How Skylight Balances Growth and Profit for Sustainable Success – Michael Segal & Mark Ungerer, Skylight

Summary

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Sub Club by RevenueCat

Episode: How Skylight Balances Growth and Profit for Sustainable Success

Guests: Michael Segal (CEO), Mark Ungerer (CPO), Skylight
Hosts: David Barnard, Jacob Eiting
Date: February 18, 2026

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Episode Overview

This episode dives into the thriving world of hardware-enabled subscriptions, using Skylight—a leader in the space with products like the Skylight Frame and Skylight Calendar—as a case study. Michael Segal (CEO) and Mark Ungerer (CPO) discuss the strategy behind launching a subscription alongside hardware, how they balance growth and profitability, the intricacies of deciding what features to include in paid tiers, and the emotional calculus involved in subscription pricing. The discussion is dense with practical insights for anyone exploring or operating subscription businesses, whether digital or physical.

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Key Discussion Points & Insights

The Rise of Hardware-Enabled Subscriptions

• Industry Trends

  • The holiday season has seen a dramatic rise in hardware-enabled subscriptions, with brands like Oura Ring, Backbone, Bird Buddy, and Skylight becoming major players.
    "It just seems like these categories are reaching mass adoption and maturity... So it just naturally skyrockets to the top of the charts." (Michael, 04:40)

• Market-by-Market Dynamics

  • Growth isn't uniform; each hardware category is its own market, and only a handful achieve mass-market adoption.
    "I don't think of it as a megatrend. It's like you have to have a really good idea... There are very precious few categories that are going to be new electronics that reach mass adoption." (Michael, 05:48)

Deciding When—and How—to Launch a Subscription

• Timing & Rationale

  • From the start, launching a subscription was a "must" from a business model perspective, particularly given high product satisfaction and daily usage.
    "A hardware business in consumer, without a subscription, is basically not building enterprise value with a rare exception." (Michael, 02:09)

• Balancing Free vs. Paid

  • The core value proposition (e.g., displaying family photos) remains free; incremental features (e.g., video functionality, advanced AI, meal planning) go behind a paywall.
    "If you kind of boil it down, you want what the customer is buying—the heart of why they want this thing—to be part of what they're getting and they're paying for that $300, or they'll feel sort of tricked." (Mark, 12:04)

Emotional Calculus—Not Just Data

• Guarding Against Consumer 'Disgust'

  • Decisions about paywalling features are led as much by customer emotion as by quantitative A/B tests.
    "There's a spectrum between 'I get why you're charging a subscription' and 'I'm feeling ripped off, angry, and disgusted.'...You will see it very quickly when you meet with people." (Michael, 13:19/52:13)

• Iterative Approach

  • Features are often added to the paywall first, then sometimes moved to the free tier as user sentiment evolves.
    "We have had times where we put something behind the paywall and it makes the numbers go up. But we learned through reviews that it's very begrudging or even anger-eliciting." (Michael, 13:19)

• Continuous Feedback

  • Qualitative feedback (user interviews, focus groups) is as crucial as metrics; sometimes "the numbers are going to be what the numbers are" (Michael, 52:13), but only after checking the emotional pulse.

Pricing, Profit, and Growth

• Hardware, Software, and Profit Mix

  • Skylight aims for profitability in both hardware and software but adjusts as market and supply chain conditions shift.
    "We make a bit of money off the hardware, make a good amount of money off the software, such that the profit...is about half and half." (Michael, 26:24)

• Bootstrapping vs. Outside Investment

  • Bootstrapping is highly capital-intensive for hardware, but they've used creative debt/inventory facilities rather than VC, choosing growth funded by real profits.
    "Do whatever you humanly can to pay back on day zero, because then you have no marketing payback time." (Michael, 29:10)

Growth Levers and Challenges

• Multipronged Growth: Product First

  • Authentic product excellence ("solid 40 NPS") is foundational before ramping up marketing.
  • Once strong, growth comes from influencers, multichannel (website, Amazon, retail), word-of-mouth, and strategic partnerships (e.g., Costco). "Influencers are huge and very authentic...Retail is the biggest influencer of all in our world." (Michael, 40:19)

• Channel Complexities

  • Subscription attach rates are much higher via owned channels (myskylight.com) than via retailers; strategies like offering a hardware discount for subscription sign-up help. "We give a discount on the hardware if you sign up with the subscription...We can't do that on Amazon, we can't do that in a retailer." (Mark, 41:34)

• Onboarding and Feature Discovery

  • Most users form habits in the first 30 days; unlocking deeper feature usage beyond that is tough—AI-powered onboarding is a possible future unlock. "After 30 days, it's pretty hard to change their behaviors. So our newer customers that set up the device with more features tend to use those things more." (Mark, 43:52)

Pricing Psychology: The $39 to $79 Leap

• Doubling Price—With Restraint

  • Testing showed $99/year would have maximized average revenue per user, but they settled on $79 to avoid overreaching and risking user goodwill. "It was actually not the ARPU maximizing amount...I don't. It just felt like overreaching. We were doubling our price. We want good vibes to continue." (Mark, 51:26) "We knew 99 on paper penciled a little bit better, but that was getting into closer to that disgust territory." (Michael, 52:13)

• Grandfathering and Transparency

  • No price increase for existing subscribers; new users pay at the new rate. They honored the old price for anyone who asked, favoring customer loyalty over short-term revenue. "If they reached out to us, we honored the old price effectively indefinitely... be really nice to the existing customers, build for the next 10 million customers and don't try to squeeze every penny out." (Mark, 53:29)

In-App Purchases vs. Web Subscriptions

• Friction Over Fees

  • Although Apple's commission stings, the reduced friction of in-app purchase justifies the cost. "It pays for itself...it's like a fraction of our customers are subscribing on Apple because we have the direct channel... it seems like this juicy pot of money that... in the tests we've done has kind of paid itself off in an increased conversion through reduced friction." (Mark, 46:33)

• Focus on Growth

  • “Growth vs. profit” is the lens: “If you want to be a hundred million dollar business... you have to be everything, everywhere, all at once, including I suspect you can't get away from Apple subscriptions.” (Michael, 47:16)

Moats and Long-Term Defensibility

• Hardware as Moat?
  • Hardware creates short-term defensibility but isn’t a true moat in the long term—network effects, partnerships, and becoming the “Kleenex” of the category offer more durable advantages. "Neither hardware nor software are moats anymore... it's got to be something that your competitors cannot do or are not willing to do." (Michael, 34:55/35:00)

Experimentation & Resource Constraints

• Small Team = Careful Bets

  • Limited resources mean picking experiments carefully and favoring bigger levers (e.g., price increase) over many small tests.
    "Growth would be easier if we had a team for it... Right now, last year it was like, we're going to do one or two things." (Mark, 58:37)

• Hits and Misses

  • Biggest win: Price doubling for the subscription (from $39 to $79) with minimal churn (55:53).
  • Biggest fail: Free trial experiments didn’t move conversion—resource constraints limited iteration to learn why (57:09).

