one time, David? We have to release an entire State of Subscription Apps report? I've gotten muscled off of this podcast for all the great guests, but I'll take what I can get. So I'm excited to talk today.

David Barnard:

I try and get you on with the guests that I think would be most interesting for you to talk to.

Jacob Eiting:

I appreciate that, I appreciate that.

David Barnard:

All right, so in the first few slides of the State of Subscription Apps report, there is a great letter from the CEO that you wrote. And I thought it was so good, I actually wanted to kick off the podcast with this. I do think it's important before we dive into the numbers to talk about the meta around subscription apps. And if I were to sum it up, the state of subscription apps in 2024 is good. Great. [inaudible 00:02:09] going well.

Jacob Eiting:

[inaudible 00:02:12].

David Barnard:

The first thing you talked about was that we have been through a tumultuous few years.

Jacob Eiting:

Yeah. I mean, if you just think about it, RevenueCat's been really doing our thing since 2018, 2019. And if you cast backwards to that world to where we are now, a lot has happened in just about every dimension. The pandemic changed placement of our businesses overnight. And some of that has reverted, but not everything has reverted. I don't think we've gone back to the way it was. Certainly from an industry's perspective, the apps just became much more important. It changed consumer behavior forever. But then also it created this immense monetary bubble during 2020 and 2021 that had aftershocks that lasted clear through 2022. And if anything, we talk about why I think 2023 was a better year, is that 2023 year was the first year we were kind of clear of most of that.

It was still a little bit happening at the beginning of 2023, but really felt like the first year that things had sort of resettled and renormalized. And then alongside that we've had all kinds of crazy side shows that have gone on. There's been all this antitrust stuff with Apple and Google as well as their regulatory issues in different countries.

David Barnard:

And app tracking transparency.

Jacob Eiting:

And then that was the other one I was going to mention. Apple basically turned on its head going acquisition strategy for apps in that time period. So yeah, a lot of that stuff all happened between 2019 and 2022. So by 2023 I think we were really finally set up to have a quote, unquote, "normal year" for apps. If anything, I think we learned is that apps are still here. They're still growing. We have a different set of winners in 2023 as you will in a very dynamic market, but yeah, and if anything it's got me more bullish for this whole industry because we can kind of survive, figure it out. We can renormalize. And in some cases reaccelerate.

I'll say from our business, we certainly have benefited in the last year from customers growing, but as well as maybe some new trends and then also just the relative stability of the global macroeconomic condition. Which, Bitcoin is up 25% in the last 30 days as we're recording this, which doesn't tend to anything positive. So maybe this is very untimely by the time this is released, but so far so good into the first couple months of 2024.

David Barnard:

One of the things that does excite me about how strong 2023 was, is that it wasn't until the latter part of 2023 that I started hearing from a lot of people in the industry that the app tracking transparency stuff had started to renormalize. Meta is finally finding its footing really toward the end of 2023. And that was such a huge driver of growth for apps is being able to buy attention.

Jacob Eiting:

Everybody blames the Meta collapse and rebirth on Zuck's overfocus on the Metaverse and things like this, but I think probably as much if not most of it can be attributed to ATT, right?

David Barnard:

Yeah. And so I'm excited coming into 2024 that it has been getting easier and easier, like it was pre-ATT to find those users who are going to be profitable. And so I think that's kind of what we're seeing. Like you said, it's like apps in 2023 where thriving, and I think it wasn't just a year over year that 2022 was an easy beat.

Jacob Eiting:

It's easy to have a good year when you're lapping a bad year, right?

David Barnard:

Yeah. But I do feel like there's wind in the sails again for the first time in a few years with things being better. The other thing I wanted to bring up before we move on to some of the other things you mentioned, and you didn't mention this specifically in your opening letter, but it's something I think about a ton. I feel like I'm always seeing articles like subscription fatigue, too many things are subscription, and people are annoyed, and how many more streaming services can you subscribe to? But it's like, we don't see that in our data anyway.

Jacob Eiting:

No, I mean we don't have great share of spend per customer, which actually maybe is something we could start to compute over time, but I've always felt like subscription fatigue was just a convenient angle that was popular for clicks. The economics of it never really shook out. If anything, apps and software have driven down the costs of the services they provide in the last decade. And we were just talking before the call about streaming services as a specific example and sort of unbundling of cable. In my head I was like, "Cable is a $100 a month." But if you think about it, that was a $100 a month in 2008, which is a lot more today. And I don't spend a $100 a month on Hulu and Prime and whatever other streaming services I have that allow me to stay unbundled from cable.

David Barnard:

And they're so much better. Things are probably going to change post ZIRP. Post zero interest times, and studios are starting to cut back. But if you think about the last few years, we've had kind of the golden age of TV. And movies struggled because of COVID and box office, but we're paying less than, especially inflation adjusted, we ever did for cable. We're not seeing ads, we're getting the best content that's ever been created in human history. I mean, there's tons of shows that I hear people talk about, I don't even have time to watch. So it is like there's so much great stuff. And I think that's kind of reflective more broadly of the subscription app industry, is that developers are creating just so much value and creating more and more and more value, and then that value is being captured in price.

