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Why AI Probably Won’t Kill Your App (But Ignoring It Will) — Eric Crowley, GP Bullhound
01:03:50
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- [00:01]
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, Android and the web. You can learn more@revenuecat.com let's get into the show. Hello, I'm your host David Barnard and with me today, revenuecat CEO Jacob Biting. 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 runa, and the flawed thinking around subscription fatigue. Hey Eric, thanks so much for joining us on the podcast.
- [01:15]
B
Thanks, David. Thanks, Jacob. Thanks for having me again. Always a pleasure.
- [01:18]
A
And Jacob, nice to have you on as well.
- [01:20]
C
Good to be here.
- [01:21]
A
So this is our fifth time to have you on. This is your fifth or sixth consumer subscription software report. So I realized in the last few episodes, 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?
- [01:46]
B
Yeah, let's, let's. 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. And 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 the deals we've done in the past. So that's the firm. I started our CSS practice back in 2018, actually, when we sold all trails to Spectrum Equity. And that was kind of 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. And so I wanted to work with companies that I thought were fun that I really got to understand that I could download and play with. And so I wrote the first report actually David, in 2019. So 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're a little different than other banks. We don't just do.
- [02:55]
C
That's crazy. Sorry, that's just crazy. That wasn't that long ago.
- [02:58]
B
I had way less gray hair, that's for sure.
- [03:00]
C
I think that was the first time I found G.B. bullhun. And you guys were one of the first people to put out some sort of like report or any sort of coalescing of a quote unquote space. Here was. Was your, your PDF?
- [03:13]
A
Yeah. You were really early to be so bullish on consumer subscription to, to your credit. And it's cool that the origin of that was selling all trails to Spectrum Equity, but you know, it's. It's taken other folks a while to catch up. So your, your reports are like a library of, of the growth of this industry of fun.
- [03:32]
B
I mean, I think Jacob, you guys were obviously ahead of me because you guys were building, building the space before I was. So kudos to you guys. But no, I mean, I think if you just think about the math, right, consumers are 70% of the economy. They love experiences, they love doing fun things, right? So why wouldn't software just become bigger? To me, it just seemed like a mathematical certainty that this was going to happen. And so, you know, I was a younger banker trying to carve out my own niche, didn't want to go play against like 300 other people that are all doing B2B SaaS or stuff like that. And they said let's try something different. And I think that bet's been great. I think we're absolutely thrilled by that. And it's just been a ton of fun for me. So I gotta say I really enjoy my job.
- [04:11]
C
Do you think there was anything like structural or sort of like consensus thinking at the time for like why this was overlooked? Was it just like people weren't used to it and then like what has changed from then to now that it's like cool now? Is it just the market's bigger, has like people realize like churn isn't the worst thing in the world, like what's. What. What do you think is different now versus, you know, six years ago?
- [04:32]
B
Yeah, I mean it's, it's a great question. I mean the honest answer is six years ago. Right. It just wasn't on people's radar. But also the companies weren't as big, right. There weren't nearly as many success stories. They were starting to happen, right. If you think about both Netflix, Spotify were around, people were starting to subscribe to them. I mean, think about this. Like Netflix once again was an OG subscription, but mailing people to DVDs. So people were starting to say, hey, I'll subscribe to something. And. But the success stories weren't there. So investors were not.
- [05:01]
C
I mean, Duolingo IPO is 21, right?
- [05:04]
B
Or something like this.
- [05:05]
C
Yeah. So hadn't even.
- [05:06]
B
No, that hadn't gone out, right. So there, I mean, the, the market comp was there, right. Intuit was there with TurboTax or there's examples. You just have to know where to look. Quicken, right, has been around for, for 20 years, right? You had to know where to look. But there just wasn't as many success stories. IPOs, the big, 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, right, consumers, think back to your first iPhone, you probably were still doing in app purchases, right? Probably downloading an app for a buck 99. Right? 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 years. One, the products got way better, right? 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, right? You're allowed to get overly excited about stuff because guess what, some of those bets were great, right? Some of those investments that people made in 2020 have absolutely been fund returners, right. Others weren't. But that's the same for every industry, right? B2B SaaS went through the exact same thing. AI is going to go through the same thing. And so, yeah, I mean, I think where things are now is I still don't think most investors are caught up. I will say 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 share of mind share with my target customer. And I think that's been really exciting.
- [06:33]
C
Have they finally like written off trying to do it internally like a la cnn, whatever and whatnot.
- [06:39]
B
I mean, listen, they are 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, right? Or whatever. HBO Max or whatever your name you want to call it, right? That's a massive step function change for that business model.
- [06:53]
C
I shouldn't rag on internal CSS because that's clearly a victory. Despite their own follies, they're definitely happy.
- [07:00]
B
To have it versus not have it. Let's call it that way.
- [07:02]
A
I was going to cover this later in the conversation, but since we're talking about it now, you have a whole page entitled another subscription question mark, exclamation point. Consumers say absolutely. And I think that has been a big story, which you're kind of 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, you know, what you shared on in the report about this willingness to pay and kind of the whole idea of subscription fatigue. I think while, you know, partially true, it's just so overplayed. So, yeah, how do you think about that?
- [07:42]
B
Consumers are not dumb, right? And there's so many tools now to make sure, hey, you unsubscribe to this or turn off that, right? So you can't trick people, right? So I think like this whole concept of like, oh, someone subscribed and they just forgot about it, like that doesn't work anymore. There's too many good tools, right? And both legislative plus like just software tools. And then honestly, like consumers will happily pay for something that brings them value, right? And so now do you need like 30 fitness apps? No, absolutely not. But you might use two, right? You might use a yoga plus a running training app, right? Totally, totally possible, right? And then I mean, the beauty of what's coming up with some of the AI enablement of both legacy CSS plus, let's just brand new consumer subscription tools like ChatGPT, right? That is bringing new value to consumers every day, right? And they're going to be happy to pay for that. And once again, they're making a trade off economic time versus money, right? And so the value they're receiving is real, right? And so I think that's what I get really excited about is, is yeah, your subscription count probably went from zero or two in 2018. You easily have 10. But like, let me take away two of those and tell me how much you scream. People be like, nope, that's part of my core. That's, oh no, that's got videos of my kid playing baseball. No, actually this is how I'm learning something. Like people quickly say, like, no, I got value out of this. And so, yeah, I think subscription, subscription tig is overplayed. I don't think you're going to have 100. Right. But I wouldn'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. Right. Like 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.
