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Top Insights about the Evolution of Customer Subscription Software [GP Bullhound Report]

Do you know what Amazon Prime, Netflix, Spotify, Strava, Vivino, and YouTube have in common? They all use subscription models and are more or less successful. The CSS ecosystem continues to grow, so you should be up to date with the most relevant information about it.

Experts from GP Bullhound have provided a report about Customer Subscription Software. Here is the report where we gathered all the critical information from this study. 

CSS – Market Update

Apple Booms

For the first time, non-game applications topped game revenue on the US App Store.

Source: The Evolution of CSS report

Consumer subscription models for nongaming continue to thrive in the US. Moreover, it is expected that the margin between nongame and game spending will increase in 2023 due to solid CSS tailwinds. By comparison, games accounted for nearly two-thirds of all US App Store spending just five years ago.

Due to the inefficiency of traditional customer acquisition strategies, many CSS companies are shifting their spending toward Apple, which reported an estimated $4 billion in ad revenue in 2021.

Source: The Evolution of CSS report

With its dominant platform, Apple is likely to add additional advertising inventory and launch its own advertising demand-side platform (DSP).

Source: The Evolution of CSS report

Security

Additionally, heightened awareness of data privacy, collection, and use has led consumers to rethink their security and privacy measures, necessitating the development of mobile apps that mimic desktop apps.

Inflation

Subscription-based services have been cut by consumers due to inflationary pressures on prices.

Source: The Evolution of CSS report

Connected TV (CTV)

The CTV platform has become the ultimate video/audio advertising platform. With custom extensions and add-ons, CSS is expanding into CTV and benefiting from consumer migration from these platforms.

CTV spends more media dollars than any other channel. As a result of CTV’s high ROI and interactive UI/UX, it is an ideal platform for Freemium business models and ad revenue-focused CSS businesses.

Source: The Evolution of CSS report

CTV can unlock massive potential for CSS companies in video/audio-based segments like education, fitness, music, streaming, and more.

Source: The Evolution of CSS report

Key CSS Insights

Attributes of CSS flywheels that drive premium valuations

Investing in CSS apps is driven by the concept of winner-takes-all; if a company can dominate a niche or a broader market through network effects, investors will pay up. Entrepreneurs should understand their competitive positioning and define their market niche to succeed.

Source: The Evolution of CSS report

Web Payments

Due to low commission rates and high dollar retention, developers are shifting to Web Stores. Compared to developers with a larger customer base in App Stores in previous years, Web Store developers have a higher return.

Source: The Evolution of CSS report

Power of community in CSS 

Through the community, CSS companies have broken the traditional one-to-one relationship between application and subscriber. With subscription-based products, CSS companies can secure higher retention rates, earn more significant revenues, and develop a strategic plan to scale their market. Also, CAC tends to be lower when the community is more engaged.

Source: The Evolution of CSS report

Data never lies 

CSS market participants are aware that subscriber renewal rates vary by type of subscription. RevenueCat now provides the data to support that claim. 

▪ The average renewal rate for CSS companies is 30%, and the best in class is 60%.

▪ Most apps have first-year renewal rates between 17% and 40%, with productivity and lifestyle tools outperforming fitness and photo editing tools.

▪ Investors are generally most interested in apps with 45%+ ratings.

Source: The Evolution of CSS report

Subscription Pricing

Customer retention and growth have been facilitated by subscription pricing models. When creating a subscription pricing model, it is crucial to determine the value offered instead of an arbitrary price, such as $29.99 per year. It is also essential to weigh a tiered pricing model versus a usage pricing model to provide a consistent path for upselling.

Source: The Evolution of CSS report

Web3 comes for CSS

Incentives and offerings provided by Web3 can help CSS companies capture market share and grow their user base. Rather than relying on legacy companies to run the internet, Web3 puts the power in the hands of users.

Source: The Evolution of CSS report

Ecosystem

Netflix and other large incumbents are trying to find new ways to attract users to their platforms as entertainment continues to grow.

Source: The Evolution of CSS report

In the fitness/recreation space, freemium users continue to convert to paid users. As free models are shed, the CSS model has gained traction with these companies.

Source: The Evolution of CSS report

Due to their ability to enhance productivity and provide unique insights into finance, health, and work, these categories have continued to see an influx of users.

Source: The Evolution of CSS report

A hybrid classroom environment allowed EdTech tools to find a new home. Family and dating apps have become more popular since popular dating spots opened.

Source: The Evolution of CSS report

CSS Metrics To Watch

Enterprise SaaS vs. consumer subscription

CSS businesses will have a different definition of success from SaaS companies, so investors need to understand critical nuances. Therefore, the below metrics are essential.

Source: The Evolution of CSS report

Investor benchmarking criteria 

Each CSS investor evaluates a business based on its unique attributes and sub-industry characteristics. That’s why it’s essential to know also these indicators.

Source: The Evolution of CSS report

Over to you

With this article, we hope you will be able to take advantage of the benefits that CSS models have to offer. Remember, you cannot simply establish a transactional relationship with users to build your position as a partner. To drive organic user reactivation, you must provide usability that drives engagement for years. Subscriptions fit this use case perfectly, and you can monetize it in many ways.

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