It's been 6 months since the last review of the state of subscription businesses and end of year earnings season is wrapping up, here's what's new in subscription businesses this cycle -
- The year of accelerated execution - With the rate of innovation and disruption taking place, the pressure is on. More companies than ever recognize they have to accelerate their velocity to win, and in consumer businesses that means embracing scaled a/b testing. In multiple earning reports, CEOs quote speed as an area of strength, or opportunity. Sundar from Google starts the call mentioning they're testing and launching faster than ever, and Duolingo CEO mentions "we experiment relentlessly to improve user experience and monetization […] we'll continue to drive subscription bookings […] by running hundreds of experiments each quarter, and I feel very good about how quickly we are moving […] In 2024, we ran more tests than we've ever done before. And I believe that, in 2025, we're going to run way more tests than in 2024. So, our velocity is looking really good". This follows Duolingo's last earnings report where it called out 11 times experimentation as a value at its core, for Duolingo, the culture surrounds and optimizes for speed over anything else, per Louis, their CEO's previous earnings call - "I cannot guarantee where we'll be three months from now because things change here fast" - they don't know if the strategy is right, but they're going to figure it out very fast through testing, speed is their competitive advantage. In contrast, other CEOs recognize this is an area where they need to improve in, calling out this year needs to be "The year of accelerated execution", as Spotify CEO mentions: "we need to move even faster to ship improvements. The landscape is shifting constantly and I want to set the pace, not play…we think we can pick up the pace dramatically when it comes to our product velocity", and he's right. Bottoms-up A/B testing is becoming the entry level requirement to play vs a competitive advantage.?
- New SKUs growth - Duolingo and Spotify are growing their newly launched high tier subscription, while Netflix and YouTube are launching lower tier subscriptions. On the higher SKUs - mix-shift to higher priced SKUs is a positive, while for the lower tier SKUs - players are banking on Ad monetization and greater penetration to compensate for cannibalization costs from the higher priced plans.
- Family/multi-user plans are a significant growth engine - Duolingo has been quoting for several reports now Family plans as a key growth lever, showing higher retention and LTV (from lower price and social effects), satisfying more price sensitive customers (family plans have a lower price per member, and show extra take rate strength when stacked with additional offers like 'new year promo' for Duolingo). Duolingo notes these account for a whopping 23% of their total subscribers. Duo plans and student plans were also touted as growth levers by Spotify, and in the past were mentioned in relation to YouTube and others' growth drivers.
- LTV growth, retention and pricing levers - Subscription players are growing LTV through 1) family plans, 2) mix-shift to higher priced SKU, 3) price increases for the more highly penetrated subscriptions like Netflix and Spotify, though magnitudes are still low (10.99->11.99 for Spotify for example), and 4) cross selling additional products or add-ons. Duolingo mentioned in it's previous earning report blended retention for paid subscribers isn't changing - we've seen this to be the case across the board in subscription reports over time - retention is hard to move, and LTV growth comes from the mentioned levers. Pricing increases are a double edge sword, growing revenue short term trading acquisition and retention longer term. These dynamics dictate modest price increases, mostly among heavily penetrated players that can monetize on large and sticky customer base. Duolingo which is earlier in its user growth and penetration mentions in the last report lower prices have enabled accelerated signups and retention - which makes sense for their stage in the journey.
- Int'l expansion - While most companies talk or are asked about their int'l strategy, most don't seem to have one. Duolingo is an outlier who seemed to have thought through this more,? building a local social marketing presence with viral videos of their owl Duo, combined with tailored pricing per country, with awareness to larger price sensitivity in emerging markets like India.
- Ads - the struggle is real - consumer subscription first companies seem to all have their ads revenue growing at a slow pace - Spotify, Duolingo, Netflix and Disney all mention they are making heavy tech investments in ad platforms to be able to compete in the space effectively and/or that they haven't been able to grow ads revenue yet, even YouTube who took a 2 pronged ads + subscription revenue approach from the start (vs seeing ads as a revenue diversification play) is seeing deceleration in its ads growth rates. It’s surprising to hear so many big tech savvy players saying it'll take years to stand up a working ad stack and business, feels like there's opportunity here for start-ups to provide better solutions to help companies stand up their relevance first ads businesses faster.