- [09:19]
A
And that's what I always keep coming back to is like consumers will complain. I mean, it's human nature to not want to spend money on things.
- [09:28]
C
I mean, that's a rational market, David. Working itself out is what that is. You know, you said, you said Eric, you said consumers are not dumb. I would say one would even say.
- [09:36]
B
They'Re rational consumers in large numbers, generally irrational over time.
- [09:40]
A
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, like drop. $130, but it's going to save me a ton of money.
- [10:01]
C
I would argue that David is perfectly rational. Right. Because it's sort of like you're sort of implicitly pricing optionality for yourself. Right?
- [10:08]
A
Yeah. But overall it is just fascinating to see and you alluded to it as well that just the products have gotten so much better. And I mean, I've talked about Ladder a ton on this podcast, but it's just such a good product.
- [10:20]
C
The craft of making mobile apps continues to sort of improve and there's always been design award level apps scattered around the App Store, but I think it's becoming more the case that that's, you know, if you want to be a category winner, you kind of have to be on that level. And that takes like real skill time, you know, from the design perspective, from a product perspective, knowing how to work the App Store distribution as well, like that's a whole, you know, dark art in itself. So if we knew the niches that it hadn't moved into yet and would, you know, we would, we would just go build for them. It's hard to predict Right, Yeah, I.
- [10:54]
B
Think, I think that's right. There's more problems. I mean, I mean, listen, think about it. Now you're subscribing to something to help you unsubscribe to stuff. That's a fact. And then you also have on your phone, you've now downloaded app to help you stay off your phone. Great business. And you're like, okay, that wasn't a problem that we had five years ago. Okay, I guess let's just keep doing that.
- [11:11]
A
I want to dig into that more later when we get into opportunities in the subscription space. But let's step back and talk about Runa. I mean, another great example of just a fantastic product that people were willing to pay for. So much so that they were growing insanely fast and were sold to Strava. Now, I know you were a part of that transaction and helped advise Runa 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?
- [11:43]
B
Yeah. So obviously we were the sell side advisor to the Runa team, and big thanks to Dom and Ben and the rest of the team for working with us. It was truly a fun deal to be a part of, to be honest. Yeah. So we've sold two companies now at Ostrava. One was Fatmap, and then this one was Runa. And Run, it was a phenomenal business. I mean, they were kind of the first ones to kind of take. I mean, running's been around for centuries, guys. Centuries. Right? And they were like, hey, we can build an app that will give even longer than that.
- [12:11]
A
Millennia.
- [12:13]
B
Some guy in Greece, the first person.
- [12:14]
C
To step on the Serengeti and see a lion. I think we're going definitely running, you.
- [12:18]
B
Know, definitely running well. But now. And now that guy has a coach. Right? Which is beautiful.
- [12:21]
A
Yeah.
- [12:22]
B
Runner really caught a couple things and did it really well. I mean, so Ben was a former coach for triathletes and runners, so he really knew what the consumer wanted and was willing to pay for it. To get value added, vice to get faster, to get better. Right. And then Dom and the team built just a phenomenal product. Kind of one of those AI native businesses that really made running personalized. And I think if you have, you have to use the app to truly experience it, but it'll 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 had this, you know, this. You ran a little slower. Let's think about that. And it turned into magical moments for consumers. And then they also nailed kind of the run club health fit, health fitness trend around, like kind of the next generation where they'd rather get up at 7am and go to a run club in San Francisco versus go out to the bars, right? And so one, the bars in San Francisco are terrible. So running is actually a really good choice. But anyway, I mean, that. That materialized across the world. And so 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. And so when they kind of gave us a call, said, hey, we're thinking about doing a deal, you know, we kind of jumped right in. And so, you know, when you think about, like, why Strava bought Runa, right? Strava has a bunch of features on there, technically, even had some old training features on there. So almost. Almost 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. And that, you know, people say one plus one equals three. This is way better than that. And so what Strava is, is Strava is an app for athletes, right? And so if you're not an athlete, Strava is not for you, right? And as you. A lot of people don't identify as athletes, right? And so a lot of people actually haven't heard of Strava, right? I'm from Ohio, and I can tell you, most of my friends don't use Strava, right? San Francisco, everyone uses Strava. It's just a weird world that we live in out here in 7 by 7 square miles of San Francisco. But what run it did is they enabled people to go from being on the couch to running a 5k to running a 10k to run, and now they're an athlete. So for Strava, that's a massive TAM expansion, number one, right? So 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 TAM2. You know, Strava has 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, right? They were unable, they have not built in a lot of different tiers to maximize price among consumers. And Runa actually adds the second tier that Strava can offer, which is a bundle. Right. And we all can talk about bundling, unbundling, but in consumer subscription, it's really popular with users. You already have a paid user who uses Strava Runa integrated really well in a Strava from the beginning, even before the acquisition. Right. And so they were able to bring an ability to upsell a Strava runner or a Strava consumer with another package. And so I think that's why it was a good deal. The run of founders didn't need to sell. You know, I don't think they had to do the deal, but Strava came calling and I think offered a, a pretty fair price for the business.
- [15:12]
A
Well, one of the things I was surprised at is that they didn't integrate immediately and that it is being run kind of as a, as a separate business with this bundle, which I was surprised at. So any, any more color on the kind of the system, I'll give some color.
