BlueThrone - Product market fit, Subscription Model, and Other Key Secrets of Success by Idan Waller

[00:00:00.770] - Olivier Destrebecq
Welcome to the Subscription League, a podcast by Purchasely. Listen to what's working in subscription apps. In each episode, we invite leaders of the app industry who are mastering the subscription model for mobile apps. To learn more about subscriptions, head to subscriptionleague.com. Let's get started.

[00:00:22.330] - Olivier Destrebecq
Hi, welcome everyone to the show. Today I'm with Idan Waller, and I have Nicolas Tissier, my co-host today. How are you doing, Nicolas?

[00:00:29.560] - Nicolas Tissier
Yeah, I'm very fine. I'm very happy to be here with Idan.

[00:00:32.800] - Olivier Destrebecq
Yeah, I mean, we're really excited because Idan is working at BlueThrone, and they raised 6.5 million in seed from XT Hi-Tech and have an 85 million credit line. And with that, they bought our partner who has over 100 product market fit apps, and they get about ten... Well, not about. They get tens of millions of monthly downloads, and they look to buy or partner with app developer that passed the 5K rule minimum, that is either 5,000 monthly downloads or a 5,000 monthly revenue. So Idan, welcome to the show. How are you doing today?

[00:01:03.880] - Idan Waller
Excellent, guys. How are you?

[00:01:05.410] - Olivier Destrebecq
We're doing good. So I mentioned a little bit about BlueThrone business model, but can you tell us more about it and why it's so unique?

[00:01:12.490] - Idan Waller
Yeah, for sure. We're called the world's first app aggregator. It means that we buy apps, like you mentioned, product market fit apps, and then we grow them and then scale them in-house.

[00:01:23.530] - Idan Waller
Basically, we have two models. This is the direct exit model. This is the first one in which the developer just sell their app and move on to the next big project.

[00:01:31.870] - Idan Waller
The second one is for developers who would like to stay in the game, who reach the ceiling, that they cannot grow anymore because the app actually became a company and now they need a lot of resources, and they still believe in the app and its goal, so then we partner up. This is called the [inaudible 00:01:45] deal. And basically, when things are going well in this deal, the developer can aim up to 1.5 of the original exit amount.

[00:01:54.430] - Olivier Destrebecq
Mm-hmm. Cool. And can you give us some example of apps that you help grow after you bought them or partner with them? And what kind of resources did you bring to the table to help them?

[00:02:05.490] - Idan Waller
For sure. I'll give you an example of an app we bought about four months ago. It's a music app. Today it's one of the biggest music apps in the stores, in the App Store and Google Play. The developer is still actually a young kid from the Netherlands, 18-year-old, super talented developer, and we really like the super talented developers. And the app was making about 40, 50k a month in revenue. Today, it's making about 160 and we only began to play with it.

[00:02:37.720] - Idan Waller
We grow it in the [inaudible 00:02:39]. We grow it in every possible way, and we did it through our marketing expertise, through our resources. Suddenly, he doesn't have to do backend anymore, which release a lot of time to actually be creative and develop the product further.

[00:02:55.870] - Idan Waller
We like to give this talented developer the space and the time and the credit to go ahead and do what they do best, is to create new features to understand the market, because obviously, the app was successful even before we bought it.

[00:03:08.620] - Idan Waller
But in order for it to grow, we need to relieve the developer of all the stuff, the grey stuff, the boring stuff that he hates to do, and that's what we bring to the table, of course, with business experience and a lot of marketing abilities.

[00:03:22.480] - Olivier Destrebecq
Interesting. And so are those all like in-house resources that you guys have and bring to the table, or are you helping to hire? How's that work?

[00:03:30.220] - Idan Waller
No, no. We take the burden on our back. This is an in-house team. We have an expert team of marketers, advertisers, business goals experts, analysts—crazy team of analysts. Of course, the developers: backend developers, front-end developers, designer. Whatever the app needs, we bring.

[00:03:49.840] - Olivier Destrebecq
Awesome. And do you find that the developer tend to stay on board for a while, or do they tend to leave? It's always a change when you raise capital or when you partner with another company.