- Sticky Engagement - Duolingo proves that making experiences that were traditionally 'spinach like' (learning languages) to 'chocolate' works - gamifying the experience, leveraging streaks, and making it fun with Duo - the owl in the center of it. Now, in their new subscription tier Max that offers video learning with Lily - Duolingo describes in their earnings call their focus on 'how to make members want to come back and engage with Lily, and for her to have a personality that drives that' showcasing Duolingo's secret sauce is not only in it's speed/scaled a/b testing, but also in designing experiences that create emotional connection for members, and are fun.?
- Word of Mouth Growth - Duolingo's quirky culture that doesn't take themselves too seriously with their owl posing on it's shareholder letter and Lily the video AI character providing opening remarks in the last report is also how they do marketing. Duolingo's' main strategy relies on local per country influencers and viral videos published by country marketing managers on TikTok/Instagram/YouTube about Duo Owl's life and as an example it's recent faking of it's own death. It's rare for companies at this size to not rely on paid media / SEO / Network, but Duolingo nails it by leaning into that Word-Of-Mouth growth and the buzz and stickiness it's fun experiences create.
- Partnerships and bundles - the main 2 players leaning into this lever are Disney (through a robust strategy), mentioning in this last report the 'one merged app' across value props/offerings has been a key play, and Prime - leaning into partnership driven value with Prime members getting complementary access to Grubhub+ and providing discounts on gas. Prime recognizes it's all about continuing to add benefits and value which they didn't lose sight off and continue to invest in despite their already robust offerings, which contributes to its continued growth.
- Events - Many subscriptions mention annual events such as 'wrapped' by Spotify, Prime Days by Amazon, and live event as hooks? - come for the event, stay for the offerings + events serving as significant resurrection/re-engagement moment in the case of the likes of 'wrapped'. These one/few per year moments help create a step function in engagement/acquisition and provide great marketing moments to build buzz around.
- Sports is a key investment area for many players - Disney, Netflix, YouTube and Amazon are all buying rights to live sport events and investing in sports experiences, seeing these as weekly engagement moments and acquisition/retention hooks, allowing them to grow via highly engaging content that has a large and sticky fan base.
Detailed overview by company -
If you're working in subscriptions or consumer businesses, you should be reading Duolingo's earning transcripts quarterly. If you were to choose just one company's reports - this one is it.
The one sentence that summarizes Duo's secret sauce is: "We experiment relentlessly to improve user experience and monetization. Through gamification, social features, and our social-first marketing, we scaled our reach, converted more free users into subscribers, improved learning outcomes, and maintained strong profitability." with DAU at 51% y/y, Revenue at 41% y/y - it's working. Subscriptions bookings are growing at 50% y/y suggesting it's likely that a good amount (or most) of the subscriptions bookings growth is coming directly from DAU growth (more users -> more upsells impressions -> more sign ups).
- It's all about speed for Duolingo as described in the beginning of this article, they mention countless times relentless experimentations, hundreds of quarterly tests and the importance of speed. Some examples for experiments ran are covered in the following quote: "The types of tests that we run are things like - when do we advertise Max? Who do we advertise it to? Do we advertise to subscribers? How often do we advertise it to subscribers? What do we say when we advertise to them?"
- New high tier subscription (Max) is doing well in both acquiring customers and upgrading existing customers to it. Benefits of a higher priced SKU in the portfolio is the opportunity to achieve higher LTV without fear of cannibalization of existing customers to a lower priced plan.?What I liked about the SKU strategy was how Duolingo described it in the last earnings report - saying they saw an opportunity for a more expensive SKU in the line-up AND found value to go with it, a business + value combo is the best combo.
- Family plans continue to drive growth with continuous momentum mentioned, accounting for a whopping 23% of total subscribers, showing higher retention and LTV, in line with other competitors who shared similar views in the past like Spotify and YouTube. Interestingly it's mentioned that Family plans got a boost in the New Year's promo - sounds like price sensitive customers took advantage of discount stacking of the promo + discounted family plan pricing. Worth noting in the last report they mentioned promo performance being hard to predict.
