App Strategy: Succeeding with Freemium and Hybrid Monetization — Paul Ganev, Surfline

0:00hello I'm your host David Barnard and with me today Revenue cat CEO Jacob iding Our Guest today is Paul gev vice president of strategy Business Development and analytics at Surfline on the podcast we talk with Paul about the Strategic pitfalls in modeling total addressable Market how fremium should work and why surfline's current success was actually 38 years in the making hey Paul thanks so much for joining us on the podcast today I appreciate you guys having me on I've been looking forward to it and Jacob always nice to chat with you just a guy in Ohio ready to talk about surfing that's what we're here for today so

0:39let's talk surfing I wanted to get a little bit of background Paul so I know you're currently at Surf line but you've done some really interesting things leading up to this that led to the job at Surf line so tell us a bit about what you did before in consumer subscriptions and then how you transition to Surfline yeah I guess it's a non-traditional entry into Tech so I worked in the media industry for for the past eight years proceeding my time in Surfline and I started off in the finance department working on traditional linear media so broadcast media cable things like that and two or three years after I started

1:12Netflix really started picking up steam and we started seeing further adoption in spot viewership and so I got really enamored with the streaming side of the business and so a couple years later I got the opportunity to work on some of our sod products and I spent the last four or five years at Discovery Communications which is now Warner Brothers Discovery working on some of their rest products I transitioned from Finance to strategy and analytics got lucky enough to get a shot there and then towards the end of my tenure IID moved to LA I was originally based in London and I moved to LA with my wife

1:45and I started surfing a tremendous amount like I was surfing four or five times a week and I was using an app called Surfline I got addicted to the product I thought it was great and I got lucky enough to get introduced to the CEO at Surf line at the time his name was Jeff Berg and we had some conversation they had just raised some capital from the churning group and he was looking to build out a strategy and analytics team at Surfline I thought it was a great opportunity to work on something I was passionate about and get some experience in a different side of

2:12consumer subscription right because espod was intrinsically a little bit different than mobile application subscription I've been here for three years now I oversee strategy analytics and then all of the other commercial functions so marketing ad sales product growth as well and loving it what's a culture like at Sur one is it just a bunch of crazy Surfers or kind of a mix you would think so and that was kind of my perception I thought we'd come in and it would be that stereotypical surf culture that you'd see and there's some of that but I was surprised when I came in at how much talent there was at the

2:45company and how many Tech native people there were we had at the time our CMO came from Apple our CEO at the time Kyle Laughlin had come from Amazon and there were all these people that worked in big tech for many years and so there was this half culture of we're really focused on on surf culture surf Community but there was also a work hard mentality and people really wanted to innovate and build products that would make Surfers lives much better kind of in the surf industry there aren't a lot of jobs where you have a great balance between culture and Innovation and that's what we found in Surf line and

3:16it's been fantastic it's funny coming into Revenue cat was kind of the opposite like everybody else at Revenue cat surfed and my first experience with Revenue cat in person was a little surf offsite in 2019 it was the last offsite we could do at the beach we went from five out of five Surfers to like five out of seven and I was like this is over for us it was just serendipitous but the first five of us actually bonded over surfing also apps though but I mean it's interesting it doesn't surprise me that especially I think California being the tech Hub of the world more or less and

3:52also being one of the best surfing coasts in the world if not the best you end up with a lot of folks that are probably passionate about both of those things and surf line as a product like there are other players in Surf technology but I don't think anybody's at the level that Surfline is in terms of reach and dominance and functionality and all of those things so I'm sure David you know that I mean I'm going to steal your story Paul but the story of surf line you know how it got started it was originally a phone call like that's where surf line comes from it that's

4:21right it started off as like an answering machine in somebody's garage or something like this yeah it was like a paper phone number that you would call it there was actually a fax as well you could get a fax like in the 80s right been 1985 is when it was founded consumer subscription app in 2023 founded in 1985 as a 1 1900 number that might be a record I think we hold a bunch of Records we call ourselves the 38-year-old startup right so we're found it in 1985 and originally it was a paper phone number and then facts and then when the web started becoming a thing

4:54when the internet started coming to its prominence we had a free website for a period of time and we actually launched our subscription in 2001 so to kind of date that that's six years before Netflix launched their subscription so we're better than Netflix in at least one way at least the founders had the foresight to move in that direction pretty early on but there's been a serious Evolution even since 2001 but it's a crazy story it's very unconventional yeah I thought all Trails was early to subscriptions I didn't realize yall started your first consumer subscription product in 2001 that's crazy yeah it wasn't really a key Focus