[00:04:01.810] - Idan Waller
Yes.

[00:04:02.290] - Olivier Destrebecq
How does that work for you guys?

[00:04:03.490] - Idan Waller
Actually, again, we... These are terms that are set right on the beginning, then we can feel the atmosphere. Some developers immediately understand they want to leave the app, they are sick and tired of it all. They really believe they have the next big thing in hand, but they need the cashflow and they need to build a small studio, maybe, with the cash exit, so this is situation one.

[00:04:24.490] - Idan Waller
And the second situation is simply a developer who is in love with their baby. Their baby grow. It's strong, it's a beautiful baby, but now the baby needs to become a man. In order to become a man, the baby needs much, many more resources, but also experience—business experience and marketing experience—so he will be able to grow the right way and prevent very costly mistakes that are easy to do when you grow fast.

[00:04:49.270] - Olivier Destrebecq
And so when you're looking for apps to buy/partner with, what is it that you're looking for? How do you find them, and what are the criteria that you apply?

[00:04:58.720] - Idan Waller
Okay, So we first started this business about two years ago. Even before we raised money, we did it totally bootstrap. We just used to buy whatever came our way, just minimum donors, minimum revenue, and we bought it.

[00:05:11.620] - Idan Waller
But since then, we figured out, at least for us, this is not the right business model, so we look for—like we mentioned a couple of time——product market fit apps.

[00:05:20.970] - Idan Waller
What are product market fits app. These are product that I see or we see some kind of proof that people really like this product.

[00:05:28.290] - Idan Waller
How do we see these proof? They are key metrics that we look at, and if one of them is extraordinary, then we know that we might have something here. Not for sure, but we might.

[00:05:38.100] - Idan Waller
An example for this key metrics, of course, is downloads, its revenue, its RPD, its ratings. Even when we open the app, how does it look like? How does it feel like? Does the app have a big fan community? Maybe it could be on Discord, on Instagram, or TikTok. LinkedIn, I don't know well, but we saw all these examples that I'm talking about. We need to find this first sign of gold. If it's valid, then we say, "Okay, let's see. Let's see what's missing here. Let's see why the app didn't explode. Let's see why you got stuck."

[00:06:10.230] - Nicolas Tissier
Great. You answered the question, and that's why I don't need to ask it anymore. No problem.

[00:06:17.910] - Olivier Destrebecq
So we mentioned earlier that you guys had a 5k rule, which was either a 5,000 monthly download, I believe, or a 5,000 MRR.

[00:06:26.640] - Idan Waller
Yes.

[00:06:27.270] - Olivier Destrebecq
How did you get to that rule, and why is that important?

[00:06:29.550] - Idan Waller
It just a minimum rule. It doesn't mean that we'll buy every app that has a minimum of $5,000, obviously. But we have to start somewhere. And actually, we discovered that we might run into apps that are not monetizing at all, but there's fair amount of downloads. And then we looked at it, we said, "Okay, the developer doesn't know nothing about marketing. He doesn't know nothing about promotion of the app. The [inaudible 00:06:53] page looks horrible and doesn't convert while the competitors are doing it just fine." So okay, this is like the minimum situation in which we can enter and bring tremendous value to the table and grow there, so we needed to set this minimum amount.

[00:07:08.460] - Olivier Destrebecq
And so if we... If in our listeners, we have developers that have an app and they're like, "Oh, it would be awesome if I could get in touch with BlueThrone." How do they get on your radar?

[00:07:17.160] - Idan Waller
Basically, like any VC will do, venture capital will do. We need to create our own deal flow. The better our deal flow, the better apps we see, the better investments, so apps we can acquire or grow together with the developer.

[00:07:30.930] - Idan Waller
We have a sourcing department, and the job of the sourcing department is to find the apps that have the attributes that we love. We characterize a few raw diamonds with blue diamond, we have yellow diamond, we have green diamond. These represent different kind of apps with different criteria that we—from experience—know that we can grow, that we know that we can bring value to the table, and that we know that it will be a win-win deal between us and the developer either through a direct exit model or a partnership model.