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Notable Quotes & Memorable Moments

• Why Launch a Subscription:
  "A hardware business in consumer, without a subscription, is basically not building enterprise value with a rare exception." – Michael (02:09)

• Balancing Value and Emotion:
  "There's a spectrum between 'I get why you're charging a subscription' and 'I'm feeling ripped off, angry, and disgusted.'...That is not an emotion... you want to elicit." – Michael (13:19)

• Product Before Growth:
  "If your product isn't like a solid 40 NPS, I think marketing effort and dollars are kind of a waste of time because you're going to get a false negative." – Michael (38:19)

• On Pricing Sensitivity:
  "We knew 99 on paper penciled a little bit better but, but that was getting into closer to that disgust...territory." – Michael (52:13)

• On In-App Purchase vs. Web:
  "It pays for itself... reduced friction." – Mark (46:33)

• Bootstrapping Wisdom:
  "Just pay back on the first order... then you have no marketing payback time." – Michael (29:10)

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Timestamps for Key Segments

• Hardware Subscriptions Boom & Market Dynamics: 01:18–09:12
• Launching Skylight’s Subscription: 02:09–03:45
• Free vs. Paid Feature Philosophy: 10:48–14:39
• When Data Fights Emotion: 13:19–15:06
• Bootstrapping, Profit & Debt: 26:24–32:55
• Growth Levers: DTC, Retail, Influencers: 38:01–41:34
• Feature Discovery & Onboarding Challenges: 43:52–45:21
• In-App vs. Web Subscription Tradeoffs: 46:07–49:57
• Subscription Price Increase—Process & Results: 50:18–54:23
• Wins, Fails & Final Reflections: 55:53–59:31

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Final Reflections

Skylight’s journey reveals the art and science in hardware subscriptions: the necessity of empathy alongside analytics, pragmatism in pricing, and the imperative to always deliver authentic value. Their bootstrapped, user-focused approach and transparent storytelling make this episode a valuable playbook for both hardware and software founders navigating the complexities of the subscription business model.

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Open roles at Skylight:
They're hiring a Growth Product Manager—apply if you want to help them scale!

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Transcript

[A]

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 and Android and the web. You can learn [e-mail] let's get into the show. Hello, I'm your host, David Bernard. My guests today are Michael Siegel, CEO and Mark Unger, CPO at Skylight, the family tech company behind the Skylight frame and calendar. On the podcast I talk with Michael and Mark about the boom in hardware enabled subscriptions, how getting the product right unlocked everything else and doubling their price to $79 even though the data said they could charge more. Hey Michael, thanks so much for joining me on the podcast today.

[B]

Thanks so much for having me, David. It's really exciting to be here and.

[A]

Mark, nice to have you as well.

[C]

It's great to be here. Thanks David.

[A]

Really excited to have you guys on the podcast. Sometime in January I was poking around at figures and and I started seeing that hardware enabled subscriptions kind of had a moment in the 2025 holiday season from Oura Ring and Backbone and Bird Buddy and Skylight and I just kept going and searching for more and more of these hardware enabled subscriptions and saw downloads skyrocketing and for those that use in app purchase revenue skyrocketing. And so it seems like this category has really taken off over the last few years. So I'm really excited to kind of through those things with the two of you. So first thing I did want to start with was as a hardware product. What was the decision and when was the decision made to layer on a subscription component?

[B]

I'm a former vc, I used to work at Bessemer and Skylight started out as a digital picture frame company. Today it's that. But digital calendars are much more of the business. And as soon as I went full time and the business was couple million in revenue, there were two of us here. The first thing we looked at each other is Jake and I co founders and we're like it's time for a subscription. Just coming from VC land. A hardware business in consumer without a subscription is basically not building enterprise value with a rare exception. And so we just knew two things. Number one, that we have to from a business model perspective. But also the net promoter score of our product was so high so off the charts good that we figured there's something we can build for you guys. Basically, the next things on the feature list, we're just going to put those behind a paywall. Because you guys seem to really like our product. We've built enough goodwill that we think you'll be willing to pay. And by the way, you use our products daily if not, or weekly if not daily. So all the signs pointed to our ability to do it and that the customers would be receptive. And we kind of knew we had to. From an enterprise value perspective, what was.

[A]

The timing of this? So when was the company started and when did you introduce a subscription? Because I do feel like when hardware products started introducing subscriptions, it does feel like there was some pushback. And it took a while for consumers to feel comfortable having paid often hundreds of dollars for a hardware product. And then, wait, I gotta pay more and I gotta pay more every single month. So what was the timing of this?

[B]

So first I'll say they're still uncomfortable and reasonably so. So we're not just engaging with that discomfort every day, but we're trying to figure out the right balance where people think it's fair and they're not barfing all over it after paying three to $600. And it's a delicate balance and it changes every year. The market shifts in terms of what for your specific product people are willing to pay for. In our case, the business was launched in 2015, we launched the subscription in. So it was pretty early days.

[A]

Kind of getting back to the. To this holiday season. You know, I'm sure you follow this side of the industry way more than I do. Are there specific things you think made this holiday season so great? I mean, is it just, you know, continuing acceptance of these kind of products or what. What happened?

[B]

Yeah, I don't think this season was unique. I think it's just a crescendo of something that's been happening for a few years. If you go in my time hop, I have screenshots from every December 25th of the past few years that shows you in the top 15 apps downloaded on the App Store. Christmas Day, it's. First of all, it's been us and then a couple of our competitors in both the. Mostly the frame category, which is the more mature category. And then, you know, you'll see tonybox with, which is the kids audio platform. They were number one or number two this year, but they've been up there for years. So it just seems like more that these categories are reaching mass Adoption and maturity. And so obviously during the holidays when you're looking for something cool to give, you give a physical product, people love us and a couple of these other categories so just naturally skyrockets to the top of the charts.

[A]

Has it been just linear growth or has it been kind of an exponential? Like every year it just gets bigger and bigger because it does feel like there's just more hardware enabled subscriptions than ever. So yeah, Just curious if you've seen a pattern.

[B]

I tend to think of it as market by market. Like if I'm speaking to a random entrepreneur and they're like, I'm going to launch a hardware with a subscription, I'll say, don't, don't, don't do that. Because you know, look, I mean each market is its own thing. In the frame market, which is now that the WI fi enabled digital frame market is 10 plus years old, it's gotten extremely competitive and kind of commoditized and blah blah, blah, blah. But yes, it's reached mass adoption. In the smart calendar category, which we invented, it's much less commoditized and we're far and away the leader and it's all really exciting. So I don't think of it as a megatrend. It's like you have to have a really good idea and there's very few and far between good ideas of a physical thing that anybody is willing to pay or like millions of people are willing to pay. If I had a list of 10 more, we would be launching those things. But there isn't. I mean, there's not 100 things. And like even some of the secondary categories like smart pet cameras and other things, you just don't see them in the top 50 or 100 because there's very precious few categories that are going to be new electronics that reach mass adoption.