- [15:28]
C
And I mean, I don't know the Strava folks. I mean we know the run. I know both teams, but not super well. But I think it would be kind of hard what, what Eric was saying. It's like, you know, run as a, like come to a thing to like train for a thing. Right. It's like very different flow, flow versus like Strava's like Facebook for running. Right. It's like you post all your stuff there. It's where you go to brag. It's your Instagram. Right. And so 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 like a better approach, like where you keep them separated and these are two very different properties. And you know, you have a. You, I don't know if we're going to talk about it, but you talk quite a bit about conglomerates that are happening and you can almost see, you know, maybe that's a strategy for Strava to kind of play in is where they, they become a pseudo, you know, a verticalized roll up company of a few of these things and then they take advantage of all the benefits of cross selling and things like that.
- [16:18]
B
Yeah, I mean, I think it's a good question. Like, you know, these are two very good apps, right. And they're kind of, they're built differently, right. So and people to say, oh, just smash them together and call it a day. Well, like that doesn't work. Right. Consumers demand an excellent experience. Right. 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. Right. And I think both businesses can learn from each other. Right. Run is amazing at using AI inside the app. Strava is a system of record. They don't have to do that yet. Now, Mike and his team are doing some great stuff. So, like, keep your eyes peeled. And then also, so I think Strava's been learning a lot from Runna on that front. 2. 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 trading for a big race. Right. Versus Strava is more, hey, this is what I post my rides on every Tuesday. Right. 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 when you integrate, if you integrate.
- [17:15]
A
Any advice for folks playing in these spaces where they could potentially be that Runa to Ostrava, where they could be that TAM expansion, the kind of 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 kind of like adjunct apps and get bought. But, like, what does it take to be that standalone product instead of Strava just building it in? Like, 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?
- [18:00]
B
Yeah. I mean, it's a great question. And it's really hard, right? Because tech, even today now, it's easier to build stuff than it ever was. It's hard to build something really great. So what I always tell founders is if you're trying to build for an acquisition, that's hard. If you think about an acquisition. An acquisition is one company buying one company. Right. So think about all the matching that has to occur for that. It's really hard to build something that is exactly for one company. Right. So what I tell founders is build a really great business that consumers love. Just that's your North Star. Right. Everything else will work out. Let's just say you're running it. Maybe it wasn't going really well and it didn't work out. With Strava, there'd be another suitor. You know why? Because people love the app. Right. And so my view is like, just build something great, really get consumer love, and then the strategic corporate rationale side will work out. Right. Because people want to be around products that people love. And so 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. Right. And so that's generally my guidance.
- [19:01]
A
Yeah. And to your earlier point, you know, Rena wasn't in a position where they had to sell. You know, 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 acquisitions is like, we have a great business, it's growing. You know, people love it. Way better position to be in than needing a sale to happen to make the business work.
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B
Yeah, yeah, exactly. Yeah. You don't want to be in that spot ever.
- [19:25]
A
Early in the report, you had a page titled the CSS State of the Union. And in that you talk about a lot about AI. It almost felt like the whole page was dedicated to AI. And it's kind of the 900 pound metagorrilla 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?
- [19:57]
B
Yeah, I mean, so this is the first year we've ever done this, like, State of the Union letter. And we did it kind of 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. Right. And so I was like, all right, how do I write? Like, long form? Write what I think are impacting my clients and future clients today, and then just think it through. Right. And the answer we're getting from investors every day is, AI a headwind or a tailwind here? And the answer is it's a shitty answer, but it depends. And it depends on a bunch of factors. And so we kind of went through and just said, here's where we think the headwinds are today, and I expect that to change materially over the next couple 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 try to list it out. And so, yeah, we went to the negatives first, right? Because I think you gotta start, you wanna start with the bad news first. And so the big thing we've discovered, and I'm sure you guys are experiencing this firsthand, is Google, once the number one source of traffic to the Internet, is now no longer the sole default, right? So if you're a builder or a marketer, right, and 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 Google Crawler found your site and then surfaced that up, right? And if it wasn't doing it organically through SEO, man, you're putting money into Google for SEM for search engine marketing and making sure you showed up as one of the 10 blue links if you weren't organically there, right? And that applied to business that around for 30 years. It applies for business that been around for 30 days. You ran that exact same playbook and 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 their recommendation to a problem they have with, with one of their AI tools. Pick, pick whichever one you want, right? And that is the first time in probably since Google was created and maybe five years after Google, you know, came and be the powerhouse where access to the Internet fractured. And so like, it does require a new skill set for entrepreneurs and marketers to make sure their products sit in front of people where they can't rely on Google, right? And so I've had clients, I've had, you know, buddies that are running businesses where their SEO is dropping 30, 40% year over year, right? You've seen a bunch of articles come out with a lot of the major, I'll call legacy publishers that just publish articles on the Internet, Wikipedia for sure, where they're seeing traffic drops, material traffic drops, that will change the business model. So that's absolutely a headwind, right? So I think that's a big, a big deal. And we kind of compared it to the shift from desktop to mobile where you have to really redo everything, right? And at the same time, you can't afford to let SEO break. So 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? And that is what the jury's still out is if AI is delivering high intent traffic with click throughs. Right. And a lot of people also, oddly enough, they'll search on ChatGPT and then go search Google for the answer that ChatGPT gave them. Right. So you're actually seeing two different attribution is like one of the hardest problems. You're seeing two different attribution issues with that specifically. So I think people are probably actually undercounting how much chatgpt or Perplexity or whatever tool people are using is contributing to traffic these days.
- [23:11]
A
One of the headwinds you didn't list was that AI is going to subsume all apps. And 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. Any thoughts on. I'm sure this is a question that you pose to yourself and have had people pose to you. What do you see as those real headwinds over the next three to five years of AI kind of subsuming more and more use cases?
- [23:46]
B
Yeah, I mean, I think the answer is it's 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. And so then the question is, right, like what? We heard this same kind of fear, I'll call it fear mongering or fud, like fear, uncertainty, doubt about the consumer ecosystem for years. And I think the last time we heard it was in 2010, 2011. Apple, Google, Facebook, they're just going to build everything, right? No point in making anything else. Guess what, guys? Game's over. Get out. And I think we're seeing the same.
- [24:17]
C
Thing that was the number one VC objection for half a decade, which was like, what if Google does it?
