Dan Romero

On subscriptions

Most consumer apps during the 2010s monetized with free with ads model because:

  1. Consumers weren’t paying for many online subscriptions (beyond an internet connection)
  2. Google, and later Facebook, did so well with that model
  3. Payments infra was bad (pre-Stripe, pre-Apple Pay and in-app subscriptions)
  4. Zero-interest rates made capital relatively cheap and the market valued “growth and future profitability”

Subscriptions seem to be growing in popularity in the 2020s:

  1. Consumers are savvier for a given category on whether they value free but time spent watching ads or paid with no ads, e.g. the success of streaming services like Netflix and Spotify shows there’s a big market here, esp. in developed countries. Amazon Prime is another example of a subscription that has, arguably, grown in value over time (started with free shipping, now video streaming, etc.)
  2. Companies are realizing they don’t monetize as well as Google or Facebook (lack of scale, lack of in-house talent, etc.)
  3. Infra to manage all of these subscriptions is better, i.e. managing all of your subscriptions through iOS is significantly better than “call this 1-800 number of this newspaper’s billing departtment to cancel” experience
  4. Interest rates are back and markets seem to care about revenue, free cash flow, etc.

Free with ads will likely always be a popular (if not the most popular) option for most Internet services. However, there’s an important shift that happens when you pay for something: you go from being a “user” to a “customer”. So rather than making product choices that optimize for “time spent” (which ultimately translates into ads viewed and revenue), you can make product choices that deliver “value” (measured through customer retention, churn, NPS, etc.). cf. “If you’re not paying for the product, you are the product.”

First published on November 1, 2022