[00:08:02.820] - Nicolas Tissier
It looks a lot like a VC process actually, and you're working exactly the same. You have some analysts that get in touch with the developers, and then you have a due diligence process.

[00:08:14.940] - Nicolas Tissier
Definitely. But unlike classic VCs, we are in the... In the finance world, it's called an active VC. It's not just that you invest and then you hope for the best, that the team will grow the company, it's that you dirty your hands to grow the company.

[00:08:33.600] - Nicolas Tissier
Operational VC. Yeah. Okay, I see.

[00:08:36.090] - Idan Waller
Yes, exactly.

[00:08:37.680] - Olivier Destrebecq
And is there a direct email to the deal flow team that we can give? Dealflow@bluethrone.io or-

[00:08:43.500] - Idan Waller
Just the website. Of course, we have the app appreciation tool in which you can get the valuation of your app. Just enter your... Put the numbers in. And of course, if it's interesting for us, it jumps on our system. If it's not interesting for us at the moment, you just going to enjoy our weekly emails, that [inaudible 00:09:02]. And we just write what we do to grow the apps, then the developers can also learn.

[00:09:07.710] - Idan Waller
It happened to us a couple of time that we had to do, like not the best deal that we can make because the developers read what we write in the email is, they just performance a few actions. They raise the revenue of the app. So we had to play a bigger multiplier, but this is beautiful and this is why we do it, actually.

[00:09:25.830] - Olivier Destrebecq
It's a good problem to have. And so you mentioned that you guys have a tool that developers can go and submit their app, and I'm sure the evaluation process on your own is probably more complex than what is happening on the web page. But can you give us examples of things that makes a big difference in the evaluation of an app?

[00:09:42.990] - Idan Waller
Of course. First of all, is your graphical [inaudible 00:09:47]. Basically, we all know if you have a bit of experience listening or so, you guys do. We all know the tendency or the trend of advertising prices in the digital space. Besides a small dip in the corona, it's always on the rise. So just buying a pure UA app is not something we like to do at all, especially since.

[00:10:09.540] - Olivier Destrebecq
What's a UA app?

[00:10:11.100] - Idan Waller
User acquisition. User acquisition-based. All traffic is bought users, in no way organic tracking at all. If it's half-half, half paid, half organic, then I know we've got some rankings, then this is also a sign of product market fit, because if I look only at an UA app, I don't see a product market fit. I see advertising market fit. The advertiser are working well. But then, the developers comes to us and wants to sell the app, and they don't want to sell the app because they advertisement working well, but they want to sell it because it stopped working. It cost too much, their accounts are blocked or whatever, so this is something that we don't like. We like to see some kind of sign of organic traffic, which is super important for us.

[00:10:51.900] - Idan Waller
What else? Of course, revenue. Of course, downloads. Of course, conversion. Of course, retention. We also look at the rating and reviews. We don't want to buy all these apps that got a 2.1 rating. This is terrible because it's just a matter of time until somebody at Apple or Google headquarters will say, "Okay, enough. This is not good. We're going to shut down the app." And we know how these big platforms work and think. It's okay. We have the experience.

[00:11:18.060] - Idan Waller
And the last thing I think is the X factor actually, is an extraordinary developer. The person behind the apps. Who are you? How much do you know your market? Is the app just a business opportunity, or you actually have passion for this market? You came, maybe form this market, and you develop this app, and you know the user like I know the back of my hand. This is super important for us, and we discover when we hit well in this X Factor, where we really find excellent developers that know their stuff, then we can grow even faster together than their usual growth rate.

[00:11:51.420] - Olivier Destrebecq
Interesting. And you know, this podcast being sponsored or made by Purchasely-

[00:11:55.920] - Idan Waller
I love Purchasely.

[00:11:57.750] - Olivier Destrebecq
Awesome.

[00:11:58.710] - Nicolas Tissier
Thank you very much, Idan.

[00:12:00.090] - Olivier Destrebecq
Is your valuation process takes into account like subscriptions versus ad revenue versus in-apps purchase? How does that factor in?