[A]

Maybe I'm just a total outlier as a wealthy dude with four kids and super into tech, but I just in the last couple of years got a five dog collar to track my dog. I got my wife a bird buddy camera to like and she freaking loves it. And we were both, I mean, to be honest. And again, even just, you know, being in the industry when we were going through the onboarding and I think it's like 60 or $90 a year and it was like, oof. Like wait a minute, but she freaking loves it and I do too. And like we have a little like family group chat with me and the kids and my wife and she's like posting pictures of the bird and the kids are naming them and like it's just been this whole thing in our. And funny enough, and part of the reason I knew about Skylight was that my wife, I don't probably saw Instagram or somewhere Skylight and asked me like, hey, should we get this? And I actually said yeah, go for it. She didn't pull the trigger yet. Yet. But we'll probably have a Skylight in her house in the not too distant future. So maybe I'm a little bit of an outlier. But it does just feel like I've been accumulating these software enabled and subscription enabled hardware.

[B]

I think both things can be true. Like you can count on probably two hands the brands that have broken out. Fi Bird buddy, these are great companies. We're friendly with most of them, but there's not like 500 of them. Whereas if you go into consumer subscription apps, I think there's much more of a long tail of really interesting niche plays here. It's just like an order of magnitude less. But also the number is going up. It's just maybe five years ago there were like three of these and now there's like 20 of these but it's not 200. So it's still a pretty high bar in terms of conquering everything in terms of supply chain but also just finding these mass adoption categories. So I'm sure there'll be like Next Playground is the new hot one that's all abuzz. It's the kids like movement based video game system that's couple hundred bucks plus a subscription and it's just exploded in the past year. So I think every year there will be one or two new ones but I don't think there will be like 30 new ones next year.

[A]

One other that I forgot to mention is Backbone, another fantastic product. I don't know if you guys have ever used this. You connect your iPhone and it becomes a handheld. Turns your iPhone into a switch, basically like a handheld gaming machine with controllers and everything. And I've played Minecraft with my kids for years and, and freaking love having a hardware attached. That, that's the one though where I don't know what they're. I don't even know what they're offering in their subscription and have like not been. I guess I don't even like launch the app because it just kind of works and I just play Minecraft with my kids on it. But anyways, yeah, there's just so many. And Mark, I think you had something you wanted to chime in on.

[C]

Well, I was going to say you mentioned that you were looking at app downloads as a proxy, and I would just say that that's generally a proxy for a device sold. So it's a really good way to proxy the growth of the hardware, but the subscription and the health of the subscript. I think our experiences can vary a ton based on how critical that device is.

[A]

So, yeah, probably a good example would be the backbone, where, you know, every other one I mentioned almost required a subscription. And with Backbone, it's just, it's a great device and, you know, maybe they're not as successful on the subscription side of things. And that's actually something I wanted to get to. And so we'll just go right there. It's like, how do you make sure that your Skylight device is functional for the $300 they purchase, but then still entice them with a subscription? How do you think about the breakdown of what should be free and kind of maintaining that good user experience of the free product and then what you're going to put behind the subscription?

[B]

Yeah, so definitely one that both Mark and I should comment on because he's going to have a different angle on this. I think step one, first and foremost is our devices are daily usage in the home. Right. So they're always on helping you, either by displaying photos of your loved ones or by being this full Calendar family management system that literally is the heartbeat of your home. So once you've got daily valuable usage and attention, it's relatively easier to say, hey, we can do more valuable things for you. Here they are. And they're behind a subscription paywall than if you have a device that you put away and maybe you don't use for a week. It's. And by the way, even Skylight Frame is harder than Skylight Calendar because it typically sits in mom or grandma's house sight unseen. And so you're not thinking about what other valuable things you could do with it. And there's also less depth of what you can do with it versus a thing that runs your whole family. So Calendar is sort of the perfect storm in terms of a really deeply valuable thing that you can have a subscription to. I'd love to throw it to Mark, both to add to that as well as how we think about where to draw the line.

[C]

If you kind of boil it down, you want what the customer is buying. Like, the heart of, like, why do they want this thing to be part of what they're getting and they're paying for that $300 or they'll feel Sort of tricked and, and duped. Right. And so for frame I think it was like when you get down to it, it's like I want to easily get photos to grandma and you should be able to do that without a subscription. And then videos comes up and you're like, oh, it'd be nice to have a video on there. And that goes in the subscription and that feels sort of like it's a natural upsell, but it's not the core of what you came there for. And the same thing for us is true in Calendar. People are coming there and they're saying, well, I want to be able to organize my events and get my tasks and to dos and chores done. And those are things that we include. And then you go, well what about recipes and meals? And what if we have an AI engine that helps you get all this done faster and you go well great, that's a subscription. And so I think as long as it passes that gut test of like the person came there and they spent those dollars and they got it, we're good. Where things are getting tricky is naturally our marketing teams are like, but that AI feature is super exciting and people love it. Can we advertise that? And so you go, okay, well how do we start to advertise all the good stuff about the product or the completeness of the product without confusing them so that they buy it? And then they f feel sort of like that love and that excitement turns into surprise or frustration.

[B]

And I'd love to just underscore something Mark said. The heart of, I think Mark's comment, which is the heart of how we approach this is it's emotional. We look in the whites of customers eyes and we try to figure out what feels relatively reasonable. Like nobody wants to pay a subscription. But there's a spectrum between I get why you're charging a subscription and I'm feeling ripped off, angry and disgust. Right? Like when it's something that they feel on almost a values basis should be free. The emotion that is elicited is disgust and anger. And when you're trying to build a multi billion dollar brand, that is not an emotion even if it's actually short term subscription maximizing, not an emotion you want to elicit. So we have had times where we put something behind the paywall and it makes the numbers go up. But we learned through reviews and just interviews that it's very begrudging or even anger eliciting. And our point of view is we want to steer clear that we're not a get rich Quick scheme here. We're trying to build something for a generational company so we keep our pulse on the emotional reaction to where the line is, not just some quant a B test of what performs.

[A]

That's exactly what I was going to ask next is do you test things in and out of the subscription bundle? So it sounds like, yes, you do. So then is there any kind of line you draw? Like, you kind of lean toward putting something behind the subscription first and then you'll pull it out if you hit those roadblocks? Or is it just such a case by case? And do you have any other examples of something maybe that wasn't behind the paywall that you put behind the paywall?

[C]

Well, I could jump in. I think the kind of philosophy as you build things out, like, we really want anything that goes into the bundle to like, make sense quickly to a user. Like, they need to grok it without thinking too hard. And we don't want it to be something that they stumble into. And it's like this configuration setting, they're like, ah, crap, if I want this view, I've got to pay for it. Like, they wouldn't get that when they're actually buying the product or signing up for it. So as we build out new things that are like, hey, like a good example was we launched a meal planning module and it was like, for people who are meal planners, it's really clear what that's going to do. They're going to be able to plan the family's meals. And we said that wasn't part of the product before. So you're still getting the same thing that you got for $300 for that same $300. And this new thing that they can grok is going to go behind the paywall. And a lot of those things we don't even test. Like, sometimes we just say, hey, that makes sense. It's obviously easier to start behind the paywall when you're adding something new that passes that, yeah, I grock it, I want it test and then move it out. Thank you. The other way around is very painful. So that's kind of how we've felt our way into it. Also, counterintuitive point number one here is we have tried changing the merchandising of how do we show what is in the bundle to users. And those changes often don't change the attach rate. What we call the attach rate, what percent are subscribing very much. So a lot of times we get the sense that as long as there's value in the bundle and the customer is excited about Skylight. They're kind of like, give me the whole thing. I want this subscription. And they're going to start with it and turn it on. And this optimizing of how exactly do we frame it? We haven't yet seen a ton of change in the attach rates based on how we rebundle things.

