The Subscription App Industry Rebound — Eric Crowley, GP Bullhound

Oct 2, 2024

Eric Crowley, a tech investment banker at GP Bullhound, shares his insights on the resurgence of the subscription app industry. He discusses the rebound in consumer subscription valuations and the importance of generating Net Revenue Retention. Crowley explains how aligning apps with Maslow's Hierarchy of Needs enhances user retention. Additionally, he highlights strategies for apps to navigate competitive pressures from major platforms, emphasizing the need for continuous innovation and a focus on delivering long-term value to users.

Ask episode

AI Snips

Chapters

Transcript

Episode notes

INSIGHT

Industry Rebound

The subscription app industry is rebounding in 2024 after a rough 2022 and 2023.
Surviving companies are leaner, more focused, and demonstrating strong profitability and retention.

INSIGHT

Rule of 40

The "Rule of 40" is an investment term used to evaluate SaaS companies.
It adds a company's year-over-year growth rate to its profit margin, with 40 being the target.

ANECDOTE

Flow Health's Success

Flow Health raised $200 million at a $1 billion valuation due to its strong user retention and freemium model.
They cater to women throughout their reproductive health journey, from early stages to menopause.

Get the Snipd Podcast app to discover more snips from this episode

Get the app

On the podcast: the rebound of consumer subscription valuations and investor interest, how to generate Net Revenue Retention in consumer, and why you should pinpoint where your app sits on Maslow’s Hierarchy of Needs.

Key Takeaways:

📈 The subscription app industry is rebounding in 2024 - After setbacks in 2022 and 2023, surviving companies are now leaner, more focused, and showing strong profitability and retention. This resurgence is reflected in both private transactions and public valuations, signaling positive momentum.

💡 Net Revenue Retention (NRR) is achievable in consumer apps - Top-performing apps boost NRR by stabilizing churn and driving revenue growth through price increases, family plans, and premium features. The key is delivering ongoing value to loyal users while maintaining strong retention.

🎯 Maslow's Hierarchy of Subscription Needs offers a roadmap for retention - Successful apps align with user passions by addressing needs like safety (e.g., Life360) or self-actualization (e.g., Calm). Integrating features like leaderboards and community functions deepens user engagement and fosters long-term loyalty.

🛡 Platform threats like Apple's "Sherlocking" can be overcome with specialization - Apps that go deep in their verticals (e.g., Flo or AllTrails) offer premium, differentiated experiences that platform-native features can’t replicate. Innovation and specialization are key to thriving despite competition from OS-level features.

🚀 Flo’s success shows the power of retention and long-term engagement - Flo’s $200M raise and $1B+ valuation were driven by its freemium model and strong user retention across life stages. By building long-term relationships with users, Flo has positioned itself as a leader in the female health space.

About Eric Crowley

👨‍💻 Technology investment banker and partner at GP Bullhound.

💵 Eric is passionate about providing advice and capital to consumer subscription software (CSS) businesses.

👋 LinkedIn

Resources:

David Barnard - @drbarnard
Jacob Eiting - @jeiting
RevenueCat - @RevenueCat
Sub Club - @SubClubHQ

Episode Highlights

[4:32] The Rule of 40: A good rule of thumb for correlating your business’s trading value with your growth rate and profitability.

[9:10] Rising tide: Successful app businesses like Flo are part of a recent wave of mergers and acquisitions in the CSS industry.

[15:39] Land and expand: How consumer subscription services are improving net revenue retention (NRR) with their existing users.

[23:15] Sherlocked: The threat of Apple and Google releasing new platform features that compete with niche subscription apps.

[31:52] Law and order: How app business owners and investors are thinking about new regulations like the Digital Markets Act (DMA).