- Int'l expansion w/localized marketing and tailored pricing - Duolingo is one of the companies that doesn't only mention they have an int'l strategy, but actually has one, which is primarily focused on pricing + growing local social marketing efforts in countries like Japan and Korea (known for their higher Willingness To Pay). Duo also mentions they know that Max's $70 annual price is too high for India, and they hope to bring it down. In their last report, their CFO quoted low prices overall as being helpful to growth (as they enabled accelerated signups and retention).
- Word-Of-Mouth/Social Marketing - Duolingo is quite unique in it's growth, it doesn't spend much in paid marketing, nor invests in SEO. What it does have is a quirky and fun experience, brand and culture. Learning softwares haven't been enjoyable before Duolingo, knowing this, Duolingo spent a lot of time in its early days making the spinach chocolate - the goal was to find a fun experience customers would enjoy and want to interact with. The experience is represented by it's green owl - Duo and the gamification/streaks strategy, and its marketing strategy leverages it with social marketing managers present in int'l countries creating Tik-Tok, YouTube and Instagram content around Duo the owl, with its latest prank - "our most effective marketing throughout the world is things like Duo deciding to fake his death". The social media buzz helps Duolingo continue growing at incredible speed. Here's how Duolingo says it measures this: "social media campaigns like what you've seen on TikTok or YouTube or Instagram, etc are actually really good at both bringing new users and resurrecting users, and we know that because whenever somebody resurrects or whenever a new user comes in, we ask them kind of where they came from." In Duo's last earning report, they also mention local influencers as a key growth driver, in addition to customer videos that go viral.
- Engagement - Duolingo's "lets make it fun/chocolate" approach combined with gamification/streaks hit gold, and they're trying to replicate some of that emotional connection and stickiness with Lily - the video conversations pal in their new "Max" subscription. They want to make sure Lily isn't 'utility service', but creates an emotional connection to the member, and something the member wants to come back to and engage with - "Lily is not necessarily your best friend yet. We want that to happen. We really want it to be the case that you want to talk to Lily…. And so, that just means every time you go there, she'll have something interesting to tell you… She'll remember what you told her last time. She'll ask you about your problems, etc. And we're working on that…We want [Lily] to be able to ask how their [customers] lives are and tell them something about Lily's life…by the end of the year, what's going to happen is there's just kind of -- we're just going to see much higher engagement numbers." While Duolingo is leading the charge in growth experimentation, it bets it's retention/engagement efforts on emotional connection.
- Events/"Duocon" consumer day is mentioned in the last reports as garnering 3x views vs last year, noted as an event that supports growth.
- Show better than tell - A good growth lesson for subscriptions out there is Duo's findings around the most effective converting promo for Max - showing how a video call looks like in the promo - 'show better than tell' worked well, without needing to give free value away.
- Growing LTV - Duolingo quotes the 2 main mechanism to grow it's LTV being 1) family plans, and 2) mix-shift to higher priced SKU (Max), which are expected to grow LTV from ARPU growth. In the last report, they mentioned blended retention for paid subs isn't changing/pretty stable - we've seen this to be the case across the board in subscription reports over time - retention is hard to move, and LTV growth comes from longer plans, higher tier SKUs, cross-selling of products and family plans more so than direct retention growth.
- Ads not doing great - The one thing Duolingo doesn’t do well in is ads. It's Ads booking growth rate is 5.7%, given ads is 13% of Duolingo's revenue while Subscriptions are 87% the best it can say about it is "We're a subscription business, and so, most of our energy is running experiments to optimize our subscriptions. Ads was lighter in Q4".
- Need for Speed - Spotify's CEO Daniel Ek says he's coining 2025 as "the year of accelerated execution…we need to move even faster to ship improvements. The landscape is shifting constantly and I want to set the pace, not play […] we think we can pick up the pace dramatically when it comes to our product velocity". The market is moving and for Spotify to compete in the Video and Ads domains they're looking to enter - they have to move faster and bolder than ever. While intentions are good, the earnings call didn't build confidence in a real change in speed yet - mentions of a locked 6 month extensive top-down planning cycle, long term tech investment in ads preventing from going to market, int'l expansion beyond US/EU being a far thought, and lukewarm responses on how AI is changing their business - created the impression of a company that wants to move fast, but doesn’t know how to get there quite yet, large boats take time to shift (and new tricks).