Jacob Eiting:

I don't see why you couldn't take that analogy from streaming services, cable to streaming services, to kind of every other domain of mobile apps. You mentioned there's been some readjusting on the media company ecosystem. There's been a lot of layoffs and things like this and potentially we're going to see less content being created, but at the same time we have this rising trend of generative AI tools. I'm not a person who believes that you're going to type in and get your own custom movie in my lifetime. Or maybe in my lifetime, but I don't think that's something that's around the corner. But I do think that every creative professional, whether they like it or not, are going to be using AI tools for leverage. Whether that's in VFX or scriptwriting or whatever. Which is further going to drive down the costs of producing content and media, further going to increase the amount that you can get for the same dollar.

I talked about AI in the report even though it kind of felt like industry buzzwordy just to be shoving AI in there, but we got to talk about it because LLMs, I feel like OpenAI kind of really had their breakout year. They released ChatGPT 3.5 the end of 2022. And then it really hit commercial appeal. Their app came out this year. We also saw the rise of Google's attempts. And everybody else is getting their AI products out and I think what surprised me was how much of a consumer revolution it was. I kind of always assumed that this was going to be for backoffice stuff and models and things like this, but turns out that a well-trained, decent LLM in your pocket is a pretty powerful tool that most people can get. It became a consumer brand. And not just ChatGPT. I mean, consumers started using generative AI very, very quickly. And we've also seen AI get incorporated into apps. And so there's been takes on the internet, which I don't think are wrong, how potentially we're at the end of the mobile S-curve, right?

So if you can think about the transition to mobile that really has driven growth in technology, I think at least on the consumer side for the last decade, started in what? 2008, 2009, something like that. 2013, 2014, that's when peak adoption was happening. It was like the app stores were ripping and there was no end in sight. And then maybe around 2017, 2018, we started to see the backside of more people had smartphones than didn't and things like this. And that's led some people to the conclusion that the mobile revolution is over. And it's like, yeah, probably. We've reached saturation there.

David Barnard:

In hardware.

Jacob Eiting:

In hardware, right? And maybe the first beachhead of consumer behaviors, but think about the PC. You could have drawn that adoption curve in the '90s for the PC or the internet, but then if you actually map that to the value that was going to be generated by this technology, those were purely exponential, because every continuing advancement was built on top of those technologies and used those technologies so it wasn't purely replacing it.

Now there may be a day, and I'm constantly trying to see if I can see around the corner here and predict will we see a fall of the mobile device and the app store as it is? And I'll say that certainly this year has given me more reason to pause and think about the future of developers and apps and things like this when a computer can do a lot of it that it couldn't 18 months ago. I won't say I know the future, I just think it's going to be interesting. And there may be a future disruptive event for mobile, but I really believe that the immediate value of these AI apps, especially for consumers... I won't name names, but every time I'd see a big breakout app on the RevenueCat internal dashboards and stuff this year it was almost always something AI.

Either generative AI or an application of AI or adding LLMs to an existing use case. And so I really think these technologies are going to be linked just like the internet and Web 2.0 and social were. Just like social and mobile were as well. These technologies kind of have interlocking behaviors. So maybe I'm wrong and maybe this is just cope, but I don't think the mobile revolution is over. So everybody can keep subscribing to the podcast, keep investing, keep downloading Xcode. I think it's going to pay off.

David Barnard:

I think it's worth pointing out and diving a little deeper on how the S-curve of adoption does not necessarily parallel any way you would chart value derived from that hardware. And so for example, dishwasher adoption, when you see these historic adoption curves of new technology, it's like once you've adopted a dishwasher, the kind of value in your life is fairly set. I mean for me, I had more kids. The more kids you have, maybe the value goes up slightly. But basically it's like car adoption, electricity adoption, and so much of historic adoption of new technology, there's kind of a cap on the amount of value you derive from it in your life. You adopt a car and it's like you get from point A to point B.

Jacob Eiting:

Yeah, I mean, certainly my 2023 Tesla is nicer than my '95 Cutlass Supreme. But it's not transformatively different in how it changes my life. You know what I mean?

David Barnard:

Yeah. But then PC adoption, to your point, and then now smartphone adoption, it's like we reached close enough to peak of the S-curve adoption decades ago for PC... Or not quite decades, but both technologies are very mature at this point. But the value that you get from those technologies has continued to increase, like you said, exponentially.

Jacob Eiting:

[inaudible 00:11:53] exponentially. Yeah, it's because you're adding a bunch of S-curves together. The true acceleration curve of technology over time is the summation of many, many different S-curves, let's call it logistic curve, added together. And if you add them all together and you zoom out, "Oh, wow. It's exponential." But any one technology is going to have its impact. And I don't know where we draw the lines on what is a technology versus [inaudible 00:12:12].

When is a phone not a computer and when is a VR headset not a phone and all those things? It's kind of arbitrary. You know when you know. I think LLMs are a new curve. That that is certainly... I don't think anybody's going to debate that interacting with a talking computer is not something novel and different and has actually utility, but maybe people get a little too excited to say doomsday about the end of technologies and others. Which certainly happens, right? It's not unheard of for one technology to be disrupted by another. And that's why I said in terms of AI's [inaudible 00:12:42] of mobile, there will be winners, people will adopt it and win. Others will miss the boat and their products will be outdated. But it's not necessarily a wholesale replacement. And so you just got to be on your toes, figure out how to integrate this stuff and move forward.

David Barnard:

And where are we experiencing the value derived from AI? Primarily on our devices.

Jacob Eiting:

Yeah. It's the mode of consumption, right? And for our customers it's dual. Because it's, and this is maybe a little bit too behind the scenes, but it's the value it can provide to our customers, the end user experience. RevenueCat doesn't use a ton of AI in the product necessarily, but internally we use it a ton. Every developer we have is using Copilot. It has changed the way we can build stuff and how fast we can build stuff. And I'm sure, you don't need to be convinced to use technology that is useful, so I don't have to sit here and [inaudible 00:13:27]. People will just use it if it is. It just felt like the AI narrative and story this year is something we'll kind of remember as a transformative year and it certainly has an impact on our industry. So I felt like it was worth mentioning.

David Barnard:

I think a good summary of the 2024 report, and we will point out a few areas that did lag in 2023 compared to 2022, but it was just bigger, stronger, faster, better. A lot of good stuff happening.

Jacob Eiting:

Yeah. We can get into the report. In terms of how we structured it this time, we're throwing stuff at the wall here. We just tried more charts, twice as many charts. If you add up the number of additional segments we added in data points, it's probably way more than two times the amount of data. It's probably four or five times the amount of data. We'll see what the customer feedback is and see how people like and what they don't like, but we've certainly enhanced our ability to process this data in the last year. We went deeper and broader in a lot of areas with the same sort of mission as the first report, which is to give you some real numbers you can kind of stick to when you're making decisions about strategy, about pricing strategy or localization strategy, I would say largely around go to market strategy for your apps, but we try to cover a pretty spanning set of data that will be interesting for you as you're making some educated guesses.

David Barnard:

I like how you ended it, "Stop guessing, start acting." What do you think is the best use of benchmarks for a company in this space? When you see these trial-start rates, when you see the download-to-paid conversion rate? When you see these numbers in the 2024 report, how does the average consumer subscription app look at these numbers and make better decisions based on it?

Jacob Eiting:

Yeah, I mean, I think any given day as a business owner, you're trying to just move the needle. You're trying to grow your revenue, you're trying to make your app stickier, you're trying to find better product market fit, which there's two sides to that. There's the product and the market. I would say this report leans on the market side of that. It's like, what parts of the market and pricing and things like that are relevant? The way I always use benchmarks, is just a rough idea. How's our trial conversion rate look? Is it in the median? Is it high? Is it low? You shouldn't be working on the things that you're good at really. You should probably be working on the things that you can stand to improve. What's most important is to contextualize all of the things you look at into your app. What are you doing that might be driving this number down compared to 10 of your peers?

And I think that's really important for every person consuming this data to do, because if you just look at it and go like, "We should have X percent trial conversion rate." And it's like, "Well, maybe. Is your trial really expensive? Is it really short? Is your product experimental?" There's going to be things that affect that. None of this data you should be able to just take and put it as your OKRs for the year or whatever. I think you need to take it in and contextualize it, but it should give you notional orders of magnitude ideas of where to focus your time and energy and what experiments are worth trying, because ultimately I think you should use this to drive experiments and try things. You shouldn't use this as the ground truth, because every app is different. The variance can be very high within these parameters. So everybody's got to try it, but I think having rough numbers can be a starting point for a discussion on what we should try rather than an answer.

David Barnard:

Yeah, one of the things I really do like about the extra data we put in this year, and we'll talk about this in a few specific cases as we dig into the data, but because we broke it down by country and broke it down by category, if you're a business that's looking to expand your portfolio of apps, well, you can look at the categories and see which categories are doing well. If you are primarily US focused and you're thinking, "Where do I localize first?" You can look at how different countries monetize. There are a lot of places in the data to find opportunity this year.

Jacob Eiting:

Yeah, and even if you don't have an app yet, it's also great if you're thinking about starting an app. For instance, I think one of our first data points is download to paid in South Korea for education apps is over 10%. Which would probably be top decile. Who knew that, right?

David Barnard:

Right.

Jacob Eiting:

So maybe that's a good idea. Starting with some tailwinds. That's another thing is like, find your tailwinds. Find the places you can go where it will be easy for you to succeed. And don't waste time. I see a lot of developers, especially with localization is a really good one, developers will go super broad and localize everywhere and [inaudible 00:17:34]. Or focus on conversion in certain countries where it's just like you're never going to turn a dime focusing on conversion in that country. Don't worry about it at your scale. And I think this can be as much as a negative guide of where not to focus as it is where to focus, right?

David Barnard:

Yeah. And we'll get into it, but it is interesting how the data confirms a lot of the biases in the industry. Like North America, average realized LTV is just way higher than other countries and stuff.

Jacob Eiting:

Yeah. Maps pretty well to price purchasing parity, GDP per capita. Pretty well.

David Barnard:

And it just maps broadly to so many apps being more North American-focused, and those specific markets that do get a lot of focus. There's a reason people focus on the US as their primary market for apps, is that it has the highest realized LTV. So anyways, let's start with the five key takeaways, and since those were the highlights of the report in the report itself, I figured that would be the place to kind of dive in and talk through it. So I'll just read them and then we can talk through the implications and what it means and all that. So the first key takeaway is that 1.7% of downloads turned into paying subscribers in the first 30 days, which is slightly up from last report. The difference between lower quartile, which is 0.6%, and the upper quartile, which is 4.2% remains striking.

Jacob Eiting:

A 7X spread, right? That's not even top decile, lowest decile, right? That's quartile. So the top 25% of apps is seven times plus more than the bottom 25, which is interesting. But that median about 1.7% I think is... That's always a number I've used in my head is, how many people are going to convert to paid in an app. It's a few percentage points usually. If you're lucky maybe you can get close to 5%, I think, generally true.

David Barnard:

I'm glad we led with this in the report as the biggest takeaway, because ultimately I don't think all subscription businesses need to convert more users. A lot are freemium and they have more generous premium tier. Maybe they monetize via ads, maybe they have a marketplace or other monetization layered in. And that's another trend we didn't, I don't think talked about much in the report, but this kind of hybrid monetization is something that's definitely... I think we talked about it a little bit last year and definitely been talking about it in other episodes of the Sub Club Podcast, but 1.7% median turning people into paid subscribers. Like, does it... It's just such a numbers game.

Jacob Eiting:

Think about that, you've got 98 users who don't ever pay for every two that do from download. I think the scale of it sometimes, especially people who don't do this work day in, day out, don't realize, certainly users don't understand the economics that 98% of people who download your app aren't going to give you a dime. They're not useless, but they're not going to monetize probably.

David Barnard:

Yeah. A couple of other things I thought interesting to point out is that in this chart... And again it always sucks trying to do a podcast about charts.

Jacob Eiting:

Yeah, it's great. Everybody loves it.

David Barnard:

And I guess we didn't mention this at the start, but go to revenuecat.com/report to follow along. So pause your podcast, download the report, and then go to the download-to-paid chart. And what you'll see is yellow is North America and pretty much in every category North America download-to-paid is just way higher than any other country in the world. Except for as Jacob pointed out-

Jacob Eiting:

Shopping and education.

David Barnard:

It's interesting that in travel and education and a few other categories, there are some standouts in other geographies, but generally it is a very kind of North America focus, that on average a North American user is way more likely to become a subscriber to your app than pretty much any other country in the world.

Jacob Eiting:

What's interesting to me that because this is a rate, right? It's a percentage. The fact that the US is so much a higher percentage tells me that probably not enough people are doing regional price discrimination.

David Barnard:

That's a good point.

Jacob Eiting:

Because ideally you would probably want to lower your price in those countries. You'll lower your price, but you'll raise your conversion rate and you could potentially reach your max value curve. Assuming your North American rates are on par. But if people were perfectly efficiently pricing, you would think that for a given distribution of consumers, the same percentage of them would be buying if the price were set at an optimal point. Again, all these things are really tricky because you have many, many dimensions of things that interplay.

David Barnard:

Yeah. And I would say the counter argument to that, and this is something I don't have data on, but I've talked to several developers who think this and who look at their data and think this to be true, in a lot of countries you end up converting the middle class and upper middle class who aren't as price sensitive as the average consumer in that country. And so if you do drop your prices, you're just lowering what those middle class and upper middle class people end up paying you versus actually extending the price low enough to where the average consumer in that country [inaudible 00:22:19].

Jacob Eiting:

Yeah, again, something you should test if you can. Revenuecat.com/experiments. I don't know if that works. But there is experiments on our website. But that is something you could test and run, because yeah, you might be right. Again, it's like you're dealing with so many non-linear distributions of things and it's really difficult to know without real experimentation.

David Barnard:

I think both points are valid. For some apps it's going to be the case that the monetization is not going to improve with regional pricing, but for some apps it actually will.

Jacob Eiting:

Could, yeah. It just depends on where you're sitting on the value maximization curve.

David Barnard:

Exactly. All right, the next top takeaway is that the top 5% of newly launched apps generate over 200 times more monthly revenue than the bottom quartile does one year after launch.

Jacob Eiting:

I'm not sure why we feel like shoving everybody's nose in this one. Kind of sucks. I'm sure there's some listeners in that top 5%, but the rest of us are just like, "Why? What the heck?" This is just a natural side effect of the way that power laws work in the world where each order of magnitude in revenue you go up, that you go down an order of magnitude in number of actors generating that revenue in most business and competitive markets. And so it's interesting.

I don't know if it necessarily is actionable. My advice, become one of those top 5%. That's my advice. I don't have the data here, but there's a lot of meat in that long tail. So you think about who's in that top 5%, it's Netflix... Maybe not so much anymore, but it's like the top brands. I mean, HBO Max I know does in-app purchases. They're probably one of the top ones. Disney Plus is very in on in-app purchases. Fortune 100 brands are going to dominate just because of their brand awareness and mass consumer appeal, so don't get too demoralized by that. Because there's lots of riches in niches all the way down the curve.

David Barnard:

And just to be clear for listeners, all of this data is actually RevenueCat data only. And those big streaming companies are not yet RevenueCat customers.

Jacob Eiting:

That's true, yeah.

David Barnard:

So we don't have their data in the mix.

Jacob Eiting:

[inaudible 00:24:05] 20,000 apps that we have, yeah.

David Barnard:

But broadly looking at the subscription app category, those who far and away...

Jacob Eiting:

But that's the interesting thing with-

David Barnard:

...make the most revenue.

Jacob Eiting:

With power laws, no matter how you slice it, it's going to be true, right?

David Barnard:

Exactly. Right, right.

Jacob Eiting:

It's a power law all the way up.

David Barnard:

I do think it's encouraging also though. If you're an indie developer and you just got your app out there and you look at these numbers, you're doing something, you're making some money. And a lot of these are going to be side projects and nights and weekends and stuff like that. And so it's cool to see how many apps do make some amount of money though. And we see this all the time, it's really fun inside RevenueCat that-

Jacob Eiting:

[inaudible 00:24:38] weird software people make. Yeah.

David Barnard:

Yeah. People tweet out, "Hey, I just got my first subscriber." "Hey, I just crossed a $100 in monthly tracked revenue." And for a night and weekend project that you're just throwing out there into the world, it's pretty cool that you can build something that people pay for.

Jacob Eiting:

Free money, kind of. Right?

David Barnard:

Yeah.

Jacob Eiting:

Hobby money at least. There's one breakdown in this piece of data that's interesting. Which is that the median revenue for a new app after a year is $50. Which should be a little upsetting, but basically half of apps launched a year later make almost no money. Which probably surprises a lot of people, right? And I think this shouldn't be discouraging. It just highlights that while most apps don't work out or most people don't put enough effort in to make them work out or they're just not interested or it's just like a side project or it's whatever, it's a thing, it doesn't take a ton of effort to get you into that second half.

And the numbers go up rapidly after that point, which is interesting. So we have some data here. It's roughly 50 for the median, but if you just get into that upper quartile, it jumps by almost a factor of 10 to 300 or 400. And then once you're in that upper quartile, that's when it starts to go up really precipitously. Again, because of power law effects. It's like the winners will continue to be winners and most people when they have an app that doesn't really take off, a lot of times they divest naturally, which is good. I mean, that's a sign of a dynamic and efficient market that people are not focusing too much on the ones that aren't breaking out, and they're doubling down and growing the ones that do break out.

David Barnard:

And this is what you see a ton in the Indie Hacker space and stuff.

Jacob Eiting:

Yeah.

David Barnard:

[inaudible 00:26:05] you just keep building until it makes [inaudible 00:26:08].

Jacob Eiting:

The famous Levels.io guy.

David Barnard:

Levels.io.

Jacob Eiting:

Yeah. He was just talking about today, his takeaway after all these years is that no matter how good he gets, the probability that something works out for him is still pretty random. The only bet is to keep trying stuff until something really works. And so that would be my takeaway from this is don't get discouraged, because you don't feel like you'll ever be in that top 5%, top quartile. You just got to keep trying stuff until something really cracks and then the way subscription works, you just double down and you compound into that as long as you can. That's sort of the nature of growing something really big in this game.

David Barnard:

I think the toughest part is deciding when to double down on what seems like it's not working, and maybe this report will help with that. If you're in that category of you haven't quite hit the $50 a month in revenue, we've talked about on the podcast so many developers who... And maybe it wasn't quite that $50 in revenue, but Curtis Herbert made like 10 grand his first year. And now-

Jacob Eiting:

That's a lot more than $50, right?

David Barnard:

Yeah, it is.

Jacob Eiting:

That already puts him in the top 5% actually.

David Barnard:

Yeah, but it's tough to know when to keep doubling down on the existing product.

Jacob Eiting:

That might be the line. If you're making thousands of dollars in your first year, that might be enough of a signal to keep reinvesting. If you're making tens of dollars... Any app that's got any amount of product market fit and has any kind of legs... If you think you've released something that was just useless or just very, very close to MVP and you only make $50, I wouldn't take that as a valid data point.

But if you built something pretty good, you think it's really good, you invested a lot, and in the first year it's not naturally making $10,000 or something along those lines, I don't think fixing any number in our report is probably going to help. I would suggest if you got a different idea, try something more radical. And that might be advice generally on this. The further you are away from the metrics you want, you should proportionally increase the radicalness of the testing and experimentation you try. If you have pretty good conversion rate, don't go crazy. But if you have total trash, you're not losing anything, just try something nuts. You want really high variance like dice rolls, and rerolling and building a new app might be the biggest experiment you could do, right?

David Barnard:

Yeah. And some of the experiments that need to be done though, in these cases if you are making less than $50 a month on your app after a year is, how are you getting attention? And figure out a way to get more attention. If you just put it out into the world and, "If I build it, they will come." Figure out how to get attention. That should be your final dice roll before you give up on a project is really try and figure out, "How can I get attention for this thing [inaudible 00:28:29]."

Jacob Eiting:

Yeah, you're not going to get traction just from background noise on the app store anymore.

David Barnard:

No.

Jacob Eiting:

[inaudible 00:28:33] have to kick something to try.

David Barnard:

Have to do something.

Jacob Eiting:

But if you do and nothing takes off, then... You know? And this is really hard for entrepreneurs across the board. When is it time to throw in the towel or reroll or try something new? It's never an easy answer, because there's tons of sunk costs and all kinds of things. Correct me again, David, because it's $50 per month. That's the quartile. It's not $50 for the whole year. It's $50 per month by their 12th month, which is marginally less bad, but...

David Barnard:

All right. Number three of the top takeaways, the average realized LTV per download in North America 14 days in is four times the global average at 35 cents compared to 8 cents. A multiple that exists both on the App Store as well as on Google Play.

Jacob Eiting:

I was just trying to Google North American GDP per capita versus world GDP per capita, but I'm surprised it's not actually higher than that. I guess because true rest of world GDP per capita is not going to be inclusive of the non non-North American app store users. There's definitely some bias in the fact that the iPhone was a US-first invention, and there's probably some lion's share of the developers that are here. We see US as our biggest single country. I think maybe EU in aggregate might be a close second for RevenueCat, but the US is still very dominant. It's still king.

David Barnard:

Yeah. Yeah. There's always going to be things in reports like this that I wish you could break down a 100 more ways. It would be fascinating. Maybe we can do this as a follow-up blog post at some point, but take especially this key figure, because I do think this is so interesting. The average realized LTV 14 days in and then 60 days in is the chart we're looking at. And we bundle Europe as EMEA, which I had to look up that acronym again today, but it's Europe, Middle East...

Jacob Eiting:

Africa is the A.

David Barnard:

Africa is the A.

Jacob Eiting:

I think it's Europe, Middle East, Africa, is the...

David Barnard:

There you go. Europe, Middle East, Africa.

Jacob Eiting:

Or EMEA, if you will. The first time you ever meet a management consultant, you're going to hear the words EMEA and LATAM. And you're going to go like, "What are we talking about? I don't know what these words are."

David Barnard:

It would be really fascinating to actually break this down country by country, this specific one, because I do think that North America... And North America, again, does include Canada and I believe Mexico.

Jacob Eiting:

It depends who you talk to. I don't know. Sometimes folks throw it in, sometimes they'll consider Mexico in Latin America category, but...

David Barnard:

Yeah, I'll make sure that we put this in the methodology of whether or not we included Mexico or not. But anyways, it would be fascinating to break this down country by country. Because I think the US would still lead far and away, but I do think certain European countries like the UK, maybe even Australia, from talking to other developers on a per capita basis, there are probably other countries that are actually closer to North America than it looks like in the data because we're bundling so many countries into EMEA and rest of world and whatnot.

Jacob Eiting:

I think worth pointing out here, and you can kind of see it in a lot of the charts here, is the relative strength of Japan and South Korea [inaudible 00:31:28] markets. Especially relative to their size. These are non-trivial markets. They tend to be dominated by local players, but they're very close. Again, Europe is 30 country... I don't even know how many countries are in Europe. Combined with all distinct languages. But Japan and South Korea are monocultures, more or less in those countries, and single languages. And maybe worth focusing on, even though they can be difficult to break into, in terms of if you're looking for secondary markets.

And I think, we're talking about this at RevenueCat right now which is, starting to look at our locale-specific strategies as a SaaS business. And I think for consumer, it's even more important to be strategic about where you focus, because it can have a good upside, but it's also comes with substantial costs. And so you don't want to go localizing for... I don't want to throw any country under the bus as being small and not worth it, but there are some that are going to get you a better return on investment than others, and you should be strategic about how you deploy those resources.

David Barnard:

To the point I made earlier as well, if you look at a country like India broadly, you might think it's not worth localizing in India. But there is a thriving middle and upper middle class in India.

Jacob Eiting:

It's a huge country, right? That's the other thing. The per capita might be low, but the number of people is much bigger.

David Barnard:

So big. So there are opportunities even hidden in some of these averages that you need to understand for your business whether there is relevance in some of these bigger countries that maybe on average have lower income, but might actually do really well in your particular case. The other thing I thought interesting to point out in this chart is that Japan and South Korea both actually monetize really well on the Play Store. They actually monetize better on the Play Store in terms of realized LTV than they do on the App Store. Now, some of that is South Korea is the headquarters of Samsung, and so it is a very kind of Android and Samsung-focused country, but I was actually surprised to see that the same was true of Japan as well.

Jacob Eiting:

Yeah. I mean, I think there's a stereotype that iPhone owners are higher payers and follow some... There's some cultural connotations that at least in the West we have around iPhone versus Android and things like this. But those are just that, cultural stereotypes. They're not necessarily hard and fast rules. And I mean, even in Europe, Android is much more popular. I don't know, as a spending platform, but on a day-to-day basis, it's a much more popular platform. We all work in often the tech ecosystem bubble where iPhone and iOS is dominant, but it's not the real world. So yeah, you have to think about that too in terms of your multi-platform strategy of you might want to consider going multi-platform before you consider a focused localization effort just for that.

David Barnard:

Yeah, totally. And then one of the striking things too is that rest of world, Android just gets crushed by iOS. And I think that's maybe that point of these are the $80 Android headsets in third-world countries that just aren't ever going to monetize very well at all.

Jacob Eiting:

Yeah, they're not made for app store monetization, right? They're made for a different use case.

David Barnard:

Yeah. All right, so the fourth key takeaway is that the share of monthly subscribers retained after 12 months dropped by 14% last year across categories and impacting both the best and the worst performers alike. This is the one area in the State of Subscription Apps report this year that was a soft spot, was retention. And since we won't have time to get to some of the other charts, I did want to highlight deeper in the retention some of the other softness. So first renewal rates dropped in 2023 across all subscription durations. We're talking 3% for monthly median, 13% for annual.

Jacob Eiting:

When you say that, are you talking about relative drops or absolute values?

David Barnard:

Yeah, yeah, sorry. Relative drop. Not an absolute drop. So it is interesting that the first renewal rates dropped and that the year one retention dropped in 2023. And I think there's a lot of potential reasons why this is actually the case. A lot of apps were pushing harder, faster than ever in 2023. Monetizing more aggressively, showing their [inaudible 00:35:21] more frequently, bringing in maybe lower intent users. There's so many reasons why you would see a retention drop.

Jacob Eiting:

[inaudible 00:35:29] ramping generally, right? As you're pushing further into acquisition, you're going to affect these numbers. And the relatives are decently high. For instance, the annual renewal rates are down 8%, which is the effect you'll see on that amount of money you'll make. But if we talk about absolute numbers, it's like last year we measured 30.5% first year renewal rate. This year it was 28%. It's significant and we see it across all durations, but it's also not necessarily a total change in the regime of what's workable and what's not in terms of viable business models. But it is interesting, I mean, and I also won't hold back that there could be some bias in our data here as our dataset expands and grows. Which should proxy to the overall market. Revenue gets more or less established and mature at this point too. But there could be some of that. But yeah, certainly interesting.

David Barnard:

Yeah, and then you would expect that. As apps grow faster, as the market grows. And we talked about this ton on the podcast too, is how monetizing more strongly and putting paywalls earlier in the onboarding and things like that, and for it to only be a 10% to 13% relative drop to your point, it's not massive. It's not groundbreaking like, description, app industry is falling apart. Everybody's churning.

Jacob Eiting:

I mean, it can certainly even be normalized by those remaining 80% or whatever, retaining better in the long run. So it's hard to look at any single stage gate and really understand the overall macro impact, but the number is true for what it's worth. And I don't know the total impact of that. The number is as we measured it true.

David Barnard:

And there probably is some bit of macro mix in there of in 2023, people were looking for things to cut, and inflation. With four kids, I definitely noticed my grocery bill go up considerably in 2022 and 2023. And so I probably cut a few subscriptions that I wasn't using as aggressively. So there's probably a little bit of macro too.

Jacob Eiting:

Right. I guess most of the... Inflation soak up price changes happened in that year. So that could even just be an explainer itself.

David Barnard:

All right, the last of the five key takeaways is that over 10% of churned monthly subscribers resubscribe within 12 months. With categories like media and entertainment seeing even higher reactivation rates. This was interesting and we haven't done this before, so there was no kind of year-over-year comparison. But it is really encouraging, to get back to encouraging, exciting stats, is that you can win people back. There are opportunities to get those subscribers back who churned.

