Cash Cow Revisited
For a while now, the other half of the Agenda team, Alex, has been pushing me to write a follow up to my post on our sales model, which we jokingly refer to as “cash cow”. I wrote the original post back when Agenda was just a baby note-taking app, with an experimental sales model that was largely untested. It seemed sound in theory — we had plenty of reason to think it would work — but it was early days, and we couldn’t provide definitive evidence.
Last week, an episode of John Gruber’s The Talk Show encouraged me to take another look, now that we are almost 3 years into the adventure. The episode in question featured Michael Simmons — co-founder of Flexibits, developer of the fabulous Fantastical — and covered the recent release of Panic’s exciting new Nova app. The talk revolved around the sales model Panic have adopted, which excludes the Mac App Store.
There are a number of purchase options for Nova, but the main one could be described as “subscribe for updates”, which is very similar to what Sketch have pioneered. The nice thing about this model is that, when you pay for a year, you get to keep using the most recent download of the app when it expires, where a standard app subscription typically disables most features when the subscription ends. (As I’ll explain below, Agenda’s Cash Cow model takes this a step further, providing updates with bug fixes and free features to everyone, even after license expiry, and is fully compatible with the App Stores.)
With 3 years of Agenda behind us, it is time to revisit the Cash Cow sales model. Is it working out the way we anticipated? How does it compare to other models? We’ve gathered statistics and other evidence to present the case. The case for cow.
The Cash Cow Model Explained
When we first explained our sales model to Gus Mueller of Acorn fame, he immediately christened it “feature gating”. Only Gus could come up with such a cool and geeky name so fast, but feature gating is exactly what Cash Cow is. It is quite similar to the Sketch/Nova approach, but the emphasis is on unlocking a set of premium features over time, rather than unlocking app updates.
With Agenda, the app is free to install and use forever. It even syncs across Macs and iOS/iPadOS devices for free. But there are some premium features scattered through the app which are locked for a new user.
We store an unlock expiry date for each customer on our server. When they begin, it is set way back in the past. We also have a launch date for each premium feature we build. If a feature was introduced prior to the unlock expiry date of a customer, the customer has access to that feature.
In the beginning, the unlock date is in the distant past, so none of the premium features unlock. When the customer pays, we set their unlock date a year into the future. The effect of this is that all existing premium features, plus any that arrive in the following year, are unlocked for that customer. (This is the “gating” which Gus had picked up on.)
The unlock date never regresses in time, and the feature introduction dates are fixed, so the customer has permanent access to any premium features they unlock. Of course, as the customer’s unlock expiry date passes by, it is possible that we introduce a new feature that the customer sees as locked. At that point, they can decide to purchase again, and thereby extend the unlock date another year into the future, or they can wait until the continual build-up of new features makes it attractive to pay again. In the meantime, they have full access to the app, including updates and bug fixes, and the premium features that they already paid for.
Unlike a freemium model, this is not an à la carte selection of features — it is all you can eat. When you purchase to move your unlock date forward, all features on or before that date get unlocked, forever. Customers appreciate this, because they keep what they have already paid for; and we like it, because we don’t have to support customers stuck on an old version who don’t want to pay to upgrade. And, as developers, we get to have our app in the App Stores, generating recurring income, without the negativity that often accompanies subscriptions.
Time to assess. It should go without saying that we are happy. We haven’t considered abandoning the Cash Cow sales model. It’s bringing in the bucks, and we receive virtually no negative feedback about it. In fact, it’s mentioned in a significant number of App Store reviews as playing a factor in a customer’s decision to purchase. We have seen the Agenda ratings slowly rise in the App Store from about 4.1 in the beginning to around 4.6 now. So customers are happy, and we are happy.
From the point of view of day-to-day development, we are also content. The initial setup of the server infrastructure was a major project, but now that that is in place, it doesn’t take much to keep things working. And if a customer finds a bug in Agenda, we can fix it, and tell them to update. We don’t have to worry about people being stranded on an out-of-date version.
The Cash in the Cow
When considering the economics of the sales model, one of the main questions is whether it generates recurring purchases. In contrast to a subscription, the customer is not required to pay in order to keep using the app, so we have to compel them to do so with premium features that appeal. All carrot, and no stick.
Do we have any evidence that new premium features tempt users to pay? And do we have evidence that users will tag along using the free app until they are tempted to purchase?
Let’s analyze the first question using some graphs from the App Store Connect Analytics pages at the time of our big Agenda 10 release on May 25th, 2020. We’ll start with downloads.