- [24:24]
B
Google's going to do. Right? Yeah, I mean, hell that. Hell, they told that to Facebook.
- [24:27]
C
So funny you don't hear that Google's.
- [24:29]
B
Just going to build Facebook. Don't worry about building Facebook. Google's just going to do it. Yeah, right. They probably will build something that's useful. But I mean, that's the beauty of consumer, right? It, you know, 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 be a. And your Facebook could be a competitor for you for sure. Right. And so, you know, you can get weather for free on your iPhone, but it's terrible. Or you can pay someone and get a lot better information. So I think this is kind of like if I'm a founder and we talk about this in our report later, like, you definitely have to have a game plan to compete against AI, right? 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. Right. Because I will come after you and they'll come after you by licensing data from you or your competitor. They will start to build more and more functionality in there that people will just start there and maybe never end up with you. And I think that's. Yeah, that's kind of the competitive threat. We. So we talked about it a little bit, David, but I think the page right after our opening line was like, hey, we don't think AI is going to take out the consumer ecosystem at all. I think it'll take some for sure. I definitely think there'll be losers.
- [25:33]
C
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. Right. It kind of just depends.
- [25:46]
A
Google's AI results are so good too.
- [25:48]
C
Right? Yeah, you know, you get, you get a little bit of both. You, you get some blue links and you get a little bit of word slop. It's like the best of both worlds.
- [25:54]
A
I often go to Google specifically because their AI results are so much better than ChatGPT.
- [25:59]
C
Yeah, they're decent, right? Well, I, I like that they, they'll dive into the pages for you and kind of extract. But ChatGPT is, I was thinking yesterday, the, the best LM is the one I can get to the fastest. I use chatgpt 10 times 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, 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, right? Which is like 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. Right. 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 on that theme.
- [26:52]
A
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 Runa exist when you can go to ChatGPT and have a running coach? I saw somebody pose that. Why even pay for Ronna when ChatGPT is a perfectly competent running coach? Well, it's not a product ties running coach.
- [27:14]
C
A perfectly competent running coach probably remembers what he did the last time. I mean those are in theory with like better memory and more compute and all these things, like in theory, solvable problems.
- [27:22]
A
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 like quote, unquote, do it? It's not a great experience.
- [27:34]
C
No. It's probably going to produce whatever crappy version of, you know, the worst version of a flight tracking app or not the worst, but like 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 like all of that stuff. Right? So like, you know, Eric's out of job, I'm out of job, everybody's out, it's fine.
- [27:51]
B
Yeah, don't worry about it. We're done. Call it a day.
- [27:52]
C
Yeah, I was like waking up in cold sweats like 18 months ago about this one. I think this is sufficient variance in it. I think any prediction is like less than. It's not useful to try to make. And then secondly, I just think like we've already seen, you know, and the fact that you split it up in headwinds and tailwinds, it's like AI is disrupting. It's certainly like accelerating some things. It's, it's moving things around, but it's not like free money, you know, sort of like solution for everything, at least not in the current, you know, in the current iteration or it's obviously like a next step function in technology and it's a, and it's a big driver, I think, of growth. But like I'm not as chicken little about it as I was a year ago.
- [28:31]
B
I think No, I think people are getting there, right. I think we've heard this over and over again, right. Like when we did the flow health deal, everyone was concerned that Apple was going to come out and just crush flow. Not even close. Flow's almost like double the size when we did that deal, right. So like I think, 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 the entrepreneur on the ground building. And like, I think you gotta be smart.
- [28:52]
C
I think when the last time Apple did like a sure, truly Sherlocked something and like it actually disappeared. Like I don't.
- [28:59]
B
They've definitely taken some of the gas out of some apps. I know.
- [29:01]
C
Yeah, maybe that's true for sure. Yeah.
- [29:04]
B
So they might not kill you, but they'll hurt you, right? And they'll slow your growth. Right. And that can just cause a whole bunch of issues with an exit. Right.
- [29:10]
A
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. So what are your thoughts on that?
- [29:26]
B
The first one we see is just in the marketing like and how you market to consumers, right? The ability to do product testing, message testing, right. Content creation is just off the charts faster than it was two years ago, right. And you guys have, you guys are working with tools, right. That are leveraging AI to do different marketing, company test that really quickly. And so, you know, best of breed businesses are quickly finding like they don't have to hire 20 marketers to go out and create content. They can basically spin up 100 different versions, test it really quickly, see which one works with their consumer, right. And delivers the best ltv, which so not just the acquisition but the retention of the user. That's been really powerful. Two, you know, you can spin up new features, new content even faster with some of the coding tools, right. So effectively, you know, if you think about how long it took alltrails to spin up their content with tons and tons of hikes, right. Ladder just to use those guys again, right. Are producing content even faster, producing new features, right. Enabling their coaches to produce more content. So to me, like you going to create a much better version of the business real quickly and you can spit up new features that consumers love. If you see like a little bit of tick where people are starting to Use different things. I think that's pretty cool. And then, you know, the moats are hard, right? It's really hard, right? And the moats were going to be ever changing. So what we recommend is you build the biggest moat you can. And one of the things we talked about this year is like adding hardware or some sort of product functionality to your. To your subscription, right? Which is effectively going to move you out of the competition set for ChatGPT. All right. If you have some sort of a hardware piece with proprietary data that's spinning off it, that's a really powerful thing. And so aura whoop. You know, all businesses that are, you know, raised or are raising that are going to do, you know, I think ideally kind of build on their existing business with AI native features. So I think that's pretty cool. And then the other one is community, right? I think the one thing that people don't understand about a lot of the apps that we know and love is they are places other people are putting their content into that make the apps better. And then we are happily contributing our content, our energy into those apps to make it better for us and for other users. And that is something I don't think AI apps have done yet. And so when I think about community, I think that also includes the concept of brand and trust and so inputting very personal information about yourself. And we all know people put really personal information into ChatGPT or prefer to get a lot of personalized information out of ChatGPT. With some of the erotic functions, people are going to continue to work within their own app and what they know and love. And so I think people that are building community, really strong brands, really strong design, right? Because, like, using something on your phone can be really painful if it sucks. Right. But something that's beautifully designed, intuitive, right. That's what gets people to come back and use those products over and over again. So I think, like, the combination of AI plus human insight to build a beautiful product is going to be the way to win long term.