- Higher tier SKU - Spotify highlights the launch and monetization of Video podcasts, where their higher tier Premium subscription provides a non ad-interrupted experience. Stats indicate they are still early and are investing in basics incl. building a creator monetization platform.
- 'Wrapped' campaign summarizes for each member their personalized listening stats and top listened songs from the past year. Spotify mentions the campaign is a major driver of subscriber growth, with over 245M individuals free and paid engaging with it. That's a brilliant resurrection/engagement moment and they're leaning their marketing power heavily into it.
- Pricing and ARPU growth ?- Spotify mentions that in addition to subscriber growth they raised prices (from 10.99 to 11.99 in US last year followed by int'l price increases/adjustments in Q4), helping their ARPU. No brainer move given their low price point and large and sticky subscriber base and domination in market. A question from analysts arises on inflation and the still low price points compared to market, and Spotify responds they think about pricing in 3 ways: 1) price adjustments, 2) tiering of SKUs, 3) selling add-ons to subscribers. That's a smart move, since price increases alone compress signups and retention, and the blend of mix-shifting to higher SKUs and add-ons allows to increase ARPU in more sustainable ways.?
- Family, Duo and Student plans continue to drive growth ?- highlighted in this report as well, in line with past reports where they highlighted these discounted multi-user plans as a key growth engine.
- Leaning into global vs local strategy - With Spotify's dominance in US/EU, they're asked by analysts if they're thinking of adjusting marketing or pricing to drive growth from emerging markets. Their response sounds like they recognize the opportunity, but haven't prioritized it yet.
- No luck with Ads - Spotify's subscription business continue to drive growth with 19% y/y, while ad revenue stays behind at 6% y/y. Spotify mentions they needed to change their approach and heavily invest in tech to win - and they're ready, though by the sound of it - they may need a while longer and a lot more concentrated effort and know-how to crack this space.
- High profile events - Netflix's subscriber base is very large and it's growth trend at this stage is pretty stable and not dependent on local events as they emphasize. However, they have invested in quite a few high-profile events creating marketing moments and serving as 'hooks' - come for the event, stay for the wider portfolio.
- Lower Priced subscription - Netflix's lower priced new SKU is supported by Ads and is showing good take rates and significant growth in tested countries; no surprises here, main Q is - how's the cannibalization of higher tier plans going? that topic isn't covered in the call, and Netflix expresses it's buckling up for the ads growth journey which suggests that potentially they're incurring losses they may view as temporary while ads scale.
- Ads not working yet though - Netflix talks about standing up its ad stack and moving towards testing, while their details on approach and velocity inspire more confidence than others, they're in an early stage and indicate "several years" for their ads products journey to mature - I really wonder again here is there's no start-up out there that wants to make it easier for companies to stand up working high-relevance ads solutions.??
- Pricing comes up in Netflix's call with analysts pushing for price increases for the well penetrated player. Netflix answers the generic value/engagement to price answer, highlighting acquisition and retention dynamics that get impacted by pricing. They do show however appetite for price increases with combined focus on the new low-priced ad-supported plans (which price hikes would inevitably mix shift members towards, and then the Qs is - when will they be able to monetize those ads).
- Engagement diversification via games - A lengthy convo on games can be summarized in: it's early, but drives engagement, and is good for acquisition and retention.
- Sports - Both Netflix and Disney are caught in lengthy convos on sports as key for their future growth, I'll skip this part as it's less relevant for subscription dynamics - but it emphasizes their desire to grow through a highly engaging offering that has a large and sticky fan base.
- Growth levers - Password sharing, bundling of ESPN into the Disney+ subscription, improvements in personalization and relevance especially for the first time experiences/home screen are key areas for growth.
- Ads not scaling yet - Disney too mentions ad tech w/AI as an area they're investing in.
- 'One merged app' is highlighted as a sig. improvement + engagement play and I buy it, ease of use is key.