5:29back there 2001 if you think about the market back then there weren't many digital subscription products that were out there so it was a challenging proposition in the beginning to get people comfortable with a recurring payment through some digital product on the web and so it took many years to kind of and technologically like how' you even do it it's not like today when there's tooling and all of this stuff to make payments so much easier than it was 20 years ago 100% and again predat to me quite a bit so I can't say but they definitely hacked some stuff together and got it working so well I think

5:58that's a good segue into the first topic I wanted to discuss and that's understanding and calculating Tam total addressable Market in 1985 I don't know that the founders could have ever imagined how the Tam would grow but then also what it would actually look like in 2023 so yeah tell me about your thinking on Tam and how to calculate it and common mistakes on how people think about Tam Tam is really important for a company like Surfline when you think about the total addressable Market how many people are out there that might be willing to pay for your product there aren't 100 million Surfers in the US so we have a

6:35niche T and it's very important we understand what that addressable Market is because it should influence our product strategy our monetization strategy all of those things I'm sure the founders weren't thinking about Tam back then right back they didn't have to pitch anybody I mean look surf forecasting wasn't really a thing back in 1985 we kind of pioneered yeah I learned that recently that even like wave forecasting wasn't until recent times that they even could predict when there were going to be swells and things like this big shout out to Sean Collins for doing that back in the 80s but today it's really important for us and when we

7:05think about Tam really what we're trying to calculate is what is the size of the opportunity in the market there's some great use cases for Tam the big one being really it's like a sales tactic to be candid right from a tam standpoint you're going out to investors talking about how big the opportunity is telling a story there the flaws come when you start trying to calculate the addressable audience from a modeling standpoint and what you should do strategically from product strategy and monetization strategy so I'll give you an example let's say we're a golf company and you go out the market and you say okay there's 50 million golfers

7:38in the US that's our Tam if you're launching a subscription product you'll probably find pretty quickly after you launch the product that there's 50 million golfers out there but there aren't 50 million golfers who play golf on a frequent basis maybe it's 20 million that actually play on a frequent basis and so you're kind of omitting a key factor which is commitment you really have to move from a metric Tam to another metric that's used in the industry called the serviceable addressable Market Sam and that's the biggest issue that I see with most companies that are going out to Market and putting together their commercial strategy is they'll use Tam and they'll

8:11model everything off of that and they'll say okay well Tam's 100 million people and we're going to go and acquire like 5% and call it a day and that's how they model things out but in reality when you start digging in you find out that hey really our product isn't something that's going to service all 100 million of these people it's going to service some fraction because there are other variables that I've omitted and so it's really important to figure out what the serviceable addressable Market is and there's a number of different variables that you should look at one is commitment is very important especially in a niche direct consumer space you

8:42want people who are committed because they are going to be paying a subscription and that's often omitted in the modeling and the estimates that people put together that's the biggest one to be candid that I see out when people are calculating the metric how do you think about the Sam cuz I sometimes feel like Sam is actually the true Tam like you said like Tam is like the Tam people dream Sam is actually your Tam but I think as an argument and maybe this goes into more long range modeling s of short range modeling but that your Sam should maybe evolve into eat more of that t like it depends on what the

9:11limits to serviceability are right like if it's commitment golfers are not going to become twice as committed by 2028 right like I'm not going to read that in a garden report or whatever but they might become twice as open to using software or something like that so how do you think about Sam evolution in regards to like Surface versus address difference I think it's all about timing candidly so you should always have Tam in the back of your mind because you as a product leader in the space you're going to look out and say my product's going to continue to evolve serviceable for me in the future is different than

9:41what it is today and so it's always important to have that Tam number in the back of your head and figure out what the Delta is between your Tam and your currently serviceable addressable market so I like using the serviceable addressable market for a couple reasons and the reason it's important more than anything is if you have a good idea of what's serviceable it can really influence your commercial strategy so another example if your Tam is really small or your serviceable addressable Market is really small you might want to wait your investment in arpu more than you do subscription growth you might say okay really we might reach saturation a

10:14little bit quicker than we originally thought we should focus on growing arpol or maybe the strategy is hey we know that we're going to get pretty significant market share within this audience we should look at adjacent audiences or new geographies and this is an exercise that a lot of big companies do and you look at the growth of companies like Spotify for example the growth isn't coming predominantly from the us anymore it's they've realized hey we're starting to saturate a little bit in the US we're going to look at markets outside of the US and start getting market share there same thing with a lot of the big espod companies so it's