- [32:06]
A
Yeah. I really love the way you summed up this 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 combined 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. Like, that's your goal as a consumer app builder today in 2025, is to leverage AI to build those great things. And the moat, like you said, is so many different ways to build moats, but that great user experience being that incredible intuitive experience on this tiny little pocket supercomputer. It's just so powerful.
- [32:46]
B
Completely agree.
- [32:47]
A
The next thing I wanted 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. And they opened up way more than Apple even opened up. So 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?
- [33:17]
B
The app stores absolutely add value to consumer subscription businesses for sure, right? Absolute 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. So like three or four years ago, most people were not worrying about getting outside the app store. Just wasn't a function. They said, great, I mean, I'm going to pay 30% and call it a day. That was for two reasons. One, it's kind of hard to build a third payment rail and go through building all that tech and working on web funnels. Like that was hard, right? So if you weren't big enough or, hey, the business is working great, why do something hard, right? Just don't fix what isn't broken. But then I'd say like the last two years, every one of my clients, and I do mean everyone is building web funnels. And I think, one, they're just not as worried about Apple coming after them or being. Being mean, right? And 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 and Apple got their hand slapped and they got their hand slapped hard for doing that, right? And I think that was kind of proven that they were kind of jamming people up a little bit. And so I think one that they've kind of said, all right, great, we're going to back away from that. Right? So you know people that are building apps of scale, right? Getting 15 to 20% of your profit margin back is a big deal, right? It's a big deal. And so when you're, especially when you're 100, $200 million in revenue, we're talking about multiple million dollars in profit. And so, like, it's crazy not to build for that. And so 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. You know, I think we've seen a lot of payment providers come up there like Paddle, Solid, Gate, you know, Stripe even that are helping people kind of manage subscription payments, manage the tax withholding, all that type of stuff that automates once again, what was a hard problem to do. Right. I think even you guys are thinking about doing something on that front. And so I think that's really exciting. And then, you know, I think people just said like, the fear of Apple is going down a little bit. They're still a super valuable partner. You know, most people never, you know, throw up their hands and leave. But I think the word is out, hey guys, like it's okay to build for this stuff and it's easier to do it than ever, so why not go pick up that money? So that's, that's what I'm seeing on the ground.
- [35:22]
C
The operative question and the way you presented it in your slide deck is, you know, I what the split was, certain amount of billions that goes to developers net versus, you know, what goes to Apple. And that's actually where we'll see, I mean, if we have good data on total revenues versus like Apple reported App Store revenues, if there is a substantial shift in this. I think one of the, one of the challenging things I've seen with folks adopting this stuff is, you know, just the time it takes to port things over. You know, it's not something you can do overnight, especially if you have like an established subscriber base and things like this. But yeah, basically anybody, anybody past a million dollars a month, maybe even less than that is probably should be or is doing some amount of this. But yeah, I think my biggest, and maybe now that Google has complied as well, and maybe this is like a new market equilibrium, it's still early on if this is going to stick, but maybe it will now that I feel like Google's there too. It might like, I don't, I don't know. I mean, I think it would be hard even from a competitive perspective for Apple to regress. But you know, the court order, I know we've said this on the POD in the US before is like extremely against Apple in the sense that they don't. They basically, they're required to provide distribution for basically zero requirements on the developer. And 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 like on their paywall, but they do. And I think that's probably either by. By fiat or by sort of market forces where we'll end up is that, you know, the big apps will kind of subtly push you to this like off App Store payment. But the, the App Store payment may still be available, but I don't know if the case gets fully like played out and this injunction gets resolved and whatever, we end up with some sort of like more stabilized case law on this. I almost think Apple's just going to, we've talked about it's just going to have to drop the price, right? They're just going to have to drop to 20 or 15 or whatever number is going to get them to their like new market optimal, which I would call that a win, right? Like if Apple just has to like 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 fee. Apple won't. But also it's like the apps for business scale. At some point they have to understand that there will be some margin erosion. Right? So maybe I'm coming around. Maybe I'm coming around on this.
- [37:51]
A
Yeah, we, we've talked about it a lot on previous podcasts and Twitter and other places as well. So I won't rehash all my thoughts on it, but just, just to, 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. And we know that's not true. And then plus, you know, a lot of these more mature consumer subscription businesses are already at 15% because Apple drops it to 15% a year too. 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. Like certain businesses function better with a web funnel. Certain businesses just need that in app experience to convince people. And then consumers like, 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 conversions and then retention. Like there's so many factors and so even though it seems like such a slam dunk is it's not always the slam dunk and not necessarily low hanging fruit for all businesses. But the great thing is like now it's an option. So now it's like for the right business.
- [39:24]
C
I mean it's definitely working for a lot of people though at this point, like for sure, you know, we're beyond experimentation phase and like a lot of companies have made it a part of their, their thing. I still, you know, go back to my normal cautions not to do this too early and think you're gonna like magically. But like it seems there's definitely spread there for some scale or from some class of large scale businesses.
- [39:45]
A
Well, and speaking of regulation, the click to cancel law got stalled out.
- [39:51]
B
That was an interesting concept of legislation. It's one that the market doesn't need. And I say this because like every one of my clients knows that like if you make it hard to off board, you're going to get sued, right? Think about like all the gyms that are getting sued. Amazon Prime's gotten sued for making it hard to off board. And like it creates a bad blast experience for a consumer. It does because now they're pissed at you. You wasted them 30 minutes, right? So like make it easy to off board, make it super easy to onboard. Don't forget about marketing to those consumers, right. Like we call it remarketing, right. So you have a huge base of churned users. Every company does. Like that's, that's someone who loved you at one point to pay you money. There's a good chance you can get them back, right. You just got to offer them 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, like guys, this is just a bad move, right. It's shortsighted, right. 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. Yeah. So I think that's one of those things, like great. By the time that law, if it does get passed, it's going to be old news.