- Sports ?- One of the Qs from the analysts that caught my attention was: "can you discuss Disney's overall sports or broader streaming strategy with the potential for consumer confusion from all the different options, including the upcoming ESPN flagship launch?" <- good reminder that once you become too fancy on options, tiers, add ons and variety, customers don't know what to pick anymore, less options is more. Bob's answer to this sounds confused - they haven't made up their minds yet about the strategy in this regard.
Amazon has many business lines, I'll touch here on subscriptions specifically, where you have to give it to them - tying a huge company like Amazon and its many business units to be built on and contribute to a bedrock of one Prime subscription is impressive, not to mention the relentless innovation across a large amount of categories and customer obsession they exhibited in Prime throughout the year, a great playbook for subscriptions.
- Prime Day and Black Friday/Cyber Monday - Amazon quotes the Prime Oct Big Deal day as a key growth driver (if one Prime Day works so well, why not do two..) and BlackFriday/Cyber Monday as record setting events.
- Value driven growth - Prime highlights growth of locations with same day delivery as a highlight, with "price, selection and delivery speed" being the key value props. And, it recognizes, that it's all about continuing to add benefits and value, subscription revenue does not grow on it's own after all :) as they quote - "we have more coming for our Prime members in 2025."
- Live Sports are called out as a growth lever via Prime Video incl. Thursday Night Football.
- Partnerships/Perks - Prime is growing its value through other partner perks, offering Grubhub plus w/unlimited free delivery to its Prime subscribers (don't worry, Grubhub still makes money on the extra per meal fees), and - discount on gas at ampm and BP (not losing sight of staying competitive with Costco's gas offerings).
- Add-Ons - Prime generally prefers not to charge for add-ons and include everything possible in it's Prime subscription, but in some cases, costs end up too high, income "Prime Add-ons": paying Prime members can top their Prime subscriptions with: $5 subscription on for unlimited generic prescriptions delivery. $10 wholefoods and fresh deliveries.
Andy Jassy did a great job on the call, Amazon is big and he answered analyst Qs with depth on a variety of topics, better than many others, wort reading their earnings transcript to see their GAI applications and other details shared about other business lines and the 'how they do things' - many great practices to learn from.?
Google mentions AI so many times, it almost feels internal earnings writers made a bet on how many times they can fit AI into the transcript without leadership noticing anything suspicious. 56 is the answer.
- Speed? - I liked that Sundar started both the report and the earnings call with "We are building, testing, and launching products and models faster than ever", speed is king, and Google knows that in the current environment it does not have the luxury of time.
- Monetization through upsells - On the subscriptions front, Google mentions subscribers growth is powering YouTube subscriptions and Google One's strong revenue growth, creating the impression they're heavily leaning into discovery/upsells/subscriber acquisition efforts.
- Gemini - Google mentions they're going to focus on subscription monetization vs ads, in-line with the current market trends and what can be assumed is also driven by the costs associated with the service.
- Low tier SKU - Google didn't mention it on the call, but it announced later it'll be releasing a new lower tier YouTube SKU that won't have Music included and have some (limited amount) of Ads, mentioning they have been testing it in int'l markets. It'll be interesting to see If the plan would drop additional features and how the cannibalization of the higher tier SKU would play out if it doesn't.
- Sports - Google is also focused on sports with NFL Sunday ticket football subscriptions powering growth.
- On the topic of Ads - YouTube is the only one in this group that's nailing ads, but they're also slowing down significantly in growth. Google's business isn't subscription first, it's subscriptions + ads first, equal players, and the stance they've taken a few years ago is - they'll monetize the member in one way or the other - either via very heavy ads load (showing blocking ads before, in the middle and after videos play), or through subscriptions. Making that decision from the top has been key, as they would have incurred significant organizational churn around the heavy and increasing ad load otherwise. That Ads + Subscription strategy, reliant on it's content value strength has paid off in recent years, big time. Yet, macro, and likely high penetration and utilization are taking it's toll on YouTube's ad business too showing deceleration in growth.
All information in this report has been collected from public investor relations reports and earning transcripts. Opinions are my own only!