[B]

I'll just add a couple of thoughts. One is sort of I want to put a healthy layer of humility down. We have never had a subscription growth product manager. We are hiring our first one right now and haven't found them yet. So all of this, when we say we've done this, we've lightly done it, we've done our best. But actually I think I learned this when I went to your conference. Like, whoa, okay, there are some people that are 10x more rigorous at testing the paywalls at every step than we are. Cool, let's do that. But as I said, we have yet to have or find that perfect growth PM who's going to drive that for us? So these are all early instincts. But. But I do think they've proven out time and again this sort of emotion. First cautious philosophy. I'll give you one very ripped from the headlines example. When we launched in 2018, or maybe it was early 19 for calendar, we're like, you know what, we know how to do photos on a device. We're just going to put that behind the paywall. Like, no rigor at all. Just like if you're buying it for a calendar, cool. If you also want it to be a photo frame, 39 bucks a year, which by the way, is a magic number where people don't really care that much. And it worked. It just worked out of the box. But it's now been eight years and the market has evolved and now our customers are telling us that not overwhelmingly, but some customers are starting to say much more than two years ago, hey guys, this photo screensaver really should be free. And so we're having active discussion about do we make it totally free? Do we make it partly free? Kind of moving it outside of the paywall based on changing tastes, which it's going to happen over a decade as the competition and the market evolves.

[C]

On that example with the screensaver, there's also this sort of second order effect, right? Of the first one is like, hey, we got more subscribers and ARR goes up great. But the second order effect is people didn't come to buy calendar for the frame. But we often listen to customers and they say, boy, I bought it for the calendar. Calendar. It's great that we're organized, but my kids love the photos. Right. And so people who have it just light up about the product and the experience and like, again, unrigorously we're like, that is surely good. And that's going to lead to more top of funnel. That's going to lead to them telling their neighbor and their friend. And we're starting to see that happen more and more. And so we go, well, maybe that's another reason that, you know, we're being short sighted if we're both frustrating customers. And so we're, as Michael said, we're trying to figure out how can we we move beyond fully paywalling that feature.

[A]

Yeah, I think, you know, most subscription apps who are paying attention anyway struggle with this is figuring out what to be behind the paywall, not what not to be behind the paywall. You know, how do you execute on a freemium strategy? And it's essentially what you're doing. It's like you have a $300 one time purchase to get into it, but then you're still then running kind of a freemium product just like a freemium subscription that doesn't have hardware. So a lot of the this thinking I think applies to any app of not confusing the users, not frustrating the users, thinking in the long term I think it's all super applicable. And then what you were saying about the attach rate too, I just did an interview with an employee at Tinder. It'll come out after this podcast and he was talking about how they've seen over and over again there's just a certain person who will just, just wants the best and we'll just buy, you know, for them it's whatever the platinum subscription. And you know, they don't even necessarily use the features. They don't necessarily care. It's like I'm in on Tinder and I just want the best of Tinder. So I imagine that's maybe comes into play in that attach rate is that there's a lot of people who just like this thing is awesome. I want the best of it.

[B]

It sure does. However, and by the way, it does even more so than for an app because they are going through the very obvious gate of buying a really expensive piece of hardware. So they're quite motivated to have the best already. But again, on a 10 to 15 year business lifespan, you kind of get through the. I guess I'll use a geologic analogy. You get through the sand and the bedrock, the Easy drilling of people who just really want your thing. And then you start to hit, you know, dense, deep stone, which is people who are like, they really should have your thing, but they're more skeptical, they're more price conscious, they're just thinking about it a lot more. It's the classic crossing the chasm journey of technology adoption. And those people are going to process everything from your product to your subscription completely differently. So you have to continue to appeal to the first group, but start to widen your positioning, including your pricing and subscription for the next group. It's hard.

[A]

And speaking of which, in the prep for the podcast you shared, people don't assess what they are paying for as logically as you think. You're kind of alluding to that, but I wanted you to maybe dig a little deeper, what you meant by that.

[C]

Yeah, I'm happy to take that one. So I think when we speak with a number of growth PMs and folks that come from the freemium world, where it's like, download the app and they have this. This giant user base from which to pick, and in that relationship with the customer, it's like, well, they got something for free. The user shows up, and then they try to basically sell them on the value, give them a taste of all the features. But because of the dynamics we've been talking about here, which is like, mom has been thinking for six months about this purchase. They've been on our website and Reddit and they're doing the YouTube reviews. They've made that decision to go all in. And so that instinct to say, like, well, you've got to convince them that it's worth 3.90amonth. And they're doing some calculation in their brain of what's the alternative to that is like, yes, there are some customers who do that for sure. Got a diverse customer base. The point there is, like, most are actually not doing that once they've made that decision to buy. They just want to know that this is really valuable. They're going to be using it every day. It's meaningful for their family. And then I'll add a little trick we don't actually, in our product. Call out what is a premium plus feature if you are subscribed, which I think makes a pretty big difference as the person is thinking about when it's renewal time and they're going, okay, well, I'm paid $79 a year right now for that. Like, what did our family get from these? And what was in the bundle? And did I use this? If that's your intuition as a product person is like, that's not, I think what's normally happening. And we see renewal rates are pretty high even across folks that heavily use the bundle and those that don't. But that's because what's common across all of those customers, the device is on, they're regularly using it and it's bringing a lot of value to their families overall. They want the full thing. And so that's what we mean by not being too overly fixated. At least in a hardware business. I can imagine a non hardware business, the relationship might be different and more tenuous to those free users than what it is to our free users who actually paid $300 and have a physical thing on their kitchen counter they see every day.

[A]

One thing I was curious about and I should have just done more research, but I think it might be an interesting topic if, if you have thought about it, is there a software only experience? Like as you're building out all of these tools and we'll get to the whole family OS concept later, but is there a software only experience where people can use some of these scheduling tools and other stuff, whether it's on a home, like we have an imac that sits in the old like 10 year old iMac that sits in the living room and like could we just run that on our imac or is it for now just a hardware only experience?

[B]

So your intuition about software only is astute, although I think that particular implementation may not be the right one. High level again, if you want to be a generational company, if you want to be the operating system for families, not everyone is going to buy a piece of hardware. Not everyone is visual, not everyone thinks they need it, so can we.

[C]

But.

[B]

But the problem is the physical presence is a lot of the value, right? It's like that's what gets everybody in the family in sync and having conversation. So you get rid of that and you just have another family calendar. Well, we are not convinced that that is a super valuable, juicy, wonderful experience to put into the world. At least not until AI showed up. And that's where we're getting really interested. To what extent can a smart AI family assistant substitute for that physical presence with its relationship that it builds and the way that it communicates with all your family members all at once and gets everybody aligned and on track? Interesting question, right? So that's where we're trying to figure out a software only solution. The people who tend to bring it up are often very tech forward, very male and so We've never really decided to pursue it. It didn't feel mass market.

