According to subscription company RevenueCat, AI-powered subscription apps make 41% more money per user than non-AI apps, although they are less “sticky.”
Based on performance data from applications that use its platform, its State of Subscription applications report indicated that AI apps turn 8.5% of free-trial users into paying subscribers, while non-AI apps only do so 5.6% of the time.
The 339-page analysis did say, nevertheless, that AI apps had much higher churn rates than non-AI apps. For example, only 21.1% of subscribers stayed with AI apps for a year, whereas 30.7% of subscribers stayed with non-AI apps. AI apps also have low monthly retention rates, keeping only roughly 6.1% of users compared to 9.5% for apps that don’t employ AI.
RevenueCat said, “The data shows that AI hype can boost initial sales, but it isn’t yet creating the lasting value needed for long-term retention.”
It further said, “Apps that fix that retention problem early will own their category.” “Those that don’t are just riding a wave of consumer interest.”
Apps with a lot of new features but not many habits
Mark N. Vena, president and principal analyst at SmartTech Research, a technology advisory firm in Las Vegas, said, “At a high level, AI apps can charge more because users walk in expecting magic speed and a shortcut to doing hard things faster, so willingness to pay starts high.”
“But a lot of those apps are still novelty-rich and habit-poor, which means people subscribe fast, test the promise and bail just as fast when the value feels repetitive, inconsistent or easy to replace,” he told TechNewsWorld.
Adam Landis, head of growth at Branch, a mobile analytics software company in Mountain View, California, said that most AI apps are for productivity and photos. This is a category where the lifetime value (LTV) of a user is higher than average, so it’s not surprising to see a higher LTV for AI apps compared to all categories.
He told TechNewsWorld, “AI is so new that most people are just trying it out.” “Like chatbots, most people are still figuring out how to best use the technology in their lives.”
He remarked, “It’s not surprising to see high churn rates with any new technology.” “These will settle down once the technology has well-known uses.”
Disappointment with Upselling
Ross Rubin, the main analyst at Reticle Research, a consumer technology advisory firm in New York City, said that people who subscribe to these AI apps think they will be able to make money off of them, which isn’t as clear with other subscription apps.
But there can be some disappointment, which would cause some to leave, he said. He told TechNewsWorld, “It may turn out that once a user really tries pushing the app’s capabilities, they find it’s not producing the results they want, or there are extra charges incurred.”
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“Some apps, for instance, have a $20 a month level,” he went on. “But if you ask the app to do something complicated or that needs a lot of graphics power, it tells you to upgrade to the ultimate tier.” That might be a hefty boost to $200 a month.
He replied, “Clearly, you can only justify something like that if you can make money off of it, plan to make money off of it, or it has to do with your job.” “I think that’s part of what’s going on here.”
The paper said that it used to cost almost nothing to service a marginal subscriber, but that’s not true for apps that use large language models (LLMs) to provide AI-powered features.
It went on to say, “As a result, many AI apps are offering less generous freemium products, shortening free trial lengths, pushing new users towards annual plans, and/or introducing higher-priced subscription tiers for AI features to cover their costs.”
“It helps them keep their unit economics healthy as they grow,” it said.
Shorter Trial Periods
The survey says that the market is quite open to shorter trial durations. It said that almost half of all apps employ trials that last four days or less, even though evidence shows that trials that last 17 days or more convert better than short trials by a margin of 42.5% to 25.5%.
Vena said, “That makes it look like a lot of teams are optimizing for control instead of confidence.”
He went on to say, “There’s no doubt that short trials feel safer because developers want faster feedback, fewer free riders, and faster cash conversion.” “The problem is that a lot of products, especially those that are useful over time or help people form habits, need more than three or four days to show they deserve a recurring charge.”
Landis did say, though, that it’s very hard to optimize payments that are due in 30 days. He said, “You can only test once a month.”
He also said, “The trials that last 17 days or more are probably successful because the user just forgot to cancel.” “If they cancel on day 31 after getting a payment reminder, that doesn’t help the app developer make a better product.”
The First Session Becomes Important
At the same time, the time frame for getting new customers is getting shorter. According to the data, 55% of all three-day trial cancellations happen on day zero. It said, “The battle for the subscriber is won or lost in the first session, so developers have to give them a ‘aha! moment’ right away.”
Vena said, “That is a huge warning flare that first session experience is everything.” “If users don’t see the value, hit a setup wall, or feel buyer’s remorse within minutes, the trial is basically dead on arrival, and the rest of the funnel doesn’t matter much.”
He remarked, “For developers, this means that onboarding, paywall timing, messaging, and immediate proof of value are no longer optimization details.”
Even so, developers can benefit from timely cancellations. Landis said, “The sooner you can get data, the sooner you can optimize.” “An app that gets cancellations on day zero can do seven times as much testing as an app that gets cancellations after a week.”
He said, “More testing means you can find out what works faster.”
The Big Divide
The survey also found a gap between the top and bottom of the market. It said that the top 25% of apps expanded by 80% from year to year, while the bottom 25% shrank by 33%.
“Subscription app revenue is a winner-take-more market,” it said. “A small number of apps are growing much faster than others, while most apps are either growing slowly or even losing ground.”
Landis said, “The arc of technology adoption tends to give the winners of a mature market an outsized share of the pie.”
He went on to say, “Look at Google, Meta, and Amazon: together, they own 75% of the advertising market.” “Big companies have lower costs, better technology, and more users because of economies of scale, big investments in technology, and a lot of users.”
He remarked, “This gap will get bigger as the winners realize what makes them better than the rest.”
Vena said that the market is becoming quite concentrated. He said, “The best apps are building on their strengths in brand, product quality, onboarding, pricing science, and paid acquisition, while weaker apps are getting lost in a sea of lookalikes.”
He stated, “RevenueCat says the top 10% of apps grew 306% year over year, while the median app grew only 5.3% and the bottom quartile shrank by 33%. This is no longer a rising tide story.” “AI is also raising the ceiling for the strongest players, but it’s not saving the long tail.”
Vena also said, “The bottom line is that the subscription app market is still growing, but it is turning into a winner-take-more business, where execution matters more than ever.”
“New apps are coming out in droves, but older apps still make most of the money from subscriptions. So just showing up with another me-too app and a paywall isn’t a strategy,” he said. “The next stage belongs to apps that can quickly show their worth, keep users’ trust for a long time, and become a part of their daily lives instead of just their curiosity.”