10:44really important that you have your finger on the heartbeat there of what is actually serviceable and addressable today but not lose sight of what is possible in the future yeah you can you use the word investment but you end up putting effort into something that you can't change once you've hit the limits or at least like the reasonable limits of your Channel or your Market or whatever you're pulling into it's just wasted money you on the acquisition side Revenue cat I think we've had the similar experience where like I think if we had gone full into go to market three years ago we probably would have been in

11:11a lot of pain because of shortfalls in our product Market fit and our ability to service those customers and things like this so maybe unintentionally we strategically didn't but now after three years of prodct development okay like now actually maybe each dollar we invest on growth is probably going to have a much higher Roi now that the products position that same has like increased for us which kind of I don't know when you're thinking about managing a company over many years and benchmarking it against peers and benchmarking it against maybe Pierce outside of your space can be a little I don't know depressing is the right word I don't

11:42know like sometimes you're like I know for me personally like I look at other SAS companies that have essentially infinite Tams and they'll just be like yeah we're just double them every year we spend $200 million on sales and marketing and then we add $20 million in revenue and we just do it over and over again and revenue cat exists in a niche in its own which is this like consumer subscription we have some of the same mechanics where it's not an infinite Tam at least not today I'm curious how do you think about in surfing too as the particular mechanics of it there's some interesting natural limits to surfing's

12:11Total addressable Market because for anybody who surfed especially in some of the more crowded places in California there's only so many people that can surve practically at a spot the laws of efficient markets really start to play out once a spot becomes too busy can maybe only handle so much traffic so there's sort of a natural economic upper bound do you take that into your models like how many surf spots are there that are undeveloped and if you have that list of undeveloped surf spots I would appreciate you sending it to me so that I can go there but we could save that for off the Pod we don't have a list of

12:39undeveloped surf spots but you're right it's a finite list of locations just like naturally in surfing there's only a certain number of locations you can surf and you're dependent on the conditions being reasonable for surfing if it's flat you can't actually get out I'll a few things though surfing is one of the sports that's been growing quite quickly right it's had a crazy run since even the last 10 years has been crazy not just surfing but there's a lot of other sports that have seen the same adoption I think Golf and pickle ball and all these these Sports have really been picking up but in surfing now we are

13:08seeing some other Innovation that's interesting there building surf Parks all around the world so these are artificial wave pools where you can go surfing and it's interesting because a lot of these pools are being built in places where people don't have access to the beach so it could be right now there a huge pool being built in Munich for example and funny enough there's a lot of German Surfers who are just traveling to Morocco and SP and different places every time I went to Central America everybody at the surf camp was German just about yeah yeah we do see a lot of growth in the industry coming from those

13:38surf Parks right it's going to drive a lot of adoption and again with demographics that are non-traditional in surfing which is also very interesting because these are urban areas people don't have access to the beach obviously living close to the beach is very expensive so this might bring in cohorts of surfers who couldn't traditionally afford to go surfing it's a challenge for sure well especially if you're a surf forecaster because if you create a wave pool that has consistent waves it must create some interesting product strategy challenges for you guys it does to degree we kind of have two parts of the business one is surf forecasting the

14:07second piece are the cameras and the camera technology that we're developing and there's some interesting synergies between the camera technology we're developing and you surf Park so I don't want to give away too much here but this is where 20 30 years in you guys can leverage a brand into that market shift which not all companies all scales have that luxury but there's a good example of widening your serviceable addressable market right like looking at the tan from a top down perspective what's going to shift and surf ranches and surf parks are I think going to be I live in Ohio I would really love for somebody to put an

14:36indoor surf Park up within five hours that would change everything for me to continue my hobby you know in terms of strategy that's the kind of stuff you want to be thinking about with Tam I feel I'm curious when I learned Computing in addressable Market I was taught two methods right there's the top- down method well like there's a million Surfers and like we'll get whatever versus like a Bottoms Up which maybe I have these wrong but it's like well I only need to get five of these these folks to like whatever and I can sell this many this year and whatever and I'll build up to how many I can

15:02reasonably sell do you find when you're approaching a problem do you start with six billion people and what percentage of those are Surfers or do you start from the bottom up for most companies I think they start top down traditionally mainly because the data is easier to come by it's an easier exercise to do right so you can hire a company to go out and do market research for you and get you some estimates but candy there's so much market research out there today that I'm surprised like most Industries you should be able to find some data points to get you started yeah say if you can't find those numbers you're

