Recurring revenue is critical to the success of mobile apps in the modern era. But a newly-released study from RevenueCat reveals how dire the situation is for most app developers. In the quest for growth, SaaS companies base their software on the subscription model. Until recently, we haven’t seen much data on the general success of apps that try to do this. Kudos to Ars Technica for helping to break this story.
Before the SaaS era, most software firms sold their software one version at a time. If a firm could introduce enough new features in the next version, they would win another purchase. This push for new features was great for the consumer in theory, but there is a point of diminishing return. Once you create all the features users demand, it eventually becomes more difficult to create the next compelling set of enhancements. What’s a company to do?
The subscription model usually charges users monthly or yearly to access an app. This takes pressure off the company to release new features for each version. The user must pay to access the software regardless of whether features are added. It also means that features and functionality can be removed or deprecated with no way to recover the previous software version, especially for web-based apps. This is potentially bad for the consumer.
SaaS companies are all about creating recurring revenue. Firms don’t want to admit when their products are not turning profit or growing user base. Luckily, there are some clever strategies to drive subscriber growth and make apps appear more successful than they are. Let’s discuss!
Companies integrate subscriptions into hardware and software. Microsoft installs OneDrive with Windows by default. It forces users to sign into a Microsoft account or jump through hoops to avoid it during the Windows setup process. Apple and Google have partnered with streaming boxes and nearly every TV manufacturer to offer users free trials for Apple TV+, YouTube Premium, or YouTube TV, sometimes regardless of whether the user accesses the app.
Tricky or high-friction cancellation policies are an option. SiriusXM famously requires listeners to call a phone number to cancel their radio service, a trial included with almost every new car. Many trial policies for subscriptions force users to remain in subscribed state through the trial duration. If you cancel before the end of the trial window, you may lose access to the service immediately. A subscription the user forgets to cancel still counts.
Service bundles are another option. There’s Google One, offering storage and storage sharing features with family, VPN, Workspace, and other benefits. Apple One offers iCloud+, Apple TV+, Apple Music, Apple Fitness, and Apple News+. Atlassian Together bundles Confluence, Trello, Jira Workforce Management, and Atlas. Amazon’s AWS provides several options for bundles, too. These bundles help improve a company’s reported subscriber stats for services that might perform poorly on their own.
These strategies create new incentives for SaaS companies. Firms want to increase friction involved in the cancellation process or create policy that increases the chances that a user forgets to cancel. There’s motivation to partner with critical hardware manufacturers to build a broader base of subscribers. It’s increasingly important to build new services or fork the functions of existing services into new ones to make bundle plans more appealing.
The largest tech companies wield greater influence to excel at these strategies. But for smaller SaaS-based companies, many will find them impractical, ineffective, or impossible. This statistical revelation could have a chilling effect for developers and investors looking to profit from SaaS apps. The risk of investing in newer software companies could be far greater than investors previously realized.