[00:12:08.370] - Idan Waller
Yes, of course. Of course. We all know that subscription-based businesses get a higher valuation, and that's because we have repeat business in this businesses. I think a very good advice for developer who hear us and they have only one-time purchase, just one, come on, find a way to bring more value to the table and make the app a subscription app, then your own valuation will explode. And you know, as a side effect, you'll make much more money in the process until you sell your app, if you sell your app.

[00:12:38.580] - Idan Waller
It's generally a good advice to think how you can turn a one-time purchase or one-time product into a subscription product, not only from the financial side, but also from the development of the product itself and the value you are able to bring to users. All right. So obviously, subscription gets a much higher actually valuation than just an in-app purchase app, one-time app.

[00:13:02.310] - Nicolas Tissier
Couldn't agree more. Sticky subscribers are a very good sign of a strong product market fit and the strong value delivered by the product, which is exactly what you seek for. But once you've bought-

[00:13:14.240] - Idan Waller
Nicolas, can I expand a bit of it on the subject of it?

[00:13:18.070] - Olivier Destrebecq
Yeah, tell it.

[00:13:18.600] - Idan Waller
Because we all know that, you know, when we started BlueThrone two years ago, we looked at the apps as digital assets, which is completely stupid. It's not a digital assets, because the assets convey the feeling or the meaning of the mindset. It's like real estate. I bought this building and it will give me a decent up the value. And I have a management company who will take care of all the troubles and that's it. I'm making money. No, an app is a living product. You have to know it.

[00:13:49.530] - Idan Waller
And now there are two ways to nurture an app or any product or company. You've got external pressure, what my competitors are doing. They're getting better, they added more features, they steal my downloads. This is a bad place to be, that you have to respond to the market. You all will be stressed.

[00:14:07.350] - Idan Waller
You're not in the best financial position, if you already got to this position, so this is not where we want to be. What we like to do as business people also for a app and also for every company that we always owned is to create internal pressure to improve, and the best way to do it in the app space is to turn your app into a subscription app. And if you already have a subscription app, to make it one hell of a subscription app, all right?

[00:14:34.530] - Idan Waller
Then you say you've got the data in-house, you see the retention goes up, you see the initial purchases goes up, you see the free trials converts better, and you know you're on the right path. You don't have to wait so some kind of disaster from the outside to impose and put you in a bad spot already. You want to be in a good spot and keep improving. So this is like internal motivation, internal pressure, doing all from user. You hear them. Okay, let's develop this and that feature. We know they're going to like it. It's going to make them stick. So that's why I was in love with subscription apps.

[00:15:07.140] - Nicolas Tissier
Great. And so let's say you've bought an app. Could you tell us more about the unique savoir-faire or structure that you developed over time to scale an app?

[00:15:19.380] - Idan Waller
I already told you in our interview, I love your French. This is amazing. I wish I could speak French. This is so beautiful. So what do we do? Okay, what we do is that we don't have to do... We don't have guess work after we're bought an app. Why? Because in the due diligence process, we already recognized what can be improved, where the app is lacking, what's need to happen. So the DD process—again, the due diligence process—already gives us a clear roadmap on how to improve that.

[00:15:50.570] - Idan Waller
Of course, each app has their own story. Some of them have terrible products pages, shitty onboarding, no onboarding, the offer page is not seen, problems with the different versions, pricing problems, feature problems, what's to put behind the pay wall, what's to give for free. These are all things that we're expert on, and that we recognize as opportunities in the due diligence stage.

[00:16:13.520] - Idan Waller
Again, after we board the app, the plan is already done. We just have to press play and let our team start attacking the plan to improve.Of course, we start from the low-hanging fruits and then go on to the more heavy stuff.

[00:16:27.380] - Nicolas Tissier
And do you have any secret sauce ingredient to share with our listeners?

[00:16:32.810] - Idan Waller
I think the easiest thing is. In BlueThrone, we use some algorithms and we use dynamic pricing. But I guess for the average developer, it will be very hard to develop such thing for the one. Just play with the price. Play the [inaudible 00:16:46], give it two weeks. See if the total revenue went up and down, and then you'll see if the users gives your app a much higher valuation or value than you do, because I just saw a statistics two days ago, I think, that the average prices in the App Store of subscription apps went up by 40% in the last year.