What you can see from this is that we didn’t really get a big spike in downloads until the app was featured, about 4 days after the initial release. We had some marketing setup to run at that time too, and clearly, until it kicked in, there was no great boost in downloads.
But now let’s see what happened to sales.
What is going on here? This is pent up demand, ie, people using the app out-of-license, who get the new update, see the new features in the interface, and pay to unlock them. It’s a clear sign that things are working as we had hoped: people are staying on board even when they don’t have a current license, and can then be tempted into purchasing as we introduce new premium features.
A secondary question you might have is this: How many of those purchasers are new, and how many are renewing? 54% of the release peak sales above were due to first-time purchasers, and 46% were from those renewing. But what is perhaps even more interesting is that 35% of the first-time purchasers — about a third — had already been using the app more than 6 months prior to purchasing.
To drive home the point about pent-up demand, consider sales around a week before this release. At that time, only 15% of sales were due to renewals. Clearly, the percentage of renewals jumped substantially when the new release appeared, and you can also see a similar jump in the percentage of the first-time buyers who had been lurking longer than 6 months.
In short, the Cash Cow model keeps people engaged and using the app even when they are out-of-license, which provides us an opportunity to win their hearts, and wallets, with new feature releases. It’s a powerful aspect of the model — the app itself is your best marketing.
Cash Cow vs Subscriptions
I know a lot of you will say that this is all well and good, but how does it compare to a standard subscription? I wish I had the answer to that, but we don’t use subscriptions, so I can’t make any direct comparison.
If I had to guess, I would say that subscriptions probably have a higher yearly renewal rate than the 15% base rate that we have, simply because subscribers are required to pay immediately to keep using the app, where in our system, they are free to let it lapse and pay at a later time. But I also think that the number of subscribers an app has is likely lower than the number of active users you would have with a Cash Cow approach, because — as we saw above — there are many people who use Agenda having never purchased or having let their license lapse. That pool of users helps spread the word, and gives a potential sales boost when new features are released.
That brings us to how we organize the releases themselves. We actually use a pretty traditional model for that. We have 2–3 major feature releases per year. So we don’t trickle out features continually, we bundle them up into bigger releases. These give us a nice publicity boost, as web sites pick up the release, and Apple often throw us a featuring bone at these times.
It’s also important to time a bigger release for the OS bumps in September-October. Apple are always looking for apps to show off their new features, so start building them into your app after WWDC, and let Apple know you have them in the weeks prior to the release. With any luck, you will be featured, and that can give your sales and visibility a nice boost.
A Few Elephants
When we first introduced the Agenda sales model, there were some naysayers, as you would expect. Concerns were expressed about the toll of having feature releases an integral part of the sales model. These concerns fell into the following general flavors
- Cash Cow will require us to rush in poorly developed features in order to keep people paying.
- It will be difficult to isolate features to make premium, without making the app unusable for customers in the free tier.
- Continually coming up with new features to drive sales will be difficult.
We weren’t really worried about these things ourselves, and it has played out largely as we expected. We don’t feel pressure to churn out new features any more than under another sales model. All app developers feel some compulsion to add new features, and we don’t feel it any more with Agenda than with other apps we have developed.
As for determining what should be a premium feature, it is rarely a stumbling block. We discuss it, and reach consensus very quickly. For this, we have developed the guideline that a premium feature should never be essential to the operation of the app. The app should be perfectly usable in the free incantation, and the premium features are usually nice-to-have conveniences, or add some icing (eg control over appearance).
We also haven’t been challenged finding ways to isolate premium features. Some features, such as the recently introduced note templates, are already well isolated from the rest of the app. Where that isn’t the case, we make the new feature free, and just make a small part of it premium. For example, we added the option to embed reminders linked to Apple’s Reminders app directly in your notes. This is available for free, but there is a premium feature where you can create a reminder in Agenda even without a note.
Long Live the Cash Cow
In conclusion, after three years of “the cow”, we are happy. Developing the app feels much like developing under any other sales model, and it generates recurring income probably on a similar level to a subscription model, without the animosity from customers.
Would we recommend it to someone starting out with a new app now? The only thing that would prevent us doing that is the upfront effort required to build a server for registering customers, and tracking their unlock expiry dates. If the choice is between a subscription with no server of your own, and Cash Cow, the ‘easy’ path is through subscriptions. If you are planning to build a server to track subscriptions anyway — perhaps because you have various sales channels — the effort required would be comparable to what you would need for the Agenda approach. The choice is yours. For us it has definitely paid off.