15:30probably in a market you don't understand enough right yeah or it's too broad right yeah you're absolutely right but the exercise is really this at least the way that I found it to be most successful is you find some market research out there and it gives you a general sense of what the scale of the market is and then if you have great analytics on your platform you can learn enough about your consumers to figure out what segmentation actually matters like what your Sam should be because the market research that you find out there is like typically just going to be very high level and you're going to have to

15:58cut it down but it's up to you to determine how to cut it down what variables do you need to factor in are geographical variables demographic variables is a commitment so it's important that you kind of go from both angles is start with market research do some analysis of your consumer and then try to hone in on what a serviceable addressable Market is and you can make it as complex or high level as you want I mean the moment you start factoring in competitors it starts getting really complicated because you have to factor and that's kind of the next step down which is serviceable obtainable Market is what percentage of

16:27the market can you actually acquire compared to the other competitors in the market I think it's probably a little bit detailed for this conversation but we talk about modeling a lot and modeling is wrong always I find that on the line of complexity I'm always saying the more complex you make a model the more likely you're going to get it to say what you want it to say and the more likely it is to be wrong right simple is better if you can start with the simplest model and get answers that are reasonable and then I don't know if you found this but I find that it's useful

16:53to not just revisit the same model every time you need it but if your model's so in complex that you can't kind of rebuild it in a sitting then your model might be too complex because what I also find is nice is that if you start from first principles and rebuild your models once in a while one you'll rethink your assumptions two if you get an answer that reasonably matches your first attempt then you have some confidence that you know you didn't just torture your model to say what you wanted it to say I mean that applies not just for adustable Market modeling that's for building any kind of predictive thing

17:22but yeah it's definitely something for our listeners in appland we have probably a lot of folks that aren't thinking about having to pitch investor right having to tell some massive Tam story but it doesn't matter you're the investor you're investing your time do some math and make sure that you have a tam that seems pretty big to you because if the smaller your Tam less that Tam's going to grow the harder time you're going to have it's just going to be tougher and if you're have a small enough Tam even winning isn't that good of an outcome right the Tam's small enough you know what I mean so I think

17:50it's especially for hobbyists looking to like build something do yourself a favor build something a lot of people can use it'll be more fun or build something a small Niche want to use but then understand that it is a small Niche and then charge appropriately to the size of that market but I did want to dig into service obtainable Market I know you kind of said it's a little too complex to dive into but I think this is an important thing that is part of the modeling that is often overlooked is that okay there's 50 million Surfers or that's probably even high that's a tam or Sam is actually like 20 million but

18:25then you have like willingness to pay and price and all those other things that factor into like how many of those folks in the Sam are you actually going to convert to a subscriber and that's the obtainable so how do you think about that willingness to pay and then I'm going to out Jacob and some of the early Revenue cat employees Surfers are notoriously cheap I think the first five employees at Rue C were like sharing a Surfline account so you have my Surfline account by the way just want to point out there that I was the I was always paying and I have one now even though I

18:55live in Ohio I have almost always an annual Surfline subscript going because it'll expire and then the next trip I take to the coast I resubscribe so I've made up for my sins so how do you factor in that willingness to pay and then obviously the goal for surf line is to continue evolving the product and to get more and more of that service addressable Market to be service obtainable market so yeah how do you think about that willingness to pay in modeling from Tam to Sam to S yeah whatever so maybe we decouple them a little bit so really what we're talking about is price sensitivity right how

19:28price sensitive a consumer is and even that term is maybe a tiny bit misleading because it has three components at least the way I like to think about it first is purchasing power which is what we're traditionally talking about so if you say like Surfers are cheap really what you mean is that maybe it's a purchasing power situation possibly the other two variables are commitment like how committed are they how passionate are they and the last is how strong is your value proposition it's really relationship between those three things and you have to assess how strong that relationship is and where the gaps are so in surfing for example if you think

19:58think about where most Surfers like let's say domestically where they're located typically in California and coastal areas or Hawaii and coastal areas and so those areas aren't cheap to live in and when we've done market research we found that actually the audience is a bit more affluent than you would originally believe now when you go to Commitment like I have not met a more committed passionate group of people than Surfers these are people waking up at 400 in the morning to drive 2 hours away to catch a swell window of an hour and go surfing then going to work after that yeah and then going to work right

20:26after like sitting in a 5 mil w suit in 55 degree water for a couple hours so commitment level super high and then the last piece is like how strong your value proposition is that's the kind of relationship we're talking about so if you think about Sam and s in that kind of light really the first thing to think about is like how strong your value proposition really is and then over time how much stronger do you believe it's going to get that's a huge benefit of Premium models because over time is your value proposition gets stronger you have the ability or the time benefit of being