[00:17:06.740] - Nicolas Tissier
Yeah, I wrote the same article.

[00:17:08.990] - Idan Waller
So it means that we all see the complaints in the reviews on every app, the choice of scription, why it should be paid for. Okay, whatever. But obviously, if there are people who are willing to pay the amount that you're asking for and your total revenue is not screwed by that, then okay, then it means that the market value your app at a much higher price. This is a really easy low hanging that regardless of your paywalls, for example, where you use your paywalls.

[00:17:40.520] - Idan Waller
I told you I love Purchasely. It's odd because you're giving me money or something. Really not. It just is the way forward, and I think that a good paywall, it's like we came from this world, myself and my brother. We're both co-founders of the team, of the direct response marketing, it's called, in the Wild West of digital space, and I know by my DNA that what a good offer page or sales page or whatever can do. I know, I saw in my own eyes how we can increase revenue by 300%, 3,000%, not 3%. So I think it's also crucial to play with this. And this is something you guys do great and I recommend with all my heart.

[00:18:19.940] - Idan Waller
And there are these other easy, easy steps to monetize the app better. I'm sure many developers don't monetize user who don't pay with ads I'm sure. Or not monetize them enough. And basically, somebody has to pay for the servers. Somebody has to pay for the lights in your office, for the coffee you drink. So if you have many, many, many users in your app that use your app without paying, that's okay. We can't force them to do nothing.

[00:18:47.660] - Idan Waller
But you know how they say. If you don't pay, you are the products. This is what Facebook does. This is what Instagram does. This is what TikTok does. You are the product. When you using Instagram, you are the product. When you using LinkedIn, you are the product. Why not use the same mindset? So also getting inside this world of ads and understanding how you can optimize ads is a whole new world, I understand. It's not easy. It's rather complicated, I admit, but it has huge potential as well.

[00:19:20.240] - Olivier Destrebecq
Those are all great advice on pricing. I'm sure with all the deals that you've made, you've learned a few things. And so are there things that you did not used to look for when you buy an app that now are must-haves in your process from everything that you've learned?

[00:19:35.300] - Idan Waller
Again, we started as business from the mindset of marketing and the digital businesses. We both are experienced with Apple. What we didn't see again is the opportunities you don't know about that you cannot recognize once you buy the app if the app is a great product market fit. If the app is great and is loved by many people, then there are opportunities there that you cannot even foresee. I just give you an example on this music app. Two examples actually.

[00:20:03.140] - Idan Waller
First example, and we got the friend from Brazil. He has a startup to go to 120 people. One of the biggest music companies in Brazil. I've talked to him about the app, so let's see what kind of opportunities he can see that I can see. And they said, "Hey, guys. You know that you can turn it into a whole music company. That's basically what I've done, and I've got the exact formula of how we can collaborate and make this thing happen." Basically, it means recognising new artists because you can see the trends, sign them on a contract, and then afterwards make an exit on the contract to big music companies like Sony Music or Universal or whatever.

[00:20:41.180] - Idan Waller
Second thing, when we bought the app, it had a web version with 100k monthly active users, which is sound nice. Nobody did anything about it. We completely forgot about it. We forgot about it. The developer forgot about it because there was so much work to do on the app itself.

[00:20:57.350] - Idan Waller
Two weeks ago. I see a new message on Slack on the channel of the app. "Hey guys, I just discovered..." With a screenshot, of course, because it's never completed without a screenshot. "I've just discovered we've got half a million of monthly active users on our web version. There's no paywall there. There's not one [inaudible 00:21:17] there. Nobody even saw it coming. Nice surprise. In business, if you're completely honest, you got many, many nasty surprises, right? Notifications from the App Store that you don't want to see. You've got... I don't need to expand. Everybody know what I'm talking about.

[00:21:34.760] - Olivier Destrebecq
The server bill is higher than you anticipated.

