In this issue
A friend asked us how we were thinking about product-market-fit, potential revenue, and entering a market that already has strong players. In this issue of the behind the scenes newsletter, we’re giving a full breakdown of our thought process.
🎙️ You can also listen to the expanded discussion of these topics on our podcast on Metacast, Apple Podcasts, Spotify or watch us on YouTube.
Why did we choose to build a podcast app?
The story goes back to early 2022. Arnab and I met for a long walk alongside Lake Washington in Kirkland, WA and discussed how dissatisfied we are with the existing podcast apps. In the coming months, we came up with a concept that addresses our key pain point — retaining knowledge from podcasts.
That’s how the idea for Metacast was born — a podcast player that brings the functionality of books into podcasting. In addition to listening, you can read, skim, bookmark, take screenshots, share deep links, etc. Our vision is to unlock the knowledge stored in the vast library of audio podcasts.
In the episode titled Earned Secrets, a16z hosts discuss three sources of ideas for startups:
Business-first — analyze the market => go after an underserved niche.
Technology-first — build some cool tech => find a problem to solve.
Earned secrets — work in an industry for a while, understand all ins and outs, find inefficiencies and user needs => build a company to address specific problems you’re deeply familiar with.
We’re in the third category. Both of us were passionate podcast listeners, but I also had the understanding of how the podcasting ecosystem works before we even started. When Spotify blocked Russian IPs from accessing podcasts hosted on the platform, I had to figure out how to allow listeners in Russia to access my podcast. I implemented my own rudimentary podcast hosting on AWS in just a few hours, and it was a moment of epiphany of me. That was the moment I earned my secret.
Podcasting is an open ecosystem. Podcasts are essentially collections of audio files linked from RSS feeds (XML files). URLs of podcast feeds are public, which means that the entire catalog of podcasts (except exclusives) is available to anyone who wants to build a podcast app.
The key insight here is that, as app developers, we don’t need to create or police content. We simply provide access to what’s already out there. This solves a major bootstrapping problem — we don’t need to create a network of podcast creators. We can plug into an existing ecosystem and compete on user experience and marketing.
Why did we enter a purple ocean market?
We play in a fairly crowded market with two dominant players. Yet, we’re not afraid of Apple or Spotify, the 5000-megaton gorillas in the podcasting space.
I don’t know who originally coined the term “purple ocean” (read the paper if you’d like). The idea is that there are three types of market “oceans”:
Red ocean — a highly competitive, commodity market where companies undercut each other by any means possible, most importantly, by price. It’s a bloodbath, that’s why it’s red.
Blue ocean — a new market where you can be the only player for a while. Think of OpenAI creating a market of platforms for intelligent assistants. Creating a new market is hard. Most who try will fail.
Purple ocean — a market that allows multiple differentiated players to exist in their niches. The podcast app market is like this. There are massive players like Apple Podcasts and Spotify, yet there are also tons of small and independent apps.
When we looked at the podcast app market, it was clear to us that it’s a purple ocean. The winner does not take all, because the underlying ecosystem is open. There are multiple podcast apps with paid subscriptions.
There’s an explicit validation that the market exists. We don’t need to convince users that they need to listen to podcasts. We need to convince them that our app is better. We need to out-execute our competitors.
We’re not saying it’s easy, but it’s not as hard as convincing a user to chat with an AI assistant, wear a dorky headset (remember “glassholes”?), or overpay for an unproven electric car tech.
How did we think about revenue?
We thought the idea was awesome, but we needed to make sure it could be a sustainable business too. A product without revenue (and a healthy profit margin!) is a hobby project. There are less stressful hobbies than starting a tech startup…
Before we fully committed to Metacast, we put together a spreadsheet estimating how much money we can make. We didn’t overthink it and created a simple framework based on two sets of variables:
Market trends — fixed variables we can’t control. We found data for total number of podcast listeners (~100M in the US, ~450M worldwide), growth trends, and stats on occasional vs. habitual listening.
“Local” assumptions — things we can control (in theory), like how much we charge for the app, number of screens that show ads to free users, cost to run the app, etc.
We modeled a few scenarios using sensitivity analysis and arrived at some base assumptions ($5/mo price for premium with a ~5% free-to-premium conversion rate). The revenue potential was in the millions of dollars even with a tiny market share of the US market alone. We estimated that to break even (covering our costs and minimal salaries), we need about 400k users (that’s a lot in absolute numbers, but tiny on the relative scale).
Because we were applying to Y Combinator, we also did a “think big” exercise. We introduced a few related product lines like tools for creators, our own ad serving, and even podcast hosting! We did some MBA-style assumptioning and strategiraziring, which yielded a revenue potential of over half a billion dollars and a unicorn status.
In theory, it is achievable, but would require significant funding and a large team. On episode 54 of the behind the scenes podcast (attached to this newsletter at the top), we discussed funding and our sweet spot for the company size. Check it out if you want to dig into our thought process.
I considered sharing the financial model here, but it feels premature. I’d like to first see revenue come in, so we don’t just talk about our hypotheses, but compare them with the actuals.
How do we think about our personal gain?
Again, it feels premature to talk about hypothetical money at this stage. Instead, I can share my criteria for deciding if the business is worthwhile to quit a cushy big tech job and bet the farm on a startup.
For me personally, it goes like this:
Short-term — I’m okay to go unpaid for a little longer out of necessity, because the business can’t afford to pay me yet.
Mid-term — I’ll be content with making significantly less of what I was making at Google while profoundly enjoying the work and seeing the business on the trajectory to become successful.
Long-term — I’d like to be in a position where I don’t have to work at all if I choose to. I like working, and I’ll continue to do what I love. But if at some point I decide that I want to try myself in something new (become an artist?), I want to be able to afford that lifestyle.
Ad break — have you installed Metacast yet?
Metacast is in open beta and is free to use until we implement the monetization features. Please give it a try and send us feedback. Your support and help means a ton to us! Download Metacast for iOS and Android here.
Bonus content
Check out this short clip of Arnab and me remembering some funny interview experiences with Amazon and Google.
The latest episode of our Builders Gonna Build podcast with Henry Kirk, a mobile app developer, ex-Googler/Amazonian turned entrepreneur. Henry shares his thