Why AI Probably Won’t Kill Your App (But Ignoring It Will) — Eric Crowley, GP Bullhound

David Barnard:

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Hello, I'm your host, David Barnard, and with me today, RevenueCat CEO Jacob Eiting. Our guest today is Eric Crowley, a tech investment banker with GP Bullhound, where he provides transaction advice and capital to top companies in the consumer subscription software space. On the podcast, we talk with Eric about the opportunities and challenges of AI for consumer apps, what you can learn from Strava acquiring Runna, and the flawed thinking around subscription fatigue.

Hey, Eric. Thank you so much for joining us on the podcast.

Eric Crowley:

Thanks, David. Thanks, Jacob. Thanks for having me again. Always a pleasure.

David Barnard:

And Jacob, nice to have you on as well.

Jacob Eiting:

Good to be here.

David Barnard:

So this is our fifth time to have you on. This is your fifth or sixth consumer subscription software report. I realize in the last few episodes having you on, I've assumed certain knowledge of the audience, but I didn't want to do that this time. So let's just kick it off with what is your famous and infamous consumer subscription software report that you do every year? Why do you do it and what is GP Bullhound?

Eric Crowley:

Yeah. Well, we'll work back from that real quick, so keep the commercial short. GP Bullhound, we're an investment bank and venture capital fund. Been around for 25 years, offices in New York, San Francisco, which is where I sit in SF, and then nine offices all around Europe. We are the only investment bank with a focus on consumer subscription software companies. It's a big chunk of our business. We almost exclusively focus on selling companies mostly for entrepreneurs or helping them raise capital, and we'll talk about a couple of deals we've done in the past. That's the firm.

I started our CSS practice back in 2018 actually when we sold AllTrails to Spectrum Equity. That was the eye-opening moment for me about the power of selling software to consumers. I think a lot of people in 2018 were like, "B2B SaaS, B2B SaaS, B2B SaaS." I said that's great, but it's boring. I wanted to work with companies that I thought were fun, that I really got to understand, that I can download and play with. And so I wrote the first report actually, David, in 2019. We've been doing this now for quite some time. It was pretty bad, but to be honest it was the only bank report about the sector and we were a little bit different than other banks. We don't just do-

Jacob Eiting:

That's crazy. Sorry, that's just crazy. That wasn't that long ago.

Eric Crowley:

I had way less gray hair, that's for sure.

Jacob Eiting:

I think that was the first time I found GP Bullhound. You guys were one of the first people to put out some sort of report or any sort of coalescing of "space" here with your PDF.

David Barnard:

You were really early to be so bullish on consumer subscription, to your credit, and it's cool that the origin of that was selling AllTrails to Spectrum Equity, but it's taken other folks a while to catch up. So your reports are like a library of the growth of this industry.

Eric Crowley:

It really is fun. I mean, I think, Jacob, you guys are obviously ahead of me because you guys are building the space before I was, so kudos to you guys. If you just think about the math, consumers are 70% of the economy. They love experiences, they love doing fun things, so why wouldn't software just become bigger? To me, it just seem like a mathematical certainty that this was going to happen.

I was a younger banker trying to carve out my own niche. Didn't want to go play against 300 other people that are all doing B2B SaaS or stuff like that and I said, "Let's try something different." And I think that's been great. I think we're actually thrilled by that and it's just been a ton of fun for me, so I got to say I really enjoy my job.

Jacob Eiting:

Do you think there was anything structural or sort of like consensus thinking at the time for why this was overlooked? Was it just like people weren't used to it? And then what has changed from then to now that it's like cool now? Is it just the market's bigger? Has people realized churn isn't the worst thing in the world? What do you think is different now versus six years ago?

Eric Crowley:

Yeah. I mean, it's a great question. I mean, the honest answer is six years ago, it just wasn't on people's radar, but also the companies weren't as big. There weren't nearly as many success stories. They were starting to happen. If you think about both Netflix, Spotify were around. People were starting to subscribe to them. I mean, think about this, Netflix once again was an OG subscription but mailing people DVDs. People were starting to say, "Hey, I'll subscribe to something," but the success stories weren't there. Investors were not-

Jacob Eiting:

I mean, Duolingo IPO was '21, right? Or something like that.

Eric Crowley:

Yeah, '21. Yeah.

Jacob Eiting:

Yeah. So it hasn't even-

Eric Crowley:

No, it hadn't gone out. I mean, the market comp was there. Intuit was there with TurboTax. There's examples. You just have to know where to look. Quicken has been around for 20 years. You got to know where to look, but there just wasn't as many success stories, IPOs, the big booms that you're seeing in B2B SaaS, and so people were just not thinking about it. But then at the same time, consumers... Think back to your first iPhone. You probably were still doing in-app purchases, probably downloading an app for 1.99. The concept of subscribing to something for 20 bucks a year, 30 bucks a year, that just didn't appeal to most people, right? But I think that changed a lot over the last couple of years.

One, the products got way better. I think that's 100% true. I think investors got super bullish during 2021, probably overly bullish on some of the CSS businesses that we saw, and that's okay. You're allowed to get overly excited about stuff, because guess what? Some of those bets were great. Some of those investment that people made in 2021 have absolutely been fun returners. Others weren't, but that's the same for every industry. B2B SaaS went through the exact same thing. AI is going to go through the same thing.

I mean, I think where things are now is... I still don't think most investors are caught up. I will strategics have figured this out quick. I think anyone from media to consumer goods and even B2B SaaS is saying like, "How do I add on some sort of a consumer angle, some sort of a prosumer tool to, one, increase my ecosystem, two, increase my mind share with my target customer?" And I think that's been really exciting.

Jacob Eiting:

And they finally written off, trying to do it internally, like Alas, CNN, whatever, and whatnot?

Eric Crowley:

I mean, listen, they're still trying, that's for sure. You can hack these things and put something together real quick and determine if there's consumer love, and if there is, man, boom, all of a sudden HBO Plus or whatever, HBO Max or whatever name you want to call it. That's a massive step function change for that business model.

Jacob Eiting:

[inaudible 00:07:06] internal CSS because that's clearly a victory, despite their own follies.

Eric Crowley:

They're definitely happy they have it versus not have it. Let's call it that way.

David Barnard:

I was going to cover this later in the conversations, but since we're talking about it now, you have a whole page entitled Another Subscription?! Consumers say absolutely. I think that has been a big story, which you're already alluding to is that consumers are willing to spend and then it's kind of surprising how much they're willing to spend. Tell me a little bit more about what you shared in the report about this willingness to pay and the whole idea of subscription fatigue. Well, partially true, it's just so overplayed. So yeah, how do you think about that?

Eric Crowley:

Consumers are not dumb and there's so many tools now to make sure, hey, you unsubscribe to this or turn off that. You can't trick people, so I think this whole concept of like, "Oh, someone subscribed and they just forgot about it." That doesn't work anymore. There's too many good tools in both legislative plus just software tools. And then honestly, consumers will happily pay for something that brings them value. Now, do you need 30 fitness apps? No, absolutely not. But you might use two. You might use a yoga plus a running training app. Totally possible, right?

I mean, the beauty of what's coming out with some of the AI enablement of both legacy CSS plus brand new consumer subscriptions tools like ChatGPT, that is bringing new value to consumers every day. They're going to be happy to pay for that and they're making a trade-off, economic time versus money. The value they're receiving is real. I think that's what I get really excited about is your subscription count probably went from zero or two in 2018. You easily have 10, but let me take away two of those and tell me how much you scream. People will be like, "Nope, that's part of my core... Oh, no, that's got videos of my kid playing baseball. No, actually, this is how I'm learning something."

People quickly say like, "No, I got value out of this." And so yeah, I think subscription fatigue is overplayed. I don't think you're going to have 100, but I won't be shocked to see everyone having something between 15 to 20 in the next two to three years, especially as new categories came up. Four years ago, no one had an AI buddy in their pocket. Nobody. Now, it's one of the fastest growing companies of all time, mostly consumer.

David Barnard:

And that's what I always keep coming back to is consumers will complain. I mean, it's human nature to not want to spend money on things. I mean-

Jacob Eiting:

That's a rational market, David. Working itself out is what that is. Eric, you said consumers are not dumb. I would say why would even anybody say they're irrational?

Eric Crowley:

Consumers in large numbers generally rational over time.

David Barnard:

Speaking of short term irrationality, I've still been paying 30 bucks a month myself and 30 bucks a month for my wife on Ladder fitness, even though I should just convert to the annual subscription just because 130 bucks in one pop... I mean, I have the money, but it just feels like such a big drop of $130, but it's going to save me a ton of money.

Jacob Eiting:

I would argue that, David, it's perfectly rational, because it's sort of like you're implicitly pricing optionality for yourself, right?

David Barnard:

Yeah. But overall, it is just fascinating to see. And you alluded to it as well that just the products have gone so much better.

Eric Crowley:

So much better.

David Barnard:

I mean, I talked about Ladder a ton on this podcast, but it's just such a good product.

Jacob Eiting:

The craft of making mobile apps, it continues to improve. There's always been a designer level apps scattered around the App Store, but I think it's becoming more the case that that's... If you want to be a category winner, you have to be on that level, and that takes real skill, time from a design perspective, from a product perspective, knowing how to work the App Store distribution as well. That's a whole dark art in itself. If we knew the niches that it had and move into yet and would, we would just go build for them. It's hard to predict.

Eric Crowley:

Yeah, I think that's right. There's more problems. I mean, listen, think about it. Now you're subscribing to something that help you unsubscribe to stuff. That's a fact. On your phone, you now download an app to stay off your phone. Great business. I mean, you're like, "Okay, that wasn't a problem that we had five years ago. Okay, I guess let's just keep doing that."

David Barnard:

I want to dig in to that more later when we get into opportunities in the subscription space, but let's sit back and talk about Runna. I mean, another great example of just a fantastic product that people are willing to pay for, so much so that they were growing insanely fast and were sold to Strava. Now, I know you're a part of that transaction and helped advise Runna on the acquisition by Strava so you can't speak too candidly about it. But what can you tell us about that transaction, why it happened, and some of the thoughts behind it?

Eric Crowley:

Yeah. Obviously, we were the sell-side advisor to the Runna team. And big thanks to Dom and Ben and the rest of the team for working with us. It's truly a fun, fun deal to be a part of, to be honest. Yes, we've sold two companies now to Strava. One was Fatmap and then this one was Runna. Runna was a phenomenal business. I mean, they were the first ones to take... I mean, running's been around for centuries, guys. Centuries. And they're like, "Hey, we can build an app that will give you that-

Jacob Eiting:

Maybe even longer than that.

David Barnard:

Millennia.

Eric Crowley:

Some guy in Greece [inaudible 00:12:25]

Jacob Eiting:

The first person to step on the Serengeti and see a lion and they're thinking, "We're going."

Eric Crowley:

Yeah, definitely running. Definitely running. And now the guy has a coach, which is beautiful. Runna really caught a couple things and did it really well. I mean, Ben was a former coach for triathletes and runners, so he really knew what the consumer wanted and was willing to pay for to get value-add advice, to get faster, to get better. And then Dom and the team built just a phenomenal product, kind of one of those AI-native businesses that really made running personalized.

You have to use the app to truly experience it, but it will tell you, "Hey, you ran a little slower on this block," or, "Hey, there's an opportunity for you to speed up by doing a few different things," or, "Today, you ran a little slower. Let's think about that." It turned into a magical moment for consumers, and then they also nailed the run club, health fitness trend among the next generation, where they'd rather get up at 7:00 AM and go to a run club in San Francisco versus go out to the bars.

One, the bars in San Francisco are terrible, so running is actually a really good choice. But anyway, I mean, that materialized across the world. I was lucky enough to meet those two very early on in their journey, and so I was just a huge fan of the product. When they gave us a call and said, "Hey, we're thinking about doing a deal," we jumped right in. When you think about why Strava bought Runna, Strava has a bunch of features on there. Technically even had some old training features on there, so almost like a competitive product, if you will. But I mean, I'll give you my view right now. Obviously, I don't sit within the Strava board, but this was truly a one plus one equals six acquisition. People say one plus one equals three. This is way better than that.

What Strava is is Strava is an app for athletes. If you're not an athlete, Strava's not for you. A lot of people don't identify as athletes and so a lot of people actually haven't heard of Strava. I'm from Ohio and I can tell you most of my friends don't use Strava. San Francisco, everyone uses Strava. It's just a weird world that we live in out here in a seven by seven square miles of San Francisco. But what Runna did is they enabled people to go from being on a couch to running a 5K, to running a 10K, and now they're an athlete.

So for Strava, that's a massive TAM expansion, number one. Now all of a sudden you can actually be for people that are not athletes but want to be an athlete, and that is a huge TAM. Two, Strava's done a great job with consumer subscription. It's one of the best apps out there. They've been around forever, great retention. Where they struggle, though, is pricing. They had not built in a lot of different tiers to maximize price among consumers and Runna actually adds this second tier that Strava can offer, which is the bundle. We can talk about bundling, unbundling, but in consumer subscription, it's really popular with users.

You already have a paid user who uses Strava. Runna integrated really well in Strava from the beginning, even before the acquisition. They were able to bring an ability to upsell a Strava runner or a Strava consumer with another package. I think that's why it's a good deal. The Runna founders didn't need to sell... I don't think they had to do the deal, but Strava came calling and I think offered a pretty fair price for the business.

David Barnard:

Well, one of the thing I was surprised at is that they didn't integrate immediately and that it is being run as a separate business with this bundle, which I was surprised at. Anymore color on the pieces behind-

Jacob Eiting:

I'll give some color in that. I mean, I don't know the Strava folks. I know both teams but not super well, but I think it would be hard. What Eric was saying, it's like Runna's a come to a thing to train for a thing. It's a very different flow, versus Strava's like Facebook for running. It's like you post all your stuff there, it's where you go to brag, it's your Instagram. It might take a while for them to fully integrate. That could be true as well, but I could also see a world where this is a better approach, where you keep them separated and these are two very different properties.

I don't know if we're going to talk about it, but you talked quite a bit about conglomerates that are happening and you can almost see maybe that's a strategy for Strava to play in where they become a pseudo, a verticalized roll up company of a few of things, and then they take advantage of all of the benefits of cross-selling and things like that.

Eric Crowley:

Yeah. I mean, I think it's a good question. These are two very good apps and they're built differently. People just say, "Oh, just smash them together and call it a day." Well, it doesn't work. Consumers demand an excellent experience, and both businesses are doing really well.

So if you try to smash them together and it's wrong, you just wasted a whole acquisition. I think both businesses can learn from each other. Runna's amazing at using AI inside the app. Strava's a system of record. They don't have to do that yet. Now, Mike and his team are doing some great stuff, so keep your eyes peeled. I think Strava's been learning a lot from Runna on that front.

Two, I mean, Runna does some really good performance marketing. Jacob's right, it's a little more episodic, "Hey, I'm training for a marathon. Hey, I'm training for a big race," versus Strava is more, "Hey, this is what I post. My ride's on every Tuesday." Those are two very different use cases for the consumers, and so I think that's right to keep them separate for now, and then I think they'll make a decision down the road of when you integrate, if you integrate.

David Barnard:

Any advice for folks playing in these spaces, where they could potentially be that Runna to a Strava, where they could be that TAM expansion, the soft intro? I feel like we're probably going to see more and more of these kind of things happen over time, where these giant apps that aren't necessarily great at aspects of the broader business that they're running. It could just be an opportunity for folks to build these adjunct apps and get bought, but what does it take to be that standalone product instead of Strava just building it in? Why didn't Strava just build it in and how do you become that kind of a product that doesn't just get ripped off by the big guys but get bought by the big guys?

Eric Crowley:

Yeah. I mean, it's a great question and it's really hard, because tech even today now, it's easier to build something than it ever was. It's hard to build something really great. What I always tell founders is if you're trying to build for an acquisition, that's hard. If you're thinking about an acquisition, an acquisition is one company buying one company, so think about all the matching that has to occur for that. It's really hard to build something that is exactly from one company. So what I tell founders is build a really great business that consumers love. That's your north star. Everything else will work out.

Let's just say you're Runna and maybe it wasn't going really well and it didn't work out with Strava. There'd be another suitor, because people loved the app. My view is just build something great, really get consumer love, and then the strategic corporate rationale side will work out, because people want to be around products that people love. I think Strava saw that and made the move, and I think every other deal I've done with a strategic acquirer has that lens on it, which is the strategic wants access to consumers that love a product. Period. That's generally my guidance.

David Barnard:

Yeah. And to your earlier point, Runna wasn't in a position where they had to sell. They had a fantastic business and that's the most attractive acquisition and the best place to be in if you're negotiating one of these acquisition is like, "We have a great business. It's growing. People love it." A way better position to be in than needing a sale to happen to make the business work.

Eric Crowley:

Yeah. Yeah, exactly. You don't want to be in that spot ever.

David Barnard:

Early in the report, you had a page titled the CSS state of the union. And in that, you talked about a lot about AI. It almost felt like the whole page was dedicated to AI and it's kind of the 900-pound Meta gorilla in the industry right now of like, "What's going on with AI? How much of it's a headwind? How much of it's a tailwind?" And you started with the headwinds and I'd like to start there. What do you see as the headwinds consumer subscription founders should be thinking about in this age of AI?

Eric Crowley:

Yeah. I mean, this is the first year we've ever done this state of the union letter. We did it, because I was just feeling like, "Man, I'm getting so many questions that are incredibly nuanced." Putting together a slide with a couple bullets just isn't going to do it. And so I was like, "All right. How do I long form write what I think are impacting my clients and future clients today?" And just think it through. The answer we're getting from investors every day is, "Is AI a headwind or a tailwind?" And the answer is that... It's a shitty answer, but it depends. It depends on a bunch of factors.

We kind of went through it and just said like, "Here's where we think the headwinds are today, and I expect that to change materially over the next couple of years. And then here's where we think the tailwinds are today, and we expect that to change materially over the next couple years," and just tried to list it down. We went to the negatives first, because I think you want to start with the bad news first. The big thing we've discovered, and I'm sure you guys are experiencing this first hand, is Google, once the number one source of traffic to the internet, is now no longer the sole default.

If you're a builder or a marketer and then your job is to get your product in front of someone, SEO, your website, your content, that was it. That was what you did. The whole thing you did was optimize to make sure that a Google crawler found your site and then surface that up. If it wasn't doing it organically through SEO, you're putting money in to Google for SEM, for search engine marketing and making sure you show up as one of the 10 bull links if you weren't organically there. That applied to businesses that are around for 30 years. It applies for a business that have been around for 30 days. You run that exact, same playbook.

That fractured a lot over the last two years and I think it's going to fracture further, where people are starting their discovery or the recommendation to a problem they have with one of their AI tools. Pick out a term when you want. That is the first time in probably since Google was created and maybe five years after Google came to be the powerhouse, where access to the internet fractured. It does require a new skillset for entrepreneurs and marketers to make sure their product sit in front of people, where they can't rely on Google. I've had clients, I've had buddies that are running businesses, where their SEO is dropping 30, 40% year over year. They're seeing a bunch of articles come out with a lot of the major, I'll call, legacy publishers that publish articles on the internet. Wikipedia, for sure, where they're seeing material traffic drops. That will change the business model.

That's absolutely a headwind, right? I think that's a big deal and we compared it to the shift from desktop to mobile, where you have to really redo everything. And at the same time, you can't afford to let SEO break. You can't just optimize for ChatGPT and put a bunch of bullets on your website, because Google still is going to represent the majority of your traffic. The question is does it represent the majority of your high intent traffic? That is what the jury is still out is if AI is delivering high intent traffic with click throughs. A lot of people also, oddly enough, they'll search on ChatGPT and then go search Google for the answer that ChatGPT gave them. You're actually seeing two different... Attribution is one of the hardest problem as you're seeing two different attribution issues with that specifically.

I think people are probably actually undercounting how much ChatGPT or Perplexity or whatever tool people are using is contributing to traffic these days.

David Barnard:

One of the headwinds you didn't list was that AI is going to subsume all apps. I didn't watch the whole thing, but I saw a clip of Elon Musk saying that within five years, there would not be apps. Everything would just be AI and the AI would just magically deliver everything you ever wanted. I don't think that's going to happen. I'm sure this is a question that you post to your shelf and have had people post to you. What do you see as those real headwinds of the next three to five years of AI subsuming more and more use cases?

Eric Crowley:

Yeah. I mean, I think the answer is definitely going to do more. Definitely going to do more. There's no doubt in my mind that whatever you're using with ChatGPT or your AI tool today, it will be more in two to three years, for sure, guaranteed. We've heard the same kind of fear... I'll call it fearmongering or FUD, fear, uncertainty, doubt about the consumer ecosystem for years. I think the last time we heard it was in 2010, 2011. Apple, Google, Facebook, they're just going to build everything. No point in making it. "Guess what, guys? Game's over. Get out." I think we're seeing the same-

Jacob Eiting:

Yeah, that was the number one VC objection for half a decade, which was like, "What if Google does it?"

Eric Crowley:

Google's going to do it, right?

Jacob Eiting:

Yeah.

Eric Crowley:

I mean, hell, they told that Facebook.

Jacob Eiting:

It's funny. You don't hear that ever anymore.

Eric Crowley:

Google is just going to build Facebook. Don't worry about building Facebook. Google's just going to do it.

Jacob Eiting:

Yeah.

Eric Crowley:

They probably will build something that's useful, but, I mean, that's the beauty of consumer. There's definitely the large winners, but you can easily build a great business that does 10 million in revenue and pays you 3 million in cash a year and your Facebook could be a competitor for you, for sure. You can get weather for free on your iPhone but it's terrible, or you can pay someone and get a lot better information.

If I'm a founder... And we talked about this in our report literally. You definitely have to have a game plan to compete against AI. I don't think you can say, "Great. We're just going to do the same thing we've been doing the last five years," and hope to win, because AI will come after you and they'll come after you by licensing data from you or your competitor. They will start to build more modern functionality in there that people just start there and maybe never end up with you. I think that's the competitive threat.

We talked about it a little bit, David, but I think the page wrapped... Our opening line was like, "Hey, we don't think AI is going to take out the consumer ecosystem out all. I think it'll take some." For sure, I definitely think there will be losers.

Jacob Eiting:

This might be a silly question because we're so early on the exponential curve, but can you all think of a single app AI has replaced for you? Maybe I could say Google, but I still Google stuff. It kind of just depends.

David Barnard:

Google's AI results are so good.

Jacob Eiting:

Are good too, right? Yeah. You get a little bit of both. You get some blue links and you get a little bit of word slop. It's like the best of both worlds.

David Barnard:

I often go to Google specifically because their AI results are so much better than ChatGPT.

Jacob Eiting:

Yeah, they're decent. I like that they'll dive in to the pages for you and extract, but ChatGPT is... I was thinking yesterday, the best LLM is the one I can get to the fastest. I use ChatGPT 10 time a day or some LLM 10 times a day, but I can't think of a single app that's a daily app or a weekly app for me that AI has replaced. Now, that does not mean we're not heading towards the Musk world of full software slop, but, Eric, I think a version of the argument you're making is somewhat conspicuous consumption, which is people want to choose an app. They want to be a part of an app and it's not just having the need met. There's a little bit of defining yourself by the software you use and what you choose, which I think is an argument why there are so many weather apps. A phone has a perfectly capable weather app built into it, yet there's still a huge industry of people who are interested in slight variations of that theme.

David Barnard:

Will the LLMs be able to productize the use cases faster and better than you? And the answer is probably not, at least for a long time, because why does Runna exist when you can get a ChatGPT and have a running coach? I saw somebody post that. Why even pay for Runna when ChatGPT is a perfectly competent running coach? Well, it's not a productized running coach.

Jacob Eiting:

A perfectly competent running coach probably remembers what you did the last time. I mean, those are, in theory, with better memory and more compute and all these thing, solvable problems.

David Barnard:

But will it still feel like that cohesive product and will people still be willing to pay for that cohesive product even when the LLM can "do it"? It's not a great experience.

Jacob Eiting:

No, it's probably going to produce whatever the worse version of a flight tracking app. Or not the worse, but it's not going to put any care and craft. Now, if it can, then we've truly reached AGI and money doesn't matter anymore and all of that stuff. Eric's out of job, I'm out of job, everybody's out. It's fun.

Eric Crowley:

Yeah, don't worry about it. We're done. Call it a day.

Jacob Eiting:

Yeah. I was waking up in cold sweats 18 months ago about this. One, I think there's a sufficient variance in it. I think any prediction is less than... It's not useful to try to make. Secondly, I just think we've already seen... The fact that you split up the headwinds and tailwinds, it's like AI is disrupting, it's certainly accelerating some thing, it's moving this around, but it's not free money sort of like solution for everything, at least not in the current iteration. It's obviously like an except function in technology and it's a big driver, I think, of growth, but I'm not as Chicken Little about it as I was a year ago, I think.

Eric Crowley:

No, I think people are getting there. I think we've heard this over and over again. When we did the Flo Health deal, everyone was concerned that Apple was going to come out and just crush Flo. Not even close. Flo was double the size when we did that deal. I think it's one of those things where it's very easy to sit there and scream and be afraid. It's harder to be out on the ground building. I think you got to be smart.

Jacob Eiting:

I think when the last time Apple did like a truly Sherlock something and it actually disappeared. I don't...

Eric Crowley:

They've definitely taken some of the gas out of some apps I know, for sure.

Jacob Eiting:

Yeah, I think that's true. Yeah.

Eric Crowley:

So it might not kill you, but they'll hurt you and they'll slow your growth and that can just cause a whole bunch of issues with an exit.

David Barnard:

But very quickly after the headwinds, you moved on to tailwinds, and I think these are the more interesting things to talk about. Now that we've gotten over the Chicken Little phase, it's like how do we then leverage AI to move faster, to build better businesses, to build better moats? What are your thoughts on that?

Eric Crowley:

The first one we see is just in the marketing and how you market to consumers. The ability to do product testing, message testing, content creation is just off the charts faster than it was two years ago. You guys are working with tools that are leveraging AI to do different marketing [inaudible 00:29:54], test that really quickly. Best of breed businesses are quickly finding they don't have to hire 20 marketers to go out and create content. They could basically spin up 100 different versions, test it really quickly to see which one works with their consumer and delivers the best LTV, which are not just the acquisition but the retention of the user. That's been really powerful.

Two, you can spin up new features, new content even faster with some of the coding tools. Effectively, if you think about how long it took AllTrails to spin up their content with tons and tons of hikes, Ladder, just to use those guys again, are producing content even faster, producing new features, enabling their coaches to produce more content. To me, you're going to create a much better version of the business real quickly and you can spin up new features that consumers love if you see a little bit of tick where people are starting to use different things. I think that's pretty cool.

And then the moats are hard, it's really hard, and the moats are going to be ever-changing. So what we recommend is you build the biggest moat you can. One of the things we talked about this year is adding hardware or some sort of product functionality to your subscription, which is effectively going to remove you out of the competition set for ChatGPT. If you have some sort of a hardware piece with proprietary data that's spinning off it, that's a really powerful thing. Aura, Whoop, all businesses that have [inaudible 00:31:10] that are going to do, I think, ideally to build on their existing business with AI-native features. I think that's pretty cool.

And then the other one is community. I think the one thing that people don't understand about a lot of the apps that we know and love is there are places other people are putting their content into that make the apps better and then we are happily contributing our content, our energy in those apps to make it better for us and for other users. That is something I don't think AI apps have done yet. I want to think about community... I think that also includes the concept of brand and trust. Inputting very personal information about yourself, and we all know people put really personal information in ChatGPT or prefer to get a lot of personalized information out of ChatGPT with some of the erratic functions.

People are going to continue within their own app and what they know and love. I think people are building community, really strong brand, really strong design. Because using something in your phone could be really painful if it sucks, right? If it's something that's beautifully designed, intuitive, that's what gets people to come back and use those products over and over again. I think the combination of AI plus human insight to build a beautiful product is going to be the way to win long term.

David Barnard:

I really love the way you summed the state of the union, so I'm going to read the quote because I thought it was so good. "The future will be built by those who combine AI's power with enduring human insights and design, creating products that people not only use but refuse to live without and choose to evangelize to their friends." That's your goal as a consumer app builder today in 2025 is to leverage AI to build those great things. The moat, like you said... So many different ways to build moats, but that great user experience, being that incredibly, intuitive experience on this tiny, little pocket super computer is just so powerful.

Eric Crowley:

Completely agree.

David Barnard:

The next thing I want to talk about was you had a whole slide about the walled gardens opening up. And then fascinatingly since you published a report, Google had to comply with the injunction in the Epic v. Google lawsuit. They opened up way more than Apple even opened up. It has been a big story this year of the app stores really loosening up. What are your thoughts and what are you seeing on the ground as far as how this is actually playing out and actually helping consumer subscription businesses?

Eric Crowley:

The app stores absolutely add value to the consumer subscription businesses, for sure. Abstain value. I think what the world has woken up to is that there's probably a limit on that value. And so I think the lawsuits that have been coming for years are finally starting to take impact, but also people are moving now. Three or four years ago, most people were not worried about getting outside of the App Store. It just wasn't a function. They said, "Great. I mean, I'm going to pay it 30% and call it a day."

That was for two reasons. One, it's hard a third payment rail and go through building on that tech and working on web funnels. That was hard. If you weren't big enough or, hey, if the business is working great, why do something hard? Just don't fix what isn't broken.

But then I'd say the last two years, everyone of my clients, and I do mean everyone, is building web funnels. I think, one, they're just not as worried about Apple coming after them or being mean. We've all heard stories about product updates getting jammed up and going through multiple rounds of reviews because you had a link out to a different payment tool. Apple got their hand slapped and they got their hand slapped hard for doing that. I think that was proven that they were jamming people up a little bit.

I think, one, they've said, "All right, great. We're going to back away from that." People that are building apps of scale, getting 15 to 20% of your profit margin back is a big deal. It's a big deal, especially when you're $100, $200 million in revenue. We're talking about multiple million dollars in profit. It's crazy not to build for that. I would tell you, every one of my clients is now... If they haven't built a web funnel, they're actively looking at it. I think we've seen a lot of payment providers come up there, like Paddle, Solidgate, Stripe even that are helping people manage subscription payments, manage the tax withholding, all that type of stuff that automates, once again, what was a hard problem to do.

I think even you guys were thinking about doing something on that front. I think that's really exciting, and then I think people have just said like the fear of Apple is going down a little bit. They're still a super valuable partner. Most people will never throw out their hands and leave, but I think the word is out, "Hey, guys. It's okay to build for this stuff and easier to do it than ever, so why not go pick up that money?" That's what I'm seeing on the ground.

Jacob Eiting:

The operative question and the way you presented it in your slide deck is... I don't know what the split was, a certain amount of billions that goes to developers versus what goes to Apple. I mean, that's actually where we'll see... I mean, if we have good data on total revenues versus Apple-reported App Store revenues if there is a substantial shift in this. I think one of the challenging things I've seen with folks adopting this stuff is just the time it takes to port things over. It's not something you can do overnight, especially if you have an established subscriber base and things like this.

But yeah, basically anybody past a million dollars a month, maybe even less than that, probably should be or is doing some amount of this. Maybe now that Google has complied as well, and maybe this is like a new mark equilibrium, it's still early on if it's going to stick, but maybe it will. Now, I know that, I feel like, Google is there, too. It might. I don't know. I think it would be hard even from a competitive perspective for Apple to regress, but the court order, we've said this on the pod, in the US before is extremely against Apple. Basically, they were required to provide distribution for basically zero requirements on the developer. I don't expect that to last, but it doesn't mean they're going to get substantially worse.

I was trying to use NordVPN recently and saw how they do it, and they're not required to have a link to the App Store plans on their paywall, but they do. I think that's probably either by fiat or by sort of market forces. Where we'll end up is that the big apps will suddenly push you to this off App Store payment, but the App Store payment may still be available but I don't know. The case gets fully played out, and this injunction gets resolved and whatever we end up with some serve like more stabilized case law on this. I almost think Apple is just going to... We've talked about it. It's just going to have to drop the price. They're just going to have to drop to 20 or 15 or whatever number is going to get them to their new market optimal, which I would call that a win.

I think if Apple just has to set the price to a point where developers will opt into it, I think we'll be in a better position than we were with a higher figure. Apple won't, but also it's like the App Store at scale, at some point they have to understand that there will be some margin erosion. Maybe I'm coming around on this.

David Barnard:

We've talked about it a lot on previous podcasts and Twitter and other places as well, so I won't rehash my thoughts on it. But just to get a few jabs in here, I think you stated it really well, is getting 15 to 20% of your margin back, because too many people are talking about it as if you instantly, day one, get 30% of your margin back by getting rid of the 30% fee. We know that's not true. I mean, plus, a lot of these more mature consumer subscription businesses are already at 15% because Apple drops it to 15% at year two.

And then Google has been 15% on consumer subscriptions across the board, even first year on consumer subscriptions for several years now. So the margin opportunity isn't as big as it first seems, and then there's also businesses that I think work better in this way. Certain businesses function better with a web funnel. Certain businesses just need that in-app experience to convince people. And then consumers, it's going to be interesting to watch of how people have gotten very comfortable with converting in the App Store because they have that power. They know exactly where to go. They know how easy it is to control the subscription. And is that comfort level valuable enough? And how much margin hit do you take just on those conversion and then retention?

There's so many factors. Even though it seems like such a slam dunk, it's not always the slam dunk and not necessarily low-hanging fruit for all businesses, but the great thing is now it's an option. Now, for the right businesses, you can [inaudible 00:39:37.

Jacob Eiting:

I mean, it's definitely working for a lot of people, though, at this point.

David Barnard:

For sure.

Jacob Eiting:

We're beyond experimentation phase and a lot of companies have made it a part of their thing. I still go back to my normal cautions not to do this too early and take [inaudible 00:39:49] magically, but it seems there's definitely a spread there for some scale or some class of large scale businesses.

David Barnard:

Well, in speaking of regulation, the Click-to-Cancel law got stalled out.

Eric Crowley:

That was an interesting concept of legislation. It's one that the market doesn't need. And I say this, because everyone of my client knows that if you make it hard to offboard, you're going to get sued. Think about all the gyms that are getting sued. Amazon Prime has gotten sued for making it hard to offboard. It creates a bad, last experience for a consumer. It does, because now they're pissed at you, you waste them 30 minutes. Make it easy to offboard, make it super easy to onboard. Don't forget about marketing those consumers. We call it remarketing.

You have a huge base of churn users, every company does. That's someone who loved you at one point to pay you money. There's a good chance you can get them back. You just got to offer something different or remind them of the value of the great times you had together. But if you make it bad at the last couple minutes, guys, that's just a bad move. It's short-sighted and I think almost every client that I have that's building a best-of-breed client or best-of-breed product has figured that out. I think that's one of those things that are great. By the time that law, if it does get passed, it's going to be old news.

David Barnard:

The only thing that I still wish it had gotten past was to... You're talking to and interacting with best of breed, but there's certainly tons of businesses that are still trying to make it harder to cancel and they care about the revenue. They don't care about that bad experience, because they're optimizing for a different kind of business. And then the unfortunate part there is that then it does kind of sour consumers generally to subscriptions, and that's the one thing that I did was looking forward to if that law passed was it would kind of clean up some of the bad practices on the low end of the market. But it's fascinating to hear you say that the top end of the market, it's already kind of solving itself.

Eric Crowley:

In the moment, I can't really speak to that. I think that's a whole another concept of, "But I mean, credit cards are figuring that stuff out." No, you have to be diligent about it. Some people just have credit card bills of $10,000 and they don't worry about a $29.99 charge and they probably shouldn't be spending their time thinking about that.

I think there's a whole world of it. That stuff's just too easy to catch on your phone. It's really to discover. If you just subscribe through a web funnel, now, a little bit different ball game, but it's still attached to their credit card. At some point, I feel like that's just easy to track and get rid of. Yeah, I think you're just playing a very short term game.

David Barnard:

Well, one of the things you include every year now is opportunities. I love hashing through this with you a bit on the podcast, because I feel like it's a great opportunity for people to think not just of building in these specific spaces that you talk about, but you're thinking behind why these spaces are opportunities. The two newly identified opportunities to build category killers that you list in the report are Strava for pets and screen time management. We already did talk a little bit about screen time management, but I'd like to dive in to these two categories and why you see them as category killers and maybe hints to what the maybe future category killer potential places to play for consumer builders.

Eric Crowley:

I mean, Strava for pets is something we've thought about for a while. And listen, once again, we didn't think of it. The founders have been building phenomenal businesses in the space before we thought of it. But if you think about... Once again, I think about long term TAMs, big waves that are impacting the world, and health and wellness is a big one and then treating our pets like our kids is another one. Those things are not changing and they're only going to accelerate.

I had a German shepherd for a while and had a Tractive collar on them. Just phenomenal product. It was one of those things where I would get the notice, "Hey, you haven't taken your dog for a walk for a day. Time to get up and go." That's awesome. They could see how active they were when they move into health, which is something you think it might like. Movement is really tied to health for pets, so you're going to be able to get pet insurance based on how many times you walked your dog, how active they are, if they're sleeping well at night. That is just going to be something that people are like, "Great. I spend $1,000 a month on my dog for food, for day classes," wherever you're sending your dog to, just whatever you spend your kid. Spending $100 a year for that is a no-brainer. I think that'll be a big one.

And then the screen time digital focus... I don't know. I keep waiting for this to become more popular, but humans are really bad at blocking out distractions, really bad. And when you're starting to compete against AI, you actually got to get better. I think to be creative, actually do high quality work, you can't have constant pings from the 30,000 apps on your phone. I think there's going to be stuff that's going to happen there. And then I think we're seeing consumers wake up to the fact that certain aspects of screen time are bad. Most of my clients are not focused on screen time and selling ads. They're focused on doing a job for you and getting you to close the app as fast as possible.

My wife works for Facebook, so I can't say that's the same case for all ads or for all apps, but I think that's something that consumers know. Excessive screen time is not mentally healthy. It doesn't promote good behavior. And so finding ways to limit it, especially in kids or young teens, is going to be huge. I'm a big believer in this trend.

David Barnard:

Yeah. I think that one of the unifying factors with both of those is looking at broader societal trends and looking for places where people either already spend a lot of money or had the opportunity to recoup a lot of money. I think those two kind of both play to that. The health and fitness has been this growing trend and people are spending tons of money and we see tons of apps building in that space. Pets, another area tons of people spend a ton of money in.

I do think it's fascinating how Opal charges, I think, what, 120, $130 a year and their whole pitch is like, "if you're a busy professional and you're wasting an hour a day on Instagram, that hour a day is worth so much more if you can recoup that and be more productive." And even if you're not more productive, if you're more productive in just living a better life so you're not as burned out so that you're more productive when you are actually working, it's like such a strong pitch.

I think there's going to be more categories like this, and this is where people should be looking is like... Whether you're already building in certain spaces or whether you're looking for a space to build in, these are the kind of spaces where billion-dollar companies will be built.

Eric Crowley:

Yeah, I mean, I fully agree. I think especially the one I've been using a lot is Opal for shutting down email on the weekends. I mean, I'm not a doctor or an emergency care guy. There's very rarely a chance that I'm going to help the world at Saturday at 9:00 PM. It's just rare. It's not going to happen, but, man, I look at my email at Saturday at 9:00 PM. I don't need to. Just shutting that down and then just spend time with your wife, spend time with your kids, that's just way better for me to do as a human. I'm actively trying to focus on that and I think a lot of other people are going to realize that same thing, too.

David Barnard:

The last topic I wanted to hit on was the rise of conglomerates, the Berkshire Hathaway of apps. I think it's a fascinating concept. We already talked about it with Strava buying Runna and the TAM expansion opportunities with the power of bundles and things like that, but what's your thinking on conglomerates in the app space? And then, of course, the elephant in the room would be Bending Spoons, which just raised an $11 billion valuation running this playbook.

Eric Crowley:

This is something we've been thinking about for a couple of years. I think we kind of coined the term Berkshire Hathaway of the App Store and I think Luca actually of Bending Spoons said they're a combination of Berkshire Hathaway and Google. I think it's a super interesting trend. Investors have a really hard time wrapping their head around these businesses and trying to decide, one, what their worth, two, are they good businesses or not. We get that question a lot.

We tried to frame this in a unique idea, because a lot of these businesses are coming up and they have high-churn products, they're testing 20 different things, and some of them will fail but two or three will stick. They'll be really good businesses and start producing cash, and all of a sudden they start building these really big businesses. They spend a lot of money on marketing, because the fact that they're getting brand new products in front of consumers for the first time, that's hard. That's really hard, so you have to spend marketing dollars.

Investors have been confused by this concept, so we tried to make it something simple. I like to use analogies and try to break down like, "How do I think about this new age consumer conglomerates?" And I really like the business model. I met with a bunch of them. They're building really cool stuff. We use two frameworks. One is the green house, where these businesses effectively start with high end tech talent, really high end, the best of breed guys. They're really good at distribution and they learn incredibly quickly, so they effectively are really good at marketing. I'll rephrase that word to say marketing. And then they understand consumer demand and they will look for trends and what consumers are looking for, and they will build something for that. They build it quick, it'll be dirty, but they'll quickly get it out in front of consumers and then they'll iterate, iterate, iterate really quickly.

To me, that looks like two things. One, it looks like a green house, where you have all the base infrastructure of what you need to launch an app or grow a plant. You're going to have a couple things that work really well. If you're successful, you have a couple things that work really well, and that's your cash cows. You have a bunch of other stuff you're constantly testing, launching out in the world, and seeing if they work. And if they do, they become new cash cows, but if they don't, you shut them down.

And then ultimately, with AI, this cycle's happening faster and faster and faster. Launching five products five years ago, that now looks like 50. You can test and test more and more things. We kind of used this green house concept. If you want to invest in a green house, you have no idea which product is going to be the best one, what's the top seller this year, or which rose color is going to be the most population. But at the end of the day, it doesn't matter.

Now, I try to look at a business that exists today that everyone knows and loves that has the same model, and what I came up to was Coca-Cola. Coca-Cola is a consumer business that's been around for centuries. They have a great brand, they have an excellent distribution, and a crap load of marketing. What they do is they don't care if you walk in to 7-Eleven in the morning and buy a coke or an orange juice. And then the evening, you just did a workout, you do a Powerade. And then the afternoon, you buy an iced tea. They don't care which one you buy.

Effectively, you're churning from coke every time you buy something else, but to Coca-Cola, it doesn't matter, because they have a portfolio of brands, some are great, some are cash cows, like Coke, Sprite, Diet Coke that you will buy once a week for sure, guaranteed. Other's like, "Hey, you only need it when you need it." A Powerade, a Shani if you're stuck in the airport, otherwise no need to buy a bottle of water ever. And then they'll test a bunch of other stuff and see if it works. Like Costa, they tried coffee. I think it was okay, maybe not going to work.

So it's the two ways we've been thinking about these businesses. Not a lot of them really impressed by the founders of a lot of them. More and more are coming up. I think this is going to be something investors are going to figure out real quick. As we note in the report, if Bending Spoons files an S1 and everyone all of a sudden peers in behind these PR releases, it's like, "Hold on a second. How profitable is this business?" I think people are going to get really intrigued to find the next two, three, four of these.

Jacob Eiting:

Is that the same that's going inside Bending Spoons, for example? Like are they sharing... Why are they able to drive much more profitability than, say, each of these brands on their own?

Eric Crowley:

Yeah. I mean, I think they're just excellent operators. Their model has been initially to build apps, but it quickly pivoted and pivoted years, years ago to buy. And then they buy and optimize. The definition of optimize is probably change over time, but they're experts at pricing, they're experts at marketing. They definitely have some really good tech talent if you look at what some of the statements Luca has put out there. They're one of the most exclusive hirers of tech talent in Europe with the lowest acceptance rates from job applications. That means they're getting best of the best.

When you look at what they've done, they're well know for this and it's well talked about, but they will buy an app or a subscription business and they will fire 97% of those employees within the first month. And just think about that concept. They're not shutting down the business, they're not just taking it as cash flow. They are just lifting the business off whatever infrastructure and team was done and they're putting it on to their existing team. They're adding new people to do this. They're taking the same 600 people and just adding business on top of that and running it. That is operational efficiency that I don't think I've ever really seen in the tech world.

There's no big US company that's bought a business and then shut down 97% of their... or fire 97% of the employees without that being some sort of a massive failure. I think they've got a secret sauce and a playbook that they're running in the operation side that most people have not been able to figure out.

Jacob Eiting:

Evernote is still at 4.4 stars in the App Store, so they must not be doing all wrong.

Eric Crowley:

I think they employed two people from Evernote, if I remember correctly. It might even be less than that now. That was a business that had hundreds of people before the acquisition.

Jacob Eiting:

And this is just total amusing, but I wonder how much of there... People who build an app and start it, I think there's a tendency to hold on maybe too long when you've reached terminal... You know what I mean? Terminal growth. Not that your growth's bad, it's what maybe beats the market slightly, but the team you built up to invest to that point is not the team you probably should have if the app has reached its end state. Bending Spoons is just the undertakers that'll help you realize that and help you get over that hump.

Eric Crowley:

Yeah. I think they dispute the term undertaker, but I think they're not a...

Jacob Eiting:

I say it in a... Undertakers are valued members of society, Eric, okay? It's an important job.

Eric Crowley:

But they are also not afraid to ask those hard questions. They're not afraid to say, "The person that got you to 1,000 users isn't the person to get you to 100,000." I think they know what it takes to go from 100,000 to 200,000 and they're like, "Great, we don't need that person anyway. We're moving past it." I think some people argue against their model. I think luckily they've done well enough they don't care about our opinions.

Jacob Eiting:

Right. They obviously have earned the high profitability and whatever. It doesn't really matter what other people think. I will be interested to see... I mean, they just closed AOL recently. It's got to be the biggest, weirdest, boldest buy. I don't even know what that business is and it's fine, but I presume they're some sort of subscriptions for something in there.

Eric Crowley:

I mean, it's still the number eighth email client in the world, something like that. It's crazy if you actually look at the stats behind it. I mean, it's a big, big business.

Jacob Eiting:

But it maybe still kind of falls to that thesis, though, of like, "Okay, AOL is this legacy brand that maybe the current owners don't really know what to do with or really know how to optimize around for a number of reasons. Political, emotional, all of the above." Luca and his team are just... They're ruthless and they make it happen. I mean, it's interesting to see this old company, Constellation Software. I'm sure you know of that, Eric, but they're the web 0.0 version. It's basically like '90s back out software version. I'm sure, for Bending Spoons, there's got to be 10 others that are behind them, trying to replicate this model in a slightly different way. It'd be interesting to see if that continues or if everybody just gets... You live long enough to die or get bought by Bending Spoons. Those are your two options.

Eric Crowley:

I think that's an interesting take.

David Barnard:

I feel like Bending Spoons, as a company, that's most forced me to update my priors over the last four years, because initially I did think it was crazy. Eric and I are in this group text [inaudible 00:55:14] with a few folks, where we've talked actually quite a bit about Bending Spoons specifically. I'm one of those and he was probably slightly alluding to it of people's opinion because my opinion was not very favorable early on. But I think I see more and more the playbook as they've done this is that, to your point, Eric, about being able to fire 97% of the people.

It's like their playbook is operational efficiency, but then I think secondarily, too, is that... We've talked about a lot on the podcast about pricing sensitivity and how. When you build a best-of-breed product, when you have consumers like Evernote, where you have 15 years of data locked up in there, that pricing threshold starts to look a lot different than these brand new fresh apps.

And then even the AOL acquisition, which initially I was like, "What? AOL?" And then you start looking deeper into it and see all that email. And guess who those millions and millions of emails are? Boomers. And guess what's a great market to be building toward and market all those other apps to? Boomers. I don't know if AOL joining or Bending Spoons acquiring AOL is quite the Runna, like one plus one is six, but maybe it's a very like one plus one is three or four or two and a half.

Jacob Eiting:

The joke I made on the internal Slack is, and I say this with a lot of respect for Bending Spoons, they're building a museum of the internet.

David Barnard:

They're leveraging the museum to bootstrap the future, too, because the museum people are going in there and then now you're bundling the coke and the other apps and leveraging all of that into a much bigger thing that any one of those individual businesses could be on their own. And then there's so much power in being able to flip the switch on EBITDA, too, of being able to acquire these companies... I would imagine there's even some financial engineering around this over time, where-

Jacob Eiting:

No. I mean, we're recording this... I think this announced last week. They just did a crazy equity and debt raise in the billions, so they're making it work.

David Barnard:

But some of the businesses they acquired, maybe they lay off 50 this year, 50% this year or 20% this year, 20% next year, 20% the year after that. You've just got to dial EBITDA up and down at will, because you have these retentive, really good businesses with really strong underlying fundamentals and you can turn the dials.

Eric Crowley:

Yeah. What we [inaudible 00:57:37] side, Jacob, is how much would I have to pay you to drop your Gmail, delete it tomorrow? Just delete it.

Jacob Eiting:

Yeah. I mean, there's some amount of money, but it's somewhere around also pulling out my finger nails level amount of money. It's very high.

Eric Crowley:

You probably won't get rid of your first kid. Maybe your second?

Jacob Eiting:

I've had that Gmail for 20 years, so my... Good luck.

Eric Crowley:

It's got everything, right? Everything between-

Jacob Eiting:

Yeah.

Eric Crowley:

I mean, you just think about that and you say that sounds `

Jacob Eiting:

Well, thank you for the new thing to wake up with cold sweats about. I appreciate. Bending Spoons acquires Gmail. It will happen. It's the great attractor. Everything will eventually end up in Bending Spoons.

David Barnard:

Any other conglomerates you're watching or upstarts or opportunities you see in the space that Bending Spoons isn't yet subsuming?

Eric Crowley:

Well, on the conglomerate side, I actually had the fortune to go over to Istanbul, Turkey earlier this year. First off, man, if you haven't been to that city, you got to go. It makes New York and San Francisco just seem like sleepy backroads. It's just so high energy. It's phenomenal. I had a great dinner with HubX, Codeway, AppNation, and these are some of the business... They're coming out of the Turkish gaming culture, which has been well known as building quick, high quality gaming apps. They're now building consumer subscription apps and they're great. The founders I met there, the business profiles I've heard... I won't give any numbers here, but they're fantastic.

We've seen that come up in a really big way. And then you got to ask the question whether you build to not get bought by Bending Spoons. The answer is it just depends. You can always say no. They're not a hostile acquirer.

Jacob Eiting:

Everybody who's ever sold to Bending Spoons has done so willingly.

Eric Crowley:

That's right. Yeah, there's not too many... They don't buy bankruptcies, guys. I think that's the I describe it is just build a product you love and then you have a choice to do with it whenever you want. Your community will have a voice in it. You can employ some voice in it. I mean, I think that's where I always describe it to people is that is a buy choice decision.

David Barnard:

And what do you think the opportunities are to build the next Bending Spoons? Should people be thinking about how they can emulate that model in some ways?

Eric Crowley:

Yeah. I mean, a lot of people are. Yeah, it's hard. It's really hard, though. I'm sure we've all spend some time with app conglomerates. You can't just buy apps and stitch them together, so you can't just financial engineer it. I don't think that's the solution at all where you're like, "Hey, I bought it for six times EBITDA, which means you're never going to buy anything from me." But if you bought it for six times EBITDA and then like, "Great. Now, I'm going to solve it for 10 times," that game doesn't fly. You actually have to have a really talented team underneath the hood.

If you're buying it for six times EBITDA, it's probably not growing. And then if you got to pump some marketing dollars out there and ask me how hard it is to market in 2025 to consumers? I'll tell you extremely hard and getting harder. You have to have a best-of-breed team to do that, and then you got to it across 6, 7, 8, 50 apps. That's hard, guys. That's really hard. I've got a lot of people approach me about doing it. I think it requires a lot of skill. A lot of skill.

David Barnard:

Yeah. And the more money that has poured into it... I mean, there's so many companies now buying apps, and that means that the competition for buying those apps goes up, which means higher EBITDAs, which means you got to have an even bigger win to make them any worth it. It's already hard and then getting harder by the day as more and more money flows into trying to build these kind of conglomerates.

Jacob Eiting:

You know who the real winner is?

David Barnard:

Bankers.

Jacob Eiting:

Developers.

Eric Crowley:

I didn't hear what David said. I just heard what Jacob said. I think Jacob's right. Let's just end it right there.

Jacob Eiting:

David's the true, right answer. The fact that apps... [inaudible 01:01:11] scale, it's become a fairly liquid market, depending on your price sensitivity and things like that. It's pretty great. Trading and flipping apps has always been a thing, but I think we're seeing that secondary market for apps, like mature [inaudible 01:01:25] lockstep and there's good buyers for these. Now, I'm really talking your book, Eric. You see more and more people, I do at least, on Twitter talking about getting ready to sell, flip an app, whatever, but I think I'm with Eric that the idea of like, "Oh, I own 10 apps and now they're worth 12 times what I paid." It's probably a little bit fantasy. We talked about Bending Spoons as somebody like Elon can go in and cut 80% of stuff, but you're not Elon. It's, I think, a good piece of advice for most people. Really, think about what you're doing.

Yeah. I mean, it always looks easier. I remember this is such like hubris of builders is you start raising venture stuff and you're like, "Oh, I could do venture. How hard is that?" And then you spend some years around it and you're like, "Okay, it's actually really hard [inaudible 01:02:11] fail." I think that's probably true in the case of conglomerates and roll ups, too. It's probably most people [inaudible 01:02:15].

Eric Crowley:

Anything worth doing is hard, guys. This doesn't change.

David Barnard:

That was so much fun, Eric. Thank you again for joining us. Anything you want to share as we're wrapping up?

Eric Crowley:

No. I mean, always a pleasure to be here. I will give you guys a shout out for your RevenueCat conference in New York. I got to tell developers that's a must attend if you get the chance. I learned so much, met so many great people, had a fantastic time, and you guys are just growing from strength to strength on that conference. I mean, please keep doing it. I told Rick what our budget was. I told Jacob maybe add 20%.

Jacob Eiting:

What was the budget, by the way? Because nobody will tell me.

Eric Crowley:

Good. Good. I think it was like $100, if I remember correctly.

Jacob Eiting:

I keep asking. People will go like, "Oh, we'll get it to you." [inaudible 01:02:51].

Eric Crowley:

Yeah, it's coming. They're formatting it.

Jacob Eiting:

I logged into the JP Morgan the other day. We're good.

Eric Crowley:

All right. Good, all right. Cool. Cool.

Jacob Eiting:

As long as there's money in there, we'll keep-

Eric Crowley:

I'm glad you still have access to that app. That's a good one. Oh, hold on to that one.

Jacob Eiting:

Yeah.

Eric Crowley:

Yeah. On our side, if you have questions, you want to chat about what I do, as these guys know, I'm a pretty open book. Even if you're not in the market for selling, great, no problem. If we forgot to feature report, which is the number one complain we get, feel free to send an email to me at eric.crowley@gpbullhound.com and file a complaint. I'll send it to our complaints department. We'll get you added. And then if you have questions about the report, want to see it, it's free online, gpbullhound.com, or just email me. We send it to everybody. We love putting our thoughts on the internet and get told what we do wrong. But no, it was a pleasure to be here, guys.

Jacob Eiting:

That's why you're a great guest for Sub Club.

Eric Crowley:

Perfect. I love it.

David Barnard:

Awesome. Thank you so much, Eric. Have a good one, everybody.

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.