Game engine company Unity and adtech company IronSource finalized their merger this week, aiming to “create an end-to-end for developers to build and monetize games,” TechCrunch reported.
While there’d be a lot to say about the deal from the perspective of game developers, we’d like to look at this from a different angle and wonder who might one day do the same, but for non-gaming apps.
Earlier today, we reported that New York-based startup Adapty raised $2.5 million to date to help mobile app developers grow their revenue. While the company is perhaps more focused on customer revenue growth acceleration than some of its competitors, it is not alone in its broader space, which could be described as mobile subscription infrastructure.
By magnitude of funding, the leader by far is YC-backed RevenueCat, which has raised $56.5 million in total, including a $40 million Series B in 2021. And with clients like Buffer, Notion and PhotoRoom, it is arguably the one that comes up more often in conversations.
However, there’s also Qonversion, which so far attracted $2.9 million in funding, out of which $2 million came from a seed round in late 2021; Purchasely, which raised at least €1.8 million (approximately the same amount in dollars these days); and Apphud, which closed a seed round from ExpoCapital for an undisclosed amount in January 2022.
Despite this handful of players, Adapty CEO Vitaly Davydov thinks the opportunity is far from crowded. “According to our calculations, our competitors cover just a couple of percent of the market,” he said.
What are app owners using to manage their in-app purchases, then? “If it’s a random application, most likely they don’t use anything,” Davydov replied when I asked him this very question. “If you take extremely big companies with a huge legacy, they use in-house solutions, but it’s very costly.”
A look at the value proposition of subscription management platforms
Apphud dedicates a whole page to pitching how its service is better than building an in-house platform because it saves money and time on development and support costs. Its competitors make similar claims, with RevenueCat encouraging its clients to “build features, not subscription plumbing.”
For smaller app owners, building in-house is often not an option. Sure, there is react-native-iap (IAP stands for “in-app purchases”). But our understanding is that it is more complex to implement, especially for apps that are also available on Google Play. In contrast, most subscription management services are cross-platform, while still reflecting App Store Connect data pretty much as Apple would.
Subscription management services are meant to be used by developers, but not only: Their user personas include engineering, product and marketing teams. Those latter two sets of users get access to analytics that can integrate with the rest of their stack and use their low-code interfaces for experiments such as pricing A/B tests.
A/B testing can have more impact on earnings than you may think: According to Roi Mulia, CEO of Israeli app studio SocialKit, his company managed to double its monthly revenue after testing “more than 300 paywalls in the space of four months.” His team leveraged Adapty to test paywall elements, he explained in a case study: “We’ve tested them all: products, title text, CTA buttons, images, videos, etc.”
Getting paywalls right is an important tool to maximize revenue growth, but not the only one. For instance, RevenueCat shows lifetime value and churn data, while Adapty is working on an LTV prediction tool.
Looking at the list of third-party services with which subscription management platforms offer integrations is also interesting. In Adapty’s case, it can send subscription events to Amplitude, AppsFlyer, Adjust, Branch, Mixpanel, Facebook Ads and AppMetrica, which goes to show the broader ecosystem the company and its competitors are part of.
M&A potential?
Some of the services that subscription management platforms integrate with could one day become competitors, Davydov suggested. “We can potentially compete with ad networks like IronSource or AppLovin, or with some attribution providers like AppsFlyer, Adjust or Branch.”
If you are wondering why, “the reason for this is ATT and SKAN,” he said, referring to Apple’s (in)famous App Tracking Transparency framework and perhaps lesser-known privacy-focused API SKAdNetwork, also known as SKAN.
Both ATT and SKAN are part of a broader and ongoing trend that increasingly limits access to third-party cookies. At the same time, zero-party data and first-party data are now all the rage.
As a result, Davydov went on, attribution providers “probably need to diversify revenue streams because attribution is not as accurate as it was before iOS 14.5.” Which means they might go into subscription management themselves. “But I don’t know if they understand this as well as we do.”
If the above doesn’t spell M&A, I don’t know what does. If it wasn’t enough, I suspect that a company like Stripe, which is already adjacent to these services, could go shopping one day. But of course, only time will tell if my hunch is right.