[00:21:37.220] - Idan Waller
Exactly, beautiful things like that. So it's nice once in a month to get enough surprise. Like, okay, you got half a million active user you don't monetize that you didn't even know about. And now let's go from there. And again, this is just an example, but when we buy these apps—the product market fit apps—we discover these opportunities either by being active, like I talked to my friend, "Let's take a look at what we have here," or just by pure dumb luck.

[00:22:08.780] - Idan Waller
But actually it's not pure dumb luck because people like the product. If people like the app, why won't they like the web version? If the app go well, why won't the web version be like to even go 10X? Well, I don't know. So basically, I think growing together with the product market fit app improves your chances of having really, really good luck.

[00:22:30.500] - Olivier Destrebecq
That's a good way to put it. The one thing you mentioned when we did the pre-interview is how you guys have great digital researchers in-house. Can you tell us more about what they're doing and why they're so important to your business, and important to the apps that you partner with?

[00:22:45.020] - Idan Waller
Of course. They're important in two ways. The first way is technology way. We all know the cost of once you grow, you have to have some tech team. Tech team cost a lot. Can tell you from our experience that we just wasted around $400,000 on some journeys that never came to their end, some tech... It was just stupid.

[00:23:06.860] - Olivier Destrebecq
It happens.

[00:23:07.460] - Idan Waller
It happens, but we learn from our mistake. And now we have a full-time digital and tech researcher that what he does is just to see what the available solution is in the market, to really map them well. Of course, they arrive with the cons and pros. Everything has an advantage and disadvantage. This one doesn't talk to this one and can connect to a system and whatever. So this guy know how to find a way to make everything speak together and to really instruct our tech team what's the minimum thing which we'll develop ourselves to make everything well. So this is the first one. This is the best ally on any team member that we might have.

[00:23:49.520] - Idan Waller
The second one is a marketing researcher. And now I'm coming from the copy world. Again, I have a big coaching company in Israel for small, medium digital businesses. I know what it's like to get into the customer mind. I know what's the user journey. I've been living this reality for the last 10 years on fifth gear, but only this guy can bring you knowledge and insights from the users that I never thought available, and then through him, I learned there are levels to this game.

[00:24:19.070] - Idan Waller
There are black belts to this marketing research game, and a black belt will bring you an information that you can then include in your paywalls, in your offers, in your product page that will give you 100X the value a regular just somebody who thinks he knows marketing-

[00:24:36.950] - Olivier Destrebecq
The yellow belt.

[00:24:37.250] - Idan Waller
Yellow belt or white belt. Yes, exactly.

[00:24:40.460] - Olivier Destrebecq
So is he getting a raise after this interview or-

[00:24:42.770] - Idan Waller
He already got a raise. He already got it, one month ago.

[00:24:48.530] - Olivier Destrebecq
One month ago. Awesome. Well, we'll actually end the interview on this happy note that he got a raise. Thank you so much for joining us today and giving all those answers and telling us more about your business. It was really awesome to have you on, Idan.

[00:25:00.440] - Nicolas Tissier
Yeah, thank you very much, Idan.

[00:25:01.880] - Idan Waller
First of all, thank you, Olivier and Nicolas. We've got to see you in San Francisco next week. So

[00:25:06.950] - Olivier Destrebecq
Yeah.

[00:25:06.950] - Idan Waller
Thank you a lot, guys.

[00:25:07.850] - Nicolas Tissier
Thank you very much, Idan.

[00:25:08.900] - Olivier Destrebecq
Enjoy the party over there.

[00:25:10.010] - Nicolas Tissier
Bye-bye.

[00:25:11.050] - Idan Waller
Bye-bye.

[00:25:13.340] - Olivier Destrebecq
On behalf of the Purchasely team, thank you for listening to the Subscription League podcast. If you've enjoyed what you heard, leave us a five star review on iTunes or other audio platforms. To find out more about Purchasely and how we can improve your subscription business, visit purchasely.com. Please hit subscribe in your podcast player and don't miss any future episodes. You can also listen to previous episodes at subscriptionleague.com. See you soon.