[C]

Yeah. David. My favorite one star reviews that we receive take the form of this is dumb. It should be an iPad app, but my wife loves it. I go, okay, I guess that's a one star review. So the point is like that form factor really, really matters. And this bring your own device is like, you know, I'm not sure that's a huge unlock for us beyond trying to figure out how does, how do we solve through an app and an assistant. That really helps the family.

[A]

But yeah, it's funny, the deeper we get into this conversation, the more sold I am on the, on the product. Partly just the vision you have, and I think my wife and my family would really love it. I did want to dig in and you know, I don't know exactly how much you want to share, but you know, I'm always curious about this sort of thing with a hardware attached subscription, how much of the business is hardware or is the hardware a break even or a loss leader or, you know, I would imagine different companies approach this differently, but I'm curious how you think about that.

[B]

So the right way to run the business by the textbook would be to run the hardware at contribution zero and just build this juicy giant ARR business. That said, Skylight is bootstrapped and profitable and that logic leads you to spend. You know, the customer acquisition curve sort of has this sort of fall off a cliff effect where you could tell your marketers, spend $130 to acquire customers and then you say, no, we're going to spend to, to contribution zero, spend 180, 200 and you get like zero more customers. You just light $50 million on fire. So we've tended to make money off of both. We make a bit of money off the hardware, make a good amount of money off the software, such that the profit. That's a question I'm going to answer first, is about half and half. Now that's going to change this year because you may know that the entire computing industry is in a massive crisis in terms of memory supply. So memory prices are out of control. Everyone's laptops are going to be really expensive. Skylight, because we have the luxury, is going to keep our prices the same and just not make money on the hardware essentially and make all of our money on the, on the software. And then maybe in a future year it'll be both again. But I will just add the caveat. When you have a hardware business, you're in this unique position where the revenue is like this big.

[C]

Right.

[B]

And so people are like, what percentage is subscription of your total revenue? Well, the thing is, we sell millions and millions of units and we're growing really fast, so the subscription never has a chance to catch up. Right. You pay $300 to $700 for a device, and then you pay 80 bucks a year. Some fraction of people pay that. So you can do the math. It's never going to be 50% of the business until the day when the calendar hardware business plateaus. And then over time, software will catch up. So it's a good problem to have that. You know, software might be, I don't know, 10 to 20% of our revenue, but it is half of the profit. So you're right about that.

[C]

Keeping the price to a level where we can generate the demand profitably feels like a little bit of dry powder for us in the positive sense. Right? Both for. Who would have seen the memory shock coming? Maybe we should have seen around that corner a year ago, but we're in a good spot because of that. Same with tariffs. Last year, when there was a moment where Vietnam was going to get crushed, we were not sweating bullets. And then there's also like, if we want to generate demand, we can go down. And we talked earlier in this about how it's hard to go the other way. And so it feels like this strategy served us really well as we've been growing into a new market that we've created. And certainly if we'd raise funding, I can imagine the $100 million check hits the bank and it's like, drop the prices and get to three times as many households. And that is a strategy for sure. And it's not the path we've taken.

[B]

Can I just riff on that for one second? One of my favorite topics is how do you bootstrap a business like this? And it's super simple, but really hard to do, which is there's three reasons you're not going to bootstrap. One is to build the software like you need. You need engineers. That's becoming less of a thing in an AI world. You need working capital to buy all of your units before Christmas. That's really hard. Maybe for a different podcast, but I'm happy to go into it. And then there's the marketing cost. And this is what every subscription marketer probably knows. And if not, you should know. Just pay back on the first order. Do whatever you humanly can to pay back on day zero, because then you have no marketing payback time. With Skylight, with a hardware business, you have the added benefit that we're selling a thing, right? So like a physical thing. So we pay back. Every single order in the company's history has paid back on day zero. There's no marketing acquisition cost, which means you don't have to go convince a bunch of VCs to give you $20 million just to grow, which is awesome. So if you're doing a new subscription and it's like five bucks a month, just figure out how to make it that $60 to $70 a year upfront payment and you're golden on your CPA and your payback time.

[A]

The one thing I did see in researching and anybody who listened to this episode and wants to enter this or is just more curious, we'll see that you did do some, I believe some form of venture debt or like inventory debt. You know, this won't be super applicable to our most of our audience, but I am curious just a brief overview of In a hardware business, that kind of facility is really important and but it's not actually raising money. So how did that work? Give me the two minute overview.

[B]

In the early days I had personally a weekly cash flow model because you could be at zero cash in the bank and then millions the next day. If the next day is Black Friday by the way, you have to buy all your inventory weeks in advance for it to be produced, shipped over. So you have to play this incredibly delicate cash planning game in a way that most businesses, and by the way, even most hardware businesses or physical goods, like if you're in cosmetics, you don't care because your your cost of goods is 10%, our cost of goods is like 50%. So we're spending insane amounts of money to just buy the stuff. Now your point is you don't have to raise venture? Well, yes and no. It depends how fast you're growing. If we're like we want to grow 4x and we need this much money, well the problem is the bank is going to say I'm not on board with that. That's scary. What if you don't grow at all or you shrink? Then we've lost all of our money and we're sitting on a bunch of inventory that by the way, we can't even sell because it's connected device. You need to be around to run it. So we've been incredibly prudent about growing fast but not too fast and then finding lenders who are more risk friendly than a bank but less expensive than debt. It's that happy middle of. There were times when we paid 15 to 20% annualized, but it made sense when you do our profit numbers to do that instead of raising equity. We could afford it. I would trade off gross margins all day long instead of selling a piece of the company. So that's what we did. We found those creative lenders and we still work with fantastic. I don't know if people say fantastic and we love them about their lenders, but they're fantastic and we love them and we're very lucky to have found them and I think they're happy with us. So it's that finding that really good relationship with somebody who gets what you're doing and is willing to charge more for a little bit more risky debt, basically.

[A]

And we do see this starting to happen in the software only side of things as well. Like ladder raised a $100 million facility with General Catalyst for user acquisition and very similar things like they could have gone out and raised more venture capital. But why take the dilution when General Catalyst has a fantastic product to get access to tens or hundreds of millions of dollars if you're the right product. And the number, the. The math works. So, yeah, it's kind of fascinating how there are similarities in how people look at, you know, raising venture versus finding another facility to fund that cash flow, whether it is to buy hardware or to fund user acquisition. The next thing I wanted to ask about is how you see this hardware device as a software moat. You know, you've kind of alluded to it already, is that once somebody puts this up in their home, probably not coming off the wall unless they just stop using it or move and forget to put it up or whatever. But hopefully you're creating enough value. So how do you think about that balance of like a hardware is a moat, but you still really got to do your job to keep them retained, both on the subscription, but then also retained as a user.