- [40:53]
A
The only thing that I still wish it had gotten passed was to kind of, you know, you're talking to and interacting with best of breeding. But there are 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 that 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, you know, say at the top end of the market, it's already kind of solving itself on the low end.
- [41:38]
B
You know, I can't really speak to that. I think that's a whole nother concept of. But I mean like credit cards are figuring that stuff out, right? Like now you have to be diligent about it. You can't just, you know, some people just have credit card bills of $10,000 and they don't worry about a 29 $99 charge. And probably. Right. They probably shouldn't be spending their time thinking about that. I think there's a, there's a whole world of like this stuff's just too easy to catch on your phone. It's really easy to discover if you just subscribe through a web funnel. Now a little bit different ballgame, but it's still attached to a credit card. And so at some point I feel like that's just easy to track and get rid of. So yeah, I think you're just playing a very short term game.
- [42:13]
A
Well, one of the things you include every year now is opportunities. And 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 the specific spaces that you talk about, but kind of your thinking behind why these spaces are opportunities. So the two newly identified opportunities to build category killers that you list in the report are Strava for pets and screen time management. And we kind of already did talk a little bit about screen time management. But I'd like to dive into these two categories and kind of why you see them as category killers and then maybe hints to what may be future category killer potential places to play for consumer builders.
- [42:57]
B
I mean, Strava for pets is something we've thought about for a while and listen, once again, we didn't think of it right for founders have been building phenomenal businesses in this space before we thought of it. But if you think about like, once again, I think about like 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. Right. And they're only going to accelerate. And so, you know, I had a German shepherd for a while and had a, had a tractor collar on them. Just phenomenal product. Right. It was one of those things where like I would get the notice, hey, you know, you haven't taken your dog for a walk for a day. Time to get up and go. Right. And that's, that was awesome. All right. And I could see how active they were when they move into health, which is something you're thinking about. Like movement is really tied to health for pets. Right. So you're going to be able to get pet insurance, like based on how many times you walk your dog, how active they are if they're sleeping well at night. Right. That is just going to be something that people are like, great. I spend, you know, $1,000 a month on my dog for food, for, you know, I don't know, day classes, whatever you're sending your dog to. Right. Just whatever you spend your kid, like spending a hundred bucks a year for, that is a no brainer. Right? So 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, but humans are really bad at blocking out distractions. Really bad. Right. And then when you're starting to compete against AI, right, like you actually got to get better. And so I think like to create, be creative, actually do high quality work. Right. You can't have constant pings from the 30,000 apps on your phone. So I think there's going to be stuff that's going to happen there. And then, you know, I think we're seeing like consumers wake up to the fact that like certain aspects of screen time are bad. Right. Like, 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. You know, 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 like consumers know, like some of the 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. So I'm a big believer in this trend.
- [44:58]
A
Yeah, I think that one of the unifying factors with both of Those is looking at kind of broader societal trends and looking for places where people either already spend a lot of money or have the opportunity to recoup a lot of money. And both, I think those two kind of both play to that, that 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. And then I do think it's fascinating how, you know, 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, the 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 like living a better life so you're not as burnt out so that you're more productive when you are actually working, it's like such a strong pitch and I think there's going to be more categories like this. And this is where people should be looking is like where, you know, 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.
- [46:09]
B
Yeah, I mean, I fully agree. I think especially like the one thing I've been using a lot is one of these apps. I won't give them a. Well, I guess Opal for shutting down, like email on the weekends. I mean, I'm not a doctor or an emergency care guy. Like, there's very rarely a chance that I'm going to help the world at Saturday at 9pm it's just rare. It's not going to happen. But man, I look at my email at Saturday, 9pm I don't need to. Right? And so like just shutting that down and then just, hey, spend time with your wife, spend time with your kids.
- [46:36]
C
Right.
- [46:36]
B
That's just way better for me to do as a human. And so I'm actively trying to focus on that. And I think a lot of other people are going to realize that same thing too.
- [46:45]
A
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 kind of already talked about it with Strava buying Runa and the TAM expansion opportunities, the power of bundles and things like that. But what's your thinking on conglomerates in the app space? And then of Course, you know, the, the elephant in the room would be bending spoons, which just raised an $11 billion valuation. Kind of running this playbook.
- [47:15]
B
This is something we've been thinking about for a couple years and I think we looked, we kind of coined the term Berkshire Hathaway, the App Store. And I think Luca actually from Bedding Spoon said they're a combination of Berkshire Hathaway and Google. I think this is a super interesting trend. Investors have a really hard time wrapping their head around these businesses and trying to decide like one, what they're worth. Two, are they good businesses or not? Right? So we get that question a lot. We try to frame this in like a unique idea because like a lot of these businesses are coming up and they have like high churn products, right? They're testing like 20 different things and some of them will fail, but two or three will stick, right? And they'll be really good businesses and start producing cash. And then all of a sudden they start building these really big businesses. And so they spend a lot of money on marketing, right? Because they're effectively getting brand new products in front of consumers for the first time. That's hard, right? That's really hard. So you have to spend, you have to spend marketing dollars. So, so investors have been like kind of confused by this concept. So we try to make it something simple. So I like to use analogies and try to break down like how do I think about these new age consumer conglomerates? And I really like the business models. I've met with a bunch of them. They're building really cool stuff. We use two frameworks. One is the greenhouse 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'll 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. So to me that looks like two things. One, it looks like a greenhouse. We 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 those are your cash cows. You have a bunch of other stuff you'll constantly be testing, launching out in the world and seeing if they work. And if they do, they become new cash cows. And if they don't, you shut them down. And then ultimately, with AI, the cycle's happening faster and faster and faster. So launching five products five years ago, that now looks like 50, right? And so you can test and test more and more things. And so we kind of use this greenhouse concept. So if you want to invest in a greenhouse, you have no idea which product is going to be the best one, what's the top seller this year, which rose color is going to be the most popular. But the end of the day doesn't matter, right? So then I try to look at a business that, like, that exists today, that everyone knows and loves, that has the same model. And what I came up to was Coca Cola, right? And so Coca Cola is a consumer business that's run around for centuries. They have a great brand, they have an excellent distribution and a crap load of marketing. And so what they do is they don't care if you walk into 711 in the morning and buy a Coke or an orange juice. And in the evening, you just did a workout, you do a Powerade, and in 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 know 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. Others, like, hey, you only need it when you need it, right? A Powerade, a Dasani if you're stuck in the airport, right? Otherwise, no need to buy bottled water ever. And then, you know, then they'll test a bunch of other stuff and see if it works, right? Like Costa, they tried coffee. You know, I think it was okay, maybe not going to work, but yeah. So those are the two ways we've been thinking about these businesses. And so I've met a lot of them, really impressed by the founders of a lot of them. More and more are coming up. And so I think this is going to be something investors are going to figure out real quick. And, you know, as we noted in the report, like, if bending spoons files in S1 and everyone kind of all of a sudden peers in behind these PR releases, and it's like, hold on a second. How profitable is this business? I think people are going to get really intrigued to kind of find the next two, three, four of these Is.
- [50:57]
C
That the same that's going on inside bending spoons, for example? Like, are they sharing, like, what? Why are they able to drive much more profitability than, say, each of these brands on their own?
- [51:07]
B
Yeah, I mean, I think they're just excellent operators, right? They are. Like, their model has been initially to build apps, but it quickly pivoted and pivoted years ago, Years, years ago to buy. And then they buy and optimize, right? And the definition of optimize has probably changed over time. But they are experts at pricing, they're experts at marketing. They definitely have some really good tech talent, right? If you look at what some of the statements Lucas put out there, right, It's a. You know, where they're one of the most exclusive hirers of tech talent in Europe. Like, with the lowest accepted rates from job applications. Like, that means they're getting best of the best, right? And so when you look at what they've done, right, they're well known for this, right? And it's well talked about that they will buy an app or a business, right, A subscription business, and they will fire 97% of those employees within the first month. And just think about that concept, right? Effectively, they're not shutting down the business. They're not just taking its cash flow. They are just lifting the business off whatever infrastructure and team was done, and they're putting it onto their existing team. They're not 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 fired 97% of the employees without that being some sort of a massive failure. I think that they've got a secret sauce and a playbook that they're running on the operations side that. That most people have not been able to figure out.
- [52:25]
C
Evernote sells 4.4 stars on the App Store, so it must not be going all wrong.
- [52:30]
B
I think they employed two people from Evernote, if I remember correctly, might even be less than that. Now, that was a business that had hundreds of people before the acquisition, and.
- [52:36]
C
This is just total musing. But I wonder how much of their. What they, you know, 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? Like, terminal growth. And now that your growth is bad. It's maybe beats the market slightly. But, like, the team you built up to invest to get to that point is not the team you probably should have. You know, if the app is kind of reached its like, end state. And Bending Spoons is just the. The undertakers that'll help you realize that and help you get over that.
- [53:06]
B
Yeah, I think they dispute the term undertaker, but I think they are not.
- [53:09]
C
I say that in Undertakers are valued members of society, Eric.
- [53:13]
A
Okay.
- [53:13]
C
Like, it's an important job, but they.
- [53:15]
B
Are also not afraid to ask. Ask those hard questions. Right. They're not afraid to say the person that got you to a thousand users isn't the person to get you 100,000. Right. And 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, so we're moving past it. Right. So I think some people argue against their model. I think luckily they've done well enough. They don't care about our opinions.
- [53:36]
C
Right. Obviously they've earned the high profitability and whatever. It doesn't really matter what other people think. I'll be interested to see. I mean, they just closed aol, like, recently, which is kind of got to be the biggest, weirdest, boldest buy. I don't even know what that business is. And it's fine. I presume there's some sort of subscriptions for something in there and it's still.
- [53:58]
B
The number 8 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.
- [54:05]
C
But maybe, maybe still kind of follows that thesis, though, of like, okay, like, AOL is this legacy brand that maybe the current owners don't really know what to do with or really know how to like, optimize around for, like, a number of reasons. Political, emotional, like all of the above. Luke and his team are just. They're kind of ruthless and they. And they make it happen, which is cool. And it'd be interesting to see there's this old company, Constellation Software, I'm sure you know of the Eric, but, you know, they're sort of the like web 0.0 version of this, like, basically like 90s backhouse software version. You know, I'm sure there's. For every bending spoon, for bending spoons, there's got to be like 10 others that are. That are behind them, like, trying to replicate this model and in slightly different ways. So 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.
- [54:52]
B
So I think that's a interesting take.
- [54:54]
A
I feel like Bending Spoons is a company that's most forced me to update my priors over the last like four years because initially I did think it was crazy. And Eric and I are in this group text thread with a few folks where we've talked actually quite a bit about pending spot spoons specifically. And I'm one of those. And he was probably slyly alluding to it of people's opinions 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 run of 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.
- [56:23]
C
The joke I made on the internal slack is, and I say this with a lot of respect for Bending Spoons is they're building a museum of the Internet.
- [56:29]
A
They're leveraging the museum to bootstrap the future too, because like 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 than 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, being able to acquire these companies. And I would imagine there's even some financial engineering around this over time where.
- [56:57]
C
I mean, we're recording this. I think they announced last week, right? They just did a crazy equity and debt raise like in the in the billions. So like they're, they're making it work.
- [57:07]
A
But some of the businesses they've acquired, maybe they lay off 50 this year, 50% this year or 20% this year, 20% next year, 20% the year after that. And you've just got a dial 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.
- [57:27]
B
Yeah, we said in our slack Jacob is how much would I pay you have to pay you to drop your Gmail deleted tomorrow just delete it.
- [57:35]
C
I mean there's some amount of money but it's like somewhere around also pulling out my fingernails level amount of money. Right. Like it's very high.
- [57:41]
B
Like you probably won't get rid of your first kid, maybe your second.
- [57:43]
C
I've had that email at Gmail for 20 years.