20:55able to convert people that are on platform and so that's the first big one is like how strong is your value prop and how much stronger is it going to get over time and how does that compare to the other value propositions in the market so for Surfline for example there are a lot of free competitors out there there's not many paid competitors and so we're targeting a consumer that would be willing to pay for this product so the commitment level has to be pretty high compared to somebody who surfs maybe once a month or once every couple months maybe the free products that are out

21:24there on the market are a better fit for them however over time we have plans to produce a product that would be a better fit for these other consumers that are targeted by other audiences so there's no one size fits all but you really need to make sure that you're aligned with those three variables and understand really where the gaps are and what you're trying to influence when strategically thinking about some how much do you just write off like a certain percentage of Surfers no matter what the value prop just aren't going to be willing to pay or is it a price sensitivity where it's less that they're

21:54not willing to pay anything it's just they're not willing to pay the price that makes sense for surfine fairly certain if all the surf line cams were free everybody would just use it there's not a ton of other cams yeah again it's a hard thing to calculate I think the way that we go about it is we have a pretty large free audience and we can do quite a bit of analysis and understanding how much purchasing power price sensitivity affects people's conversion rates and how that changes over time as our product gets better there will always be a cohort of users it's not willing to pay and it's especially important for a

22:29company like Surfline right because Surfline historically used to be free there's a lot of companies that have gone through this transition where they had a free product and now it's behind a pay wall so New York Times is another good example and that intrinsically causes challenges because you've educated a consumer that something used to be free and now it's something that they have to pay for which again also is something that influences whether somebody's willing to pay for something or not because again they just believe it should be free so at least in my mind there's no rule of thumb but there will always be cohorts of users doesn't

22:59matter what industry it is and doesn't matter how much purchasing power they have that will not be willing to pay for the product and so you just do your best to quantify how large that cohort is either through surveying or through un product analysis and then you factor that into your models which will intrinsically be wrong and then we'll make a decision to go from there this did get really nerdy but these are the things as a consumer subscription business you need to be thinking about and I think you're right you kicked it off saying you see a lot of mistakes like I see that too A lot of people like

23:27oh yeah there's 50 million golfers in the US we only need 5% penetration or whatever to build a great business and then we're going to get to 50% 2018 being like Oh there's a hundred billion dollar in subscription Revenue I just need to get 1% of that and then you learn well 85% of that is locked up in four apps and they are never touching their infrastructure ever again so like okay now my numbers changed a little bit maybe the benefit of naiv in those early days if you totally understood your challenges you might not ever start nobody ever got hurt from knowing more right yeah by going through the modeling

23:58exercise as we've discussed and I think you've had some really great thoughts that I hope our audience can take away from this to do their own modeling to just understand where their business is going and understand where to invest and how much to charge and taking those three variables you shared it's like if you understand that your service addressable Market is much smaller then like you said you do need to focus more on arpo and like build something that's super valuable to that smaller service addressable Market versus trying to to be the $20 a year everybody's going to subscribe Well everybody's not going to subscribe if even if it is $20 a year

24:35and if your Market small you don't want to be $20 a year you want to be $120 a year so I think this all super important for anybody in this industry to be thinking about and then that leads into the next topic I wanted to cover is premium strategy so you understand okay certain percentage aren't going to pay they're part of our service addressable Market they're going to get some value from our product even if they're not willing to pay so how do you approach that at Surfline of offering some amount of value for free to those users who don't want to pay or do have a level of

25:07price sensitivity that you're not delivering quite enough value to get them over that hump when you think about freemium really what the hypothesis is is that you can launch this fremium model that over time will reduce your CAC that's the goal is hey I'm building this model that will result in lower customer acquisition costs than if I don't have it and there's a lot of things to factor in when determining whether that's true or not right because both models a premium model or a completely paid model can be successful and there's thousands of examples for Surfline it's kind of funny again because we didn't originally get into

25:38the business and say hey we're going to have this premium model right we were free and then we transitioned to paid over a long period of time but because we started as a free product over the years we amassed a very large audience on the platform that was habituated to the products that we were offering and it was really important for an industry like surf because if you're a new Surfer getting into the sport you don't really know why surf forecasting matters right like you're going to go when you go you don't understand like why when I learned everything I know about predicting surf from the human written surf forecast for

26:08the Bay Area from surf line you talk about habitual first thing in the morning surfing or not pulled my phone before I look at Twitter i' open Surfline yeah yeah it was a great strategy because over time what we did was we habituated users and we educated them on the products that we offered and so we ended up creating this great funnel that allowed us to educate users on the free product and then over time as they found value in what we were offering they would want the full Suite of product features and then subscribe and so We've Ended a place today where we don't spend any money on paid