[C]

So, I mean, first of all, it's totally true, right? Once they've invested in the hardware and they have it in their household, that's protective of that customer. But that, I mean, if we step all the way back, we've got a. We're in maybe 2 million households today. There's 100 million households in the U.S. 30 million with kids are, you know, so we're in the 10 to 20 million maybe market size. So like, we're in the early stages here. So we don't sleep super well feeling like. Well, just because some. We're in some households today that that's not a future moat. And the market market is still yet to be won. Right? We hope we're a tenth of the way there. So yes, it's true for the existing customer, which is great for our retention. You know, we have very high retention rates and that cuts across the different types of features as I mentioned that they use. There's actually not a super high correlation there because people are in it. So it is protective for that customer you acquire, but not for future customers.

[B]

It's interesting though, like I know hardware is all the rage right now, but hardware is the most cutthroat competitive world. Sometimes compared to software, I feel like it's a hundred x crazier. Like we had competitors who fully cloned and ripped off our UI UX and just sold it to hundreds of Chinese OEMs who now populate Amazon with what we consider pretty mediocre products. But people looking for a cheap deal are buying them at times. That's wild. So to your point about moats, let's be real, like hardware is not actually a moat. It's a moat against people who don't know how to do hardware. But it's not a long term, 20 year moat in a market. In fact, I would say neither hardware nor software are moats anymore. It's got to be something that your competitors cannot do or are not willing to do. And no amount of software is that, especially in a world where software development is getting progressively easier. So it's got to be either classic moats like network effects or ecosystem moats, like partnerships or a developer platform around your thing. Something where people look at two identical pieces of hardware and software and still pick us. What would make them still pick us that other people can't have? Well, let's start with retailers. We're in Costco and Best Buy and a bunch of others. And that's, you know, they're only going to take one player generally, so that's a good moat. Other partnerships that we're exploring that are really exciting also potential moat. But it's darn hard to switch. You're essentially asking us, or we're asking ourselves to switch from a software hardware utility, which ultimately someone can clone, to a utility plus ecosystem, consumer or business partner, whatever, some ecosystem that others cannot clone. That's not trivial. Everyone always when I'm chatting with them is like, you should think of some network effects. Cool, thank you. Yeah, we're thinking, but you can't just tack it on. It has to be incredibly authentic to what the product does. But if you have that if you have that, you've got the best business in the world.

[C]

I'm reminded of the, like, my profit is somebody else's opportunity here. Right. And so somebody in the audience is thinking, wait, so you've kept your prices high and you've got a chance juicy subscription, like somebody's paying attention and like, yeah, that's, you know, go on Amazon and you'll, you'll see that. And so that's why we're trying to basically move faster. So I think the short term moat is certainly not long term, but the short term moat is have the best product, move quickly and always be ahead. So whenever our customer is doing research, they come back to if I want the best product. The category defining product, the Kleenex of this product, like, it has to be us. And if we maintain that position, then good things happen, like Costco and others will want to work with us because we are the product that the customer demands most, even at a premium. And so, you know, we kind of think of like the, if we can have the Apple model here, where, yeah, maybe in the long run we're not the vast majority of all devices sold, but we are the vast majority of the profit. That's the position that we would want to take.

[A]

So how do you think about getting that message across? I wanted to talk about growth next. And I think that was like the perfect segue is from influencers to paid marketing, to how you show up in retail. How do you position yourself as that best product and what are the levers you're currently pulling on growth?

[B]

Yeah. So I'm going to cheat and say that before any of that, you actually have to be the best product. We learned this the hard way back when we were developing like Calendar was born. It was a glint in my eye. And Jake, my CTOs, I in July 2018, we're like, easy, let's launch it. We launched it in November. I think that's when we shipped November 2018, our first units. It took until fall 22 to take off. And the macro mistake that we made is we starved it from a. It turned out it was really hard to build. It was not digital picture frames. It was really hard to figure out what people wanted and build a deep software experience that could run people's lives. And we tried. We gunned marketing in 21 and 22, revved the engine and it just kind of sucked. It didn't work and we thought about killing the product. We're like this, this is depressing. This business isn't Working and we're ignoring the other business that is working. But the root of it was our product sucked. So to any entrepreneurs out there debating whether to allocate resources to product and marketing, if your product isn't like a solid 40 NPS, I think marketing effort and dollars are kind of a waste of time because you're going to get a false negative. People aren't going to want it. You're not going to know if it's because your marketing sucks or your product sucks. Now flash forward. Our product rocks. We're very proud and it's getting so much better every single month. It's amazing. But you're still building a new technology. Technology adoption curves are rough, especially after you get past the early adopters. So sure, paid growth is great. And in a business like digital picture frames, that's all you needed because it was like everybody understood your idea come Christmas or Mother's Day. All it took was two ads and people just bought it. This calendar. People have to commit almost spiritually to change the way they're running their family. They're like, I need a better way. That is a multi month emotional journey that they're going on. So how do we help them on that journey? A. I have no idea. If you know, tell me because we're just trying to figure it out.

[A]

That growth pm you need to hire somebody in this audience. Go apply for that job.

[B]

Yes, please, please and thank you. But like influencers are huge and very authentic. You know, people can smell an inauthentic influencer, but someone. We have thousands of people out there using this, loving it, talking about it. That plus paid growth retail is the biggest influencer of all in our world. Like the fact that we're in Costco and other great retailers. It's a stamp of quality that can't be underestimated. So it's kind of that. And the fourth part of the square is just word of mouth, right? We often poll our customers and we ask how impactful is this thing to you? Like, is it life changing? Pretty high bar. Is it like very awesome but not life changing or is it worse than that? Today about 20% of people who reply say that it's life changing. And our hypothesis is those are the people who are getting us dozens and dozens of new customers just by virtue of they can't stop talking about it. But not life changing is probably an order of magnitude in terms of the chatter and how good our business is. So. So probably the best thing we could do for growth long term is just build, build Build features that take us into 50% life changing territory. So that's. Mark is our chief product officer. That is pretty much explicitly his goal.

[C]

The other thing that we've done is we've decided to be multi channel. Right. And so this is something that those who are not in hardware are not thinking about. But we have our own website where we sell the product and we directly control the relationship with the customer. We sell through Amazon and we sell through retailers and we do the same thing internationally. And so I think the strategy to be everywhere, that has been very successful for us. But it comes with real complexities and trade offs and we could probably do a whole podcast just on how to be multi channel. The point I would make here for subscription focused audiences in our owned channel on myskylight.com, we have a much higher attach rate to the subscription because we can can turn the subscription on automatically. And we actually like Pro Tip here. We give a discount on the hardware if you sign up with the subscription. And that is a super successful way to get subscribers because it seems like a great deal. Wait, I get a free month and I pay less today and I'm getting the full access and I can choose to opt out? Most people don't. We can't do that on Amazon, we can't do that in a retailer. And so those channels behave differently for the subscription.

[B]

And bringing it back to the other point that, that as retail becomes heavier and heavier in our mix, that puts enormous pressure on us to be able to prove to our customers downstream of purchase that there's all this, you know, hey, you're not just here for a calendar. That part's free. You're here for the full family operating experience. The problem is when people are setting this thing up, there's like laser focused on getting it up on the wall as a calendar. It's really freaking hard to tell them, oh, by the way, we do meals and recipes and to dos and you should set all those things up. And by the way, chores for your kids is really cool. Take 10 minutes and really think about your, your chore system. And then once they have, I would say within weeks, if not days after they've established their kind of natural daily flows and cadence in the app, our ability to convince them to try new things kind of drops to zero again. Maybe growth PM can help us, but it's really freaking hard once they have a established pattern of behavior. So there's this iceberg underneath of incredibly useful software. And they know it's probably useful, but they're like, I'm a busy mom, at some point I really should check all that out. And then they never do. So this is the nut that Mark is trying to crack this year because that's also where all the subscription stuff is, right?