- [57:46]
B
So like good luck. It's attached to everything, right? Everything. I mean you just think about that and you say that sounds out loud.
- [57:51]
C
You're like well thank you for the new, new thing to wake up a with cold sweats about. I appreciate it. Bending spoons acquires Gmail. It will happen. It's like it's the great attractor. Like everything will eventually end up in bending spoons.
- [58:06]
A
Any, any other conglomerates you're watching or upstarts or opportunities you see in this space that the bending spoons isn't yet.
- [58:14]
B
Subsuming well on the conglomerate side. So I actually had the fortune to go over to Istanbul, Turkey early this year and first off, man, if you haven't been to that city, you got to go. It makes like New York and San Francisco just seem like sleepy back, back roads. It is just so high energy. It's phenomenal. And I had a great dinner with like Hubex, Codew, AppNation and these are some of the businesses they're coming out of the Turkish gaming culture which is, which has been well known as building like quick high quality gaming apps and they're now building consumer subscription apps and they're great. They're the founders I met there. The business profiles I've heard like won't give any numbers here but like they're fantastic. So we've seen that come up in a really big way. And then you, you gotta ask the question like what do you build to not, you know, get bought by bending spoons? And the answer is just depends. You can always say no, right? They're not a hostile acquirer.
- [59:00]
C
Everybody who's ever sold the bending spoons has Done so willingly.
- [59:03]
B
That's right. Yeah. There's, there's, there's not too many. They don't buy bankruptcies, guys. And so, like, I think that's the way I describe it is like, just build a product you love and then you have a choice to do with it whenever you want, right? And your community will have a voice in it, right? Like your employees have a voice in it. And so, yeah, I mean, I think that's the way I always describe it to people is like, that is a by choice decision.
- [59:21]
A
And what do you think the opportunities are to build the next bending spoon? Should people be thinking about how they can emulate that model? In some ways, yeah.
- [59:30]
B
I mean, a lot of people are, yeah. It's hard, right? It's really hard though. Like, I'm sure we've all spent some time with app conglomerates. You can't just buy apps and stitch them together, right? And like, so you can't just financial engineer it. Like, I don't think that's the solution at all where you're like, hey, I bought it for six times ebitda, you know, which means you're never going to buy anything from me. But if you bought it from six times EBITDA and then like, great, now I'm going to sell it for 10 times, like, that game doesn't fly, right? You actually have to really have a talented team underneath the hood. Like, yeah, if you're buying it for six times ebitda, it's probably not growing, right? And then if you got to, like, you got to pump some marketing dollars out there and ask me how hard it is to market in 2025 to consumers, and I'll tell you. Extremely hard and getting harder, right? So you have to have a vestibuled team to do that and then you got to do it across 6, 7, 8, 50 apps, right? That's hard, guys. That's really hard. So, you know, I've gotten a lot of people approach me about doing it. I think it requires like a lot of skill. A lot of skill, yeah.
- [60:21]
A
And the more money that has poured into that, 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 gotta have an even bigger win to make the money worth it. So it's like, 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.
- [60:42]
C
You know who the real winner is? Developers.
- [60:49]
B
I didn't hear what David said. I just heard what Jacob said. I think Jacob's right. Let's just leave it there.
- [60:55]
C
I'm. Well, David's. David's the true right answer. But I do think the fact that apps past a certain scale has become a fairly liquid market, depending on your price and stuff, sensitivity and things like that is pretty great. Trading and flipping apps has always been a thing, but I think we're seeing that secondary market for apps like mature pretty well, lockstep with and there's good buyers for these. I'm now really talking your book, Eric. You see more and more people. I do. At least on Twitter, talking about getting ready to sell, flipping app, whatever. But yeah, 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 is, you know, probably a little bit fantasy. You know, we talked about bank spoons and stuff, but, like, somebody like Elon can go in and cut 80% of staff. But, like, you're not Elon is like, I think a good piece of advice for most people. So really think about what you're doing.
- [61:51]
B
Yeah.
- [61:51]
C
I mean, it always looks easier. I remember this is such, like, hubris of builders is like, you know, you get. You start raising venture and stuff. You're like, 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. Most people fail. And I think that's probably true for the case of, like, conglomerates and rollups, too.
- [62:05]
B
It's probably most people fail. Anything worth doing is hard. Guys, this doesn't change.
- [62:09]
A
That was so much fun. Eric, thank you again for joining us. Anything you wanted to share as we're wrapping up?
- [62:13]
B
No, I mean, always, always a pleasure to be here. I will give you guys a shout out for your revenue cat 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 going from strength to strength on that conference. So, I mean, please keep doing it. I told Rick, whatever the budget was like, I'll tell Jacob, maybe add 20%.
- [62:34]
C
What was the budget, by the way? Because nobody will tell me.
- [62:36]
B
Good, good. I think it was like a hundred dollars, if I remember correctly.
- [62:39]
C
I keep asking people go, like, we'll get it to you.
- [62:43]
B
It's coming. They're formatting it.
- [62:44]
C
I logged into the JP Morgan the other day. We're good.
- [62:46]
B
All right, good all right, cool.
- [62:48]
C
As long as there's money in there, we'll keep going.
- [62:50]
B
I'm glad you still have access to that app. That's a good one. Hold on to that one. Yeah, I think that's, that's, you know, on our side. I think you have questions you want to chat about. What I do is these guys know I'm pretty open book, so even if you're not in the market for selling, like, great, no problem. If we forgot to feature in our report, which is the number one complaint we get, feel free to send an email to me@eric.crowleybullhound.com and file a complaint. I'll send it to our complaints department. We'll get you added. And then, yeah, if you have questions about the report or want to see it, it's free online. GB bullhound.com or just email me. We send it to everybody. So we love to put our thoughts on the Internet and get told what we do wrong. So. But no, it's a pleasure to be here, guys.
- [63:24]
C
So that's why you're a great guest or sub club.
- [63:28]
B
Perfect. I love it.
- [63:29]
A
Awesome. Thank you so much, Eric.
- [63:30]
B
Have a good one, everybody.
- [63:33]
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.