On Overcast’s new business model

Marco Arment’s Overcast 2 employs a “crazy new business model” - basically a pay-if-you-can subscription.

Some folks feel that this move makes it unviable for other indie developers to make podcast apps, and that Marco is uniquely positioned to benefit from a patronage-based business model that can’t be practically emulated by other indies.

Let’s first take a look at Overcast’s new business model in context of the alternative revenue models available to us.

What’s behind the business model?

It’s well known that targeting existing satisfied customers is a good way to increase sales. But in the App Store, there is no straightforward way to do that.

A commonly seen pattern is to release a major update of an app as a separate paid app. Almost every time that happens, we see some customers happily buying that update as a new app, but we alse see others who are dissatisfied in having to pay again.

Wouldn’t it be great if you could find a way to get the enthusiastic customers, who don’t mind paying, to pay more than the usual price, and to make it a free upgrade to the those who don’t want to pay more? What if you could make up the drop in revenue (from those unhappy about paying again) with the additional revenue from the enthusiastic satisfied customers?

To me, it looks like Marco is trying effectively this: To get more revenue from those who get a good amount value out of the app and who’d be happy to pay more, while avoiding dissatisfaction in the rest of the customers. He had tried something similar with Instapaper earlier, though those donations were on top of the paid-upfront price. The core idea is a time-bound patronage with a pleasant user experience: make it easy to pay, make it easy to see till when a user’s patronage will stay in effect and make it easy to renew the patronage.

Whether this would actually work in practice remains to be seen, but I love the idea.

Where can it be applied?

This can be useful only if applied for apps that have an established customer base consisting of many satisfied customers, who regularly use it and get good value out of the app. I can think of many such indie iOS apps, but they would constitute only a small fraction of all indie iOS apps.

Overcast’s business model might seem crazy at present even for makers of apps that fit the above criteria, but in case it works out well for Overcast, they might consider it more seriously later on.

I think we haven’t really figured out a good way for productivity apps to make a sustainable recurring revenue off the App Store. So I welcome Overcast trying out a novel and risky business model. This model could work well for Overcast, or it might not, but either way, we’ll all learn something from how it does after adopting this model. And I’m happy that someone who can afford to take the risk to experiment on this, is doing so.

Photoshop CC and Office 365 have been using subscription-based pricing successfully, but the current perception is that indie apps are not complex enough or useful enough to charge every month. If it works out, maybe Overcast’s patronage-based subscription model can pave the way for compelling indie apps to switch to subscription-based pricing.

Does it make other podcast apps unviable?

For podcast apps, possibly the biggest competitor is Apple’s Podcasts app. It gets prominent placement in the App Store, and the vast majority of iPhone-using podcast-listeners probably use that. For indie apps to survive sustainably in such a category, they essentially have to be opinionated (and the popular ones are). If a podcast-listener is in the market for a third-party app, there’s a good chance that she has developed a particular pattern of listening that is not necessarily served well by every app in the market. Overcast works for some, and doesn’t for some others.

When Overcast launched last year, Oisín Prendiville (who works on Castro) said:

By making Overcast free with in app purchase, Marco has lowered the barrier to trying a third party app. From our perspective, a user trying any third party app is good for all third party apps. If a user is persuaded to download one alternative they should be more likely to consider others in the future, especially given the variety of apps that are available.

His point is that a free third-party podcast app expands the market for third-party podcast apps in general, and that remains true with Overcast going patronage-based as well.

A few days back, Pádraig Kennedy (who works on Castro as well) said:

Castro 2 is coming along wonderfully and we’re not worried about Overcast going free.

Overcast’s business model can’t just make the other paid indie podcast apps go bust or become irrelevant. While I can’t state a prediction as fact, I believe it’s highly unlikely that other podcast apps wind down because of this one move.

To conclude

I don’t know if Marco’s stated motivation for this business model – that VC money is poised to enter the podcasting industry – is plausible or valid. But I welcome experiments in figuring out alternative business models for indie iOS apps, and I’d be very interested to see how this works out for Overcast.

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