26:40acquisition and we have this great growth funnel that effectively we're organically getting people into the freezer experience we educate them habituate them and then there's some cohort of Surfers that get very committed and love the product and end up subscribing and so we built this great growth engine I will say a few things one is like this does not happen overnight so if you're contemplating starting a free or premium model business there's going to be pain in the beginning for sure for a few reasons the first one being that you're adding an extra step right if people just hit a pay wall there's some percentage that

27:10are just going to convert and move through but you're adding an extra step a free experience it's going to take time for people to understand what you're offering you're going to get it wrong a bunch of times in the beginning you have to draw a bunch of borders too I always found difficult like every part of your product has to have a line in it somewhere and it gets really complicated to it absolutely does and again you're going to have to test and iterate and test and iterate and there's a kind of like magic rule here with freemium models that I tell everyone that's try and follow you're really trying to

27:40balance increasing conversion versus increasing free user retention it's very important that you do that if you don't do that your premium model will most likely not be a success and here's why I say that right so you launch a premium model and over time you see that hey we've optimized our premium model and now conversions doubled fantastic but it's coming at the cost of free user retention and we're not retaining free users nearly as effectively as we were before and so what will happen is every month if the retention is poor enough the size of your free audience starts to decline and the pool of free users that

28:13you can convert to a paid product it's smaller so it doesn't matter if you double the conversion rate on half the audience you haven't gone anywhere exactly and that's the biggest issue that I see with premium models out in the industry is there hasn't been enough testing and they've weighted too high on one versus the other now if you have to wait more on one than the other it's probably better to wait on free user retention if you have the capital to kind of sustain less conversion for a period of time because as a product owner or whoever you have to believe that your product is going to improve

28:40over time and the great thing about a free experience is it buys you a bit of time to optimize your product and make it better because the ultimate rule here is like hey we're just trying to build great products that people want to pay for and you'd much rather have people on your product rather than off market right if they come in and they hit a pay W and they don't want to subscribe it's much harder to go out into the market and find them with social media and then convince them to come back versus on platform your messaging very clear your value propositions are easy to

29:08communicate and so there's a huge benefit in being able to communicate people as the product gets better I.E like dualingo has absolutely smashed in this category over years they've optimized and optimized optimized it still doesn't seem like a paid product even though it makes a ton of money right such a magical hack but they how long they were like six or seven years in Market before they started to monetize in way is crazy yeah and I can't tell you how much they've optimized that free experience they've made it so fun and they habituate their users right so like learning isn't intrinsically something that all consumers comeing in like this is fun

29:39right but dingo's found the way to optimize their experience in a way that you come in you use the free product over time you start having fun using the product and they've realized like that's the best way to convert somebody to paying subscription but it takes years and years in optimizations and there's so many different premium models by the way it's not not just one model out there dingo is a great example of that right they've had gems and a premium subscription and like lots of different things that they've tried I don't know I'm sure they've experimented with ads at some point too I don't know if it's

30:07in the full product but we had a guest from dingo on a few months ago and the experimentation there is crazy which is what you probably need right to like swim through that fremium universe and find an optimal the behavior you mentioned of trading off between free user retention and conversion and then focusing on the product makes me think of sort of submodel always I think about is like value creation right your app is going to create value conversion rates and pay walls and all this stuff is a motion of capturing value and if you capture all of the value users aren't going to hang around there needs to be a

30:40value Surplus that they're able to maintain and I think that's what you're kind of describing there is if you squeeze those free user so that there's no value there's not enough value there for them because you've shut it off or like close it you're actually going to end up in a worse position versus spending your time actually just increasing the big pie that you're trying to capture value from then your job gets a little bit easier right I'm a fan of monetizing early because I do think it gives real numbers and real measurements on things but that can go too far and not get enough people in

31:07also in the early early days when you have just like small numbers if your app is so paywalled that you can't get enough people in to really learn you're going to have a hard time going anywhere because like you can't improve a product without users like I think a lot of folks like to pretend that they're smart and like Steve Jobs or whatever and they can just tell you what's a great product but I don't think even Steve did that really right like everybody's doing it in conversation with users it's hard with premium because so many of the benefits of Premium are non pnl line items it's like growth Word of Mouth

31:38things like this you mentioned acquisition and that you you don't do paid acquisition or like it's all organic like what's your primary channel is it SEO like people searching surf spots you know for apps it's really tough but I imagine you guys have a big web presence too we do and remember we've been around for decades so the brand presence is kind of ubiquitous in the industry so there's a lot of word MTH but SEO is a pretty big one we're getting a lot of traffic through the App Store as well I would say SEO if people aren't finding out through their buddies that are going in surfing that I think

