Kill Your Business Model

Last year we funded one of the top 10 grossing Health and Fitness applications on the iPhone, Runkeeper. The company was performing very well, the app had been downloaded by millions of people, they were profitable and had plenty of their own cash in the bank.

But they weren’t interested in just being an iPhone app and we weren’t interested in funding one. What we wanted to fund, and what they were actually building, was something much more powerful. Something that harnessed the collective actions and related data of millions of users to improve their health, inform their decisions and inspire change. The team realized that the power of this platform wouldn’t be realized through any single app, but through a series of apps, sensors and algorithms that could be broadly used by consumers and developers. 

There was just one thing standing in the way of the company and this vision. Their business model.

A meaningful portion of their revenue was tied to the Pro version of their app which was unlocked through a one time fee of $9.99. The high ticket price meant a large number of potential users weren’t getting the full value out of the product. The entry price was not only creating a divide between user experiences, it was creating friction and confusion for potential adopters of the product.

So just before the holidays Jason and Mike approached us with a crazy idea. Make the paid version of the app free. We agreed to a trial period to see the response. During that 4 week trial, the Runkeeper Pro app saw over 1 million downloads and climbed to the #5 spot in the iTunes store. The app reached more users and was seeing more activities logged than we had imagined.

Yesterday, the company announced that the Pro version of the app will be free from here on out. Effectively killing their old business model of one time download revenue. By doing so, the company will be able to focus on a unified consumer experience, rapidly increasing their user base, delivering higher value subscription services (like their Elite Memberships and FitnessClasses) and working with 3rd party developers to increase the functionality and reach of the underlying platform. 

Jason, Mike, Joe and the entire Runkeeper team have a compelling vision for the possibilites of this market. We’re thrilled to be backing founders willing to make such bold moves to turn their vision into a reality.

PS- ReadWriteWeb has a great piece on on this move and what it means. If you’re into this stuff, I highly recommend giving it a read.