[C]

We, like, sort of love and hate how common customers tell us, like, I love my Skylight and I know it can do so much more. And I actually have friends when I talk to who just bump into happen to have a skylight and they hear I work at Skylight, they almost feel they need to apologize. It's like, oh, no, I like it. But like, I know it can do so much more. Like, don't quiz me on all of it. And then you're kind of going, yeah, there's just a lot of stuff being left on the table there. And to Michael's point, the data shows us after 30 days, it's pretty hard to change their behaviors. So our newer customers that set up the device with more features tend to use those things more. The older customers, their habits are set, the family's set, and what that device means to them. So maybe somebody can help us change that. But it's been hard.

[B]

And just one other fun idea which I think is relevant to your audience. In a World of Web 2.0 onboarding where you just have screens and you fill them out and it's kind of cumbersome, your ability to educate people about a bunch of different features is quite limited. But what about in a future world of AI driven, maybe even conversational onboarding? You could probably accomplish a great deal more in terms of. In the same 10 minutes you have with them, you could get them set up on a full chore chart. If my kids are eight and three, boom, boom, boom. Here's. Here's some sample chores. Do any of these ring a bell for you? So this is the sort of stuff we're thinking about. How do you squeeze more and more aha. Moments early on in their experience? Because squeezing them in after 30 days, pretty hard.

[C]

And something we're thinking about there is like, well, today kind of an amazing fact is Skylight's gotten to where it is from a subscription perspective without a free trial. And that is like, so table stakes, presumably for the other folks that you. You talk with. And the reason for that is because we have that own channel and because in our downstream flows, we see most people decide to subscribe up top. Back to that. I want the full bundle. Give me it all that there is only an incremental number that will subscribe after that so if we tell everybody there's a free trial, I think it will actually be counterproductive. And so I'm sure there's a way for us to crack this nut, but we haven't done that yet. Which means this idea of like get them in, give them access to all these things and then they'll, they'll like it and they'll use it and they'll, they'll stick is something that's been tricky because of that nature of people signing up up front.

[A]

Bit of a puzzle there and that was something I was going to ask about too, is that I know a lot of hardware enabled subscriptions don't charge via in app purchase because they aren't required to. So like I have an OURA ring and you know, some of these others I've talked about are apps, the FI callers, an app that you can't subscribe within the app. Was that a conscious choice? Did Apple ask you to do that or why do you have it in app purchase?

[C]

I believe, Michael, you can correct me if I'm wrong because this predates me, but I believe Apple asked us to do that even though we had the hardware. I mean obviously things have changed with what Apple's requires now, so we could move outside of Apple. But in the tests that we've run and we've only done really one good one, it pays for itself. So I've been a little bit dragging my feet, if I'm honest, over that being this big juicy pot of, you know, because it's like a fraction of our customers are subscribing on Apple because we have the direct channel. And then of that it's 30% and in year two it's 15% and some percent will not subscribe. And so it's like, it seems like this juicy pot of money that for me at least has, in the tests we've done has kind of paid itself off in an increased conversion through reduced friction.

[B]

And so yeah, I think that's the money quote. It's reduced friction. Right. In a world where they were equally easy then you know, of course there's no incentive. But I don't think they're yet equally easy. There's still some extra clicks and some extra kind of UI weirdness if you're gonna take them to your website. So it's kind of the same reason we're in retail, right? It would be much easier to just be direct to consumer retailers are hard, demanding. But if you want to be, and by the way, if you want to be a Hundred million dollar business or 50 million or even 200, you might not need to do any of that. But if the scope of ambition is to is take over the world level, you kind of have to be everything everywhere all at once, including I suspect you can't get away from Apple subscriptions.

[A]

Yeah, yeah, that makes a lot of sense. And it's funny because a lot of folks who you know, have to use in app purchase are very excited about the web and you know, with the epic ruling and other things there's opportunity but there's almost an over focus on it at times where like pick up, pick up the low hanging fruit. Like it's not all just free cash flow. You're not going to automatically make 30%, it's more like 20 and then is it easy? Do your customers like it? I mean I was just dealing with, we have a subscription to the New York Times that we cannot figure out where it's coming from. Like I've gone through all my New York Times, my wife has gone through all her accounts and we're having to email back and forth with their support to figure out like what account our credit card is attached to just so that we can cancel it. And so there is that aspect of the consumer friendly and consumers being really liking in app purchase that I think moving everything to the web isn't the best solution for your customers because a lot of them do prefer to pay through Apple.

[B]

Yep. And I'll just put a crisp little framework in front of you. It's as simple as growth versus profit. And a lot of trade offs we deal with come back to growth versus profit. It's really hard to do both at the same time. So in this case, you know, you could either grow, grow, grow by making it really easy to subscribe or you could juice your profit by making sure you're not paying a 30% tax. Which one is important to you? The answer is going to be different based on the ambitions of the business and the current profit profile of the business. Right. Like if we needed to scrape together some extra points of EBITDA for whatever reason because we're trying to sell or because we're private equity owned, neither of which are true, then we'd be thinking about it very differently. But we're just trying to grow and provide value to the maximum number of people, which leads to a different decision.

[A]

Yeah, fascinating. On the subject of the subscription, I know a while back you increased your price and you mentioned it earlier in the podcast about the $39 being this magical price where People don't think about it, but you increase your price from that magical price to $79 a year. What was the thought process behind that and how did things go?

[C]

Yeah, well, I mean the big picture thought process was how do we increase average revenue per user? And there's two ways to do that. You get more percent of the people who buy the hardware to subscribe or you increase the price. And we actually have more than half of the families that buy a calendar subscribing already. And so there was a sense of like, can only get that a little. Like we could, we could do more things to try to get more people to subscribe, but price is really the biggest lever. And also we're likely leaving value on the table because of how important, important and critical this device is versus our historical reference of frame. And this is a very skylight specific thing. But we, you know, to move fast. The initial calendar subscription and frame subscription was literally the same subscription, same sku, same price point. Turned it on for both devices. The customer didn't know that, but if they bought another one, it would have worked. And so it was just sort of like, hey, we're at 39. And then we started thinking, well, like if we were going to do this as a new company and we were just going to make Calendar, what would we price a subscription at? We actually just run a bunch of tests and this is classic, I'm sure folks in the audience have all done this, but we ran a bunch of different variants and we variated both the price of the subscription as well as the discount on the hardware. So that's another pro tip for the hardware folks out there is like the relationship between those two changes, the conversion in hardware and the attached to software, right? And so you're having margin changes on how many units you sell, what's your margin per unit and how many subscriptions you sell. And so we did a bunch of tests on that and we landed at at 79. It was actually not the ARPU maximizing amount. So I like to share this one that like our test showed us that 99 would have made us more. When you calculate all the numbers in the spreadsheet, it was like a little bit better, right? It wasn't like massively better. And so it's kind of like, why don't we do that? And it was like, I don't. It just felt like overreaching, right? We were doubling our price. We want good vibes to continue. We can always go up. And so we landed at 79 as sort of a middle ground where we, we felt pretty confident going to that change, that it was going to work because of that testing and it's been phenomenally successful.