32:07that's how I came in was that way but you also do a lot of content too right you do some Sur vids and written content if I'm not mistaken we do right so everything on the platform is really content so when we write a surf report for a certain location if Surfers are going to a new area and trying to figure out where to surf they'll Google what are the surf conditions at elto or wherever and they'll land on surf line or a competitor's page so there's a lot of traffic coming into those spot pages and individual surf reports but we do a lot of content as well we have a big

32:34editorial alarm that writes not just about surf conditions and kind what's happening there but we write a lot about news and other topics as well yeah it's interesting what we tend to call free or organic when it's like we actually like Revenue cat doesn't do a lot of paid acquisition either but we do a lot of work to get acquisition right how does the conversion over time play out for surf line specifically cuz I've talked to a lot of of app businesses where oh yeah if somebody doesn't convert in that first session they just never convert but I've always kind of thought that that means premium

33:06probably is not working that's not a good fremium strategy if that is the case and it needs a rethink so I would imagine that you do see some positive year-over-year growth in being able to convert those free users into paid subscribers yeah so I think probably what that person's referring to and I see this with most products is when people download the app even if you have a fremium model typically the largest percentage of your conversion will happen pretty quickly like people will convert within the first seven days and then there's a trickle of conversion over time now again with freemium like the hypothesis here is that the value

33:41that you put behind the pay wall will continue to grow and the value of that product will continue to improve and so it's up to you to articulate that value and make sure there's balance between the value that's in front of the pay wall and behind the pay wall so a lot of companies that's where they fail is there's just a misbalance between the value in front and behind the pay wall and you need to do a lot of testing the last three years we've tested and tested and tested different options right not just messaging or what's payall and what's not but the different models as

34:09an example there's a pretty typical model where a consumer gets unlimited access to a limited amount of features right they come in and like these three features are free but you can use them as often as you want there's another model that's pretty typical the New York Times model where you come in and you get limited access to not an unlimited amount of features but to some features so you come in and after your third time of using these features you're no longer allowed to use them and you see this in gaming and all kinds of different Industries and there's pros and cons to both and we've tested both you know

34:36ultimately I'm a bigger fan of not limiting engagement because if you can create some kind of habituation with a free product is fantastic they'll come in on their own and if someone's coming in 10 15 times a month that gives you more opportunity to message them educate them about the product that you are offering so there's some imbalance likely for a lot of these other companies and you have to determine whether it's a value problem or if it's a model problem and there's no way to really figure it out until you test it you talked about it being that trickle over time I guess my question was over

35:07time for surf line as that value prop has increased as you figured things out as youve done testing does that trickle start to become a little bit of a stream and grow into a more meaningful thing like is that trickle growing like is the premium model actually working in that way over time where that trickle does become a meaningful part of the business of more and more people subscribing in year one after a habituation versus that like oh still 98% of our Revenue comes from people who signed up like day one I'll anecdotally add some here and I might not be technically a premium user but I've oscillate between a premium

35:42user and a paid user depending on the season of my life so if I'm spending a lot of time on the coast or whatever if I'm there for even a couple weeks like I will buy a subscription and then I will let it expire when I'm not at the coast anymore I become a free user I still can get cams I have to watch an ad for there's an ad for board shorts that used to play at the beginning of like every Surfline video from 5 years ago that I will never forget but you just watch it CU you're like well I got to see the cam

36:05and you do that until one day you're fed up and you transition over but I might be an interesting case because you talk about that propensity to pay like I can afford a Surline subscription right there's probably some users who never do or it's never going to be a thing they do and not to steal your answer Paul but like David I don't even know if that's necessary totally right like the value of a premium user base has value and ideally you want set up to have value in itself you convert them great but they also provide Word of Mouth they also provide feedback in surfline's case you

36:34guys also monetize with advertising so they provide a base you can monetize for them as well so yeah before on the spot like are you actually making money out these people I'm like yeah like in lots of ways we definitely are I'm hoping you bought that pair of board shorts on that ad still can see it he's like oh this perfect right-hander he's like in the barrel and then I do remember the brand it was probably vcom and you guys should keep advertising on fly so here I'm doing you a favor love it over the past five years we have seen a pretty big increase in conversion of that free

37:03audience typically the way it works is like if you launch a new product or we add new cams to a certain area you'll see an uplift pretty quickly and then it'll slow down over time but your Baseline conversion over time continues to improve I haven't seen too many instances not here or even in other products where you launch something and your conversion just kind of doubles overnight or anything like that but what you'll see is that you'll launch a new product you'll get a bunch of early adopters that come in subscribe but your Baseline conversion after those early adopters have been kind of normalized is a bit higher than what it was before so

37:35that's kind of the model is over time you're hoping that every year your premium conversion is a little bit better and a little bit better and a little bit better but the size of your free audience has not gone down and if you can do that then you kind of have a recipe for Success yeah how does AD sales and sponsorships work in that Jacob kind of mentioned that you are monetizing that free base and with unskippable video ads the cams are good you got to watch the ads it's the deal how does that side of the monetization play out we have an ad sales team and

38:04traditionally we went to Market and we would sell media packages and that was kind of our strategy and we'd monetize the free audience but over time we've slowly started to transition our focus a little bit so today while we still sell traditional media packages our Focus has shifted a little bit to finding ways to connect the consumer in The Advertiser for a premium audience in a native way and so the best way for us to do that is to find ways for Brands to give value directly to the consumer so imagine your consumer behind the pay wall Brand's trying to reach them it's not really easy to put ads behind a payall it's not

38:37a great user experience I don't recommend it so instead what we've been trying to do is find partnership deals with these Brands where the brand will give the consumer some kind of exclusive discount or Early Access or something that the consumer didn't have before doesn't have access to and then we'll Market that perk or promotion natively to our consumers behind the pay wall and so again we kind of are doing both we're doing a traditional media strategy but we're also pivoting in a big way to trying to get as much value to the subscribers as possible right that's our number one goal you're thinking about those as two separate strategies right

39:07so you're doing more traditional display ads or whatever you guys are using for the non-subscribed audience and then for the described audience also thinking about ways you can Tastefully I'm sure monetize behind the pay wall yeah it's the same strategy right we're going to Brands and trying to figure out if there is an offering that makes sense for them behind the pay wall versus in front of the pay wall but usually what we put behind the pay walls is very well received right a consumer will come in and they'll like as an example maybe they get a discount to a new surf Park that opens in their area and it's a

39:36Surfline only discount and so we're not going in there and like bombarding them with ads or anything like that we come in and say hey there's new perk you guys get early access to the surf park or you guys get a discount courtesy of whoever and the brand wins because we're monetizing in a native way which is traditionally it performs way better than if we just put a banner ad somewhere and the consumer wins because they're getting some kind of incremental value that they didn't have before imagine that's a really good audience to sell because you've kind of proven they have some sort of disposable income in

40:04terms of cpis I guess versus your free audience it's going to be pretty good right well one I haven't noticed I've been a premium subscriber on and off and I was like I never felt advertised too so Kudos but we don't talk about that all that much David on this podcast about ways of monetizing a premium audience you know you talk about that RPO strategy right increasing your RPO at some point your subscription probably reaches the value Peak and you're not going to be able to go much further you just can start to think creatively about what are other ways that we can engage with our audience bring them value again

40:32create value and capture it right which can be bringing them eating offers and things like this and it's probably a little bit of a narrow path to walk but I think it can be done I think the monetizing of the free users and understanding the value we've talked about that a bit on the past few episodes about understanding the value that those free users are bringing and like we were talking about here driving user acquisition without having to do a ton of paid user acquisition that kind of thing it's like when you understand that it helps inform the strategy for freemium but then the other layer that I

41:03think you all have figured out that a lot of others haven't is effectively monetizing those free users as well getting some value back out through these sponsorships through the unskippable video ads and things like that so I think du lingo is a great example they don't monetize that free base at all I will be curious like they just crossed a 10 billion doll valuation they hit a ceiling on their paid side and start to think about that I mean yeah we may see some brand Partnerships and ads and other things make their way into dualingo over time as they have to monetize that free user base more

41:36strongly to keep the growth going as they've saturated the kind of willingness to pay and whatnot but anyway so much more I'd love to talk to you about but we are needing to wrap up so anything else you wanted to share as we're wrapping up is surf line hiring anything exciting coming down the pipe that you wanted to share especially with our subscription app nerd folks who listen to this podcast C I don't know if there's anything too interesting we are going to be releasing a whole Suite of new product features this year so anyone who uses product Lookout we're going to have a bunch of cool new features some

42:05really cool stuff around camera intelligence that we haven't released before so I think that'll be Innovative and really improve the Surfers experience so that's what I'm most excited about otherwise really stoked I appreciate you guys having me on the podcast was a lot of fun hi thanks Paul 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

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