Jacob Eiting:

And it's a compounding effect too versus new acquisition, right? New acquisition, you're exerting some amount of effort for every new potential trial and sign up and then retain and churn. But as you build that over time you have the number of churned, unactivated customers grows and grows and grows and grows and grows. It never goes down. And so similarly that, if you can reactivate 10% of that, that 10% becomes bigger and bigger and bigger every year. And you'll see this in very mature consumer apps, that reactivation is a huge part of their growth model. Duolingo, I know for example, that is a huge component of their growth model, is reactivating dormant users. I know Twitter back in the day, reactivation was always a huge driver of their growth model. I'll admit we haven't done much here on RevenueCat's side to lean into this, but I think it's something we want to do more to help you monetize. Or just reactivate and bring those users back into the fold, because they've already primed, they paid once, they're very, very likely to pay again if you just give them the right pitch.

David Barnard:

To your point though, it's actually more impactful the larger you are and the more people you've had previously subscribed that aren't currently subscribed.

Jacob Eiting:

Yeah. It's not a year-one strategy, right?

David Barnard:

Yeah, exactly. Before you think, "Oh, man. I need to go reactivate all these subscribers and put a ton of work into CRMs and win-back campaigns and all these things."

Jacob Eiting:

"We had 15 users churn last month. Let's build out the infrastructure." It's like, "No, don't worry about them. Wait until there's 500 or a 1000."

David Barnard:

Exactly. Grow first. And then think more about reactivation. Because it's then going to be even more powerful then too. Or do just the lowest hanging fruit, the easy wins here.

Jacob Eiting:

That assumes there's nothing else to work on. You want to be very focused on funnel and very basic acquisition, retention stuff in the early days. And then you transition more to reactivation over time.

David Barnard:

Yeah. Totally. All right. Well, that was the five key takeaways that we cover in the report. I think we have time to squeeze one more in, and this was the one I found most striking and I think is maybe the most actionable. If you're not already doing this, you should. And so the title of this chart is that most trial starts occur within the first 24 hours. And then you look at the chart, and again, I'm going to try and describe a chart on a podcast. But blue is within the first 24 hours, and then red is one to three days, yellow is four to seven days. And in pretty much every category across the board, blue is just dominant.

Jacob Eiting:

Most is an understatement. It's like the far majority. It's like 70 plus percent on average. And so this is something worth knowing, if you don't know this. But yes, most of your efforts should be focused on that very first user experience, getting a trial started. For two reasons. One, you have the maximum user intent. They just downloaded your app. This problem that they have is acute to them at that moment, so they're very, very primed. And then secondly, it's just a law of numbers. Most people are not going to open your app the second time unless you hook them. This is true for any kind of sales. You really want to land that message and that pitch in that moment, because you might not have another chance. A lot of times I see people struggle and be like, "Oh, I'm going to let people sign up and then they're going to set an alert and then on four days, once they've taken some sort of action, then I'm going to hit them with the paywall."

And it's like, yeah, that sounds like a really ideal experience that one fifth of the downloads are going to see. So as much as you think that might be ideal, I will beat you just by putting a buy button on the first screen by pure law of numbers. And that's sort of the un-auteur app design things that you sometimes need to do to actually optimize the business. This metric just really drives that home. You can still do that in tasteful ways. You can do that without compromising that much. But yeah, this is one of those truths of apps that you just have to know. You got to get that trial started right away.

David Barnard:

Yeah. And then again, when looking at opportunity, those 15 people who churned last month is a very small number compared to the hundreds who opened your app on any given day. And there's a lot of smart things you can do here as well. Jake Moore talked about this a lot, and it is something I'm actually working to implement in my app soon, is that if they don't subscribe in that first session, hit them in that first 24 hours. When the app is still fresh in their mind, hit them with a discount in that first 24 hours.

Jacob Eiting:

[inaudible 00:41:48] the K-curve, right? They're peak intent is probably going to be right then. So just get them when you can.

David Barnard:

All right, well this has been a ton of fun, Jacob. We'll see you on the podcast I'm sure very soon.

Jacob Eiting:

Oh, I'm going to be invited back soon? I'd love to. I'd love to be on this podcast.

David Barnard:

But I always look forward to the State of Subscription. So hopefully less than a year from now, because this is a little late for us to be publishing the report.

Jacob Eiting:

Oh, don't blow us up, David. We always meant to launch it in March. You got to keep the facade up. We're perfectly on time. We just wanted to do it later than every other company that does these. That was the whole plan all along.

David Barnard:

We did, of course.

Jacob Eiting:

Yeah.

David Barnard:

But yeah, looking forward to the 2025 report, and I think there's going to be a lot of really fun and interesting things to discuss then. But yeah, go download the report. Let us know what you think, let us know how to improve it. And hopefully this report will help you make more money. 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.