[B]

There's so much qualitative surveying and conversations happening throughout all of this. So if there are any folks listening who are not constantly talking to customers either in surveys or ideally also face to face, one on one focus groups, you will see it, you'll see it very quickly when you meet with people. And we knew 99 on paper penciled a little bit better but, but that was getting into closer to that disgust or like it's not worth it yet territory. We will revisit that as we stuff more and more valuable stuff in there. I don't think it's there yet, but my point is commercial for doing lots and lots of research and talking to customers yourselves. You'll just very clearly see what the market wants. And then of course you do some quant testing and variants because sometimes people say things, they do completely different things. So you have to do both. But smart people by doing both can I tend to think triangulate to the right answer. The biggest mistake I would say people make out there is not doing the qual. And just like saying the numbers are going to be what the numbers are.

[A]

One tactical question. Did you announce the price raise before you raise the price and was that a nice like bump in subscription attached?

[C]

We did not announce it and we did not apply it to our existing customer base. They were grandfathered in through what we now call legacy plus that has access to the frame and calendar. So it really just showed up as the new price for new customers. And we had a policy that said if you were on the fence because remember we talked about people are thinking about it for a while. We didn't want anyone to feel miffed. Like I thought it was 39, I've been thinking about it for five months and I just missed the boat. If they reached out to us, we honored the old price effectively indefinitely. So if anybody's listening today and wants just bought the skylight and is like I want that January last year price, email us and we'll, we'll honor it. That seemed to basic. I mean that's kind of one of the benefits of us being in an early growth stage. And a lesson here is like be really nice to the existing customers, build for the next 10 million customers and don't try to squeeze every penny out. We certainly could have figured out a way to do that. And we had the math on yeah, it's worth A couple million dollars. But we just said let's focus on bigger and better things.

[B]

And by the way, if there's anyone out there imagining or not sure what life under private equity ownership would feel and look like, private equity people are not mean or bad or all generally, I have friends and I love talking to them. But a decision like that would go very differently if you're a PE firm that needs to sell in four or five years and double EBITDA in the process, and it can lead to some strange short sighted decision making.

[A]

Well, I asked in part because I haven't had anybody on the podcast yet and haven't talked to anybody yet who's done a price increase and announced it ahead of time. But it seems like that could be a nice little hack if you have a huge freemium base, which I guess maybe you didn't have quite as many people to advertise this to. But if you're going to raise the price, like last year I was working on fitting out my home gym gym and there was this one company, French Sport, that would announce ahead of time, hey, on this date we're going to raise the prices because of tariffs. But we wanted to let everybody know and a lot of other home gym companies, they would just overnight raise the price. And so one day to the next, and honestly, like, there were a few pieces that I bought specifically because I was like, man, I'm never going to get this price again. So somebody out there is going to run this test and I'll get them on the podcast and we'll figure out how well works or doesn't work. All right, I did want to wrap up with the three questions I now ask every guest and one or both of you can chime in on these. But I want to start with what's the biggest win of the last year? An experiment. You did a change, you implemented what was the biggest win of the last year.

[B]

It has to be the plus subscription, going from 39 to 79 with minimal loss of retention and or attached. I mean, the ARR curve, you can see it, it just was transformative to the business. Mark led the entirety of that start to finish. To me, I mean, there's many, many wins. But even it's coincidental that we're on a subscription podcast. I would have said it even if we weren't on a subscription podcast. That was huge, huge win.

[C]

I'll throw in in dollars, much less, but in percents. A big win was changing our checkout flow back to the Apple thing. We used to have on our device, if somebody was not subscribing and they scanned a QR code, it would lead to a web based checkout. We flipped that to Apple and we saw over 100% increase in conversion. Now, the number of people that were doing that was smaller. Right. So again, it wasn't like the 2x factor of the price that affected everybody, but just reducing that friction of like, mom pulls out her phone, scans a QR code. Bang. She subscribed over 100% lift from a change in a QR code.

[A]

Wow. Yeah, that's great. So what was the biggest fail of the year? The experiment that went off the rails. The product change that pissed a lot of people off. What was the biggest fail of the last year and what'd you learn from it?

[C]

I'd go with the free trial test. We tried to do a free trial where we would take a customer's credit card, and we did one without with not taking the customer's credit card. So we did both variants and that was not successful in getting us any additional lift. It was more or less like the people who opted into the free trial was roughly the same as the people who just would have subscribed. And so this goes back to our need for a real growth PM to tell us how this should actually work. I'm sure there's an unlock there, but that was unsuccessful.

[B]

That, to me, is actually a resourcing fail. You can't moonlight growth PMING when you have 5% of your roadmap available to do it, because the first test is going to fail and you need to run like eight more. And we didn't have the time to run eight more, so we basically, it was a little bit of a Hail Mary, which is not how you want to be running your efforts.

[A]

Yeah. I had the chief product officer of Duolingo on the podcast recently, and it was surprising to me that for them a free trial was super successful because, I mean, like, your product, it's a freemium product. You're getting to experience so much of the value already. And so once you've made the decision, you purchase. But for them, the free trial was super successful. So, yeah, maybe there is, there is some way to revisit that experiment and make it work. But, you know, it's like every product's different, so who knows? But, yeah, fascinating that it didn't work for you. All right, the last question is growth would be easier if my cheap answer.

[C]

Here, and I think I had this ahead of time, was if we had a team for it, right if we were able to explain, experiment and test more so as. But absent being able to do a lot of the experimentation, we're forced to pick very carefully what we're going to do. So right now, like last year it was like, we're going to do one or two things. And I think in talking to other folks in growth, there's a sense of like, well, we can test a lot and we're going to run a lot of experiments and I don't know what's going to work. And the last two years has instilled in me some sense of like, I really want to know it's going to work because I only get a few shots. And so growth would be easier if we didn't have that sense of let's really pick carefully.

[B]

I'll give you another cheap answer, which is growth would be easier if we drop the price of the hardware. There is meaningful price elasticity, but we can't. At least not yet for complex reasons. But over time, I think if we want to get to 20 million households, that is what's going to have to happen.

[A]

Wow. Great answer. All right, well, as we wrap up, you've already shouted out you very desperately want a growth pm and this is a perfect audience to make that pitch to. But any other open roles or anything else you wanted to shout out as.

[B]

We wrap up, that's the big one. So thanks for letting us mention it.

[A]

Awesome. Well, thank you so much for joining me. This is a super fun conversation, I think folks, even though it's hardware and not a lot of folks listening will, you know, be working on hardware. I think there's so many lessons for anybody in the subscription app space to learn from. So thanks for sharing.

[B]

Thank you. We really appreciate you having us.

[C]

Thanks for letting us share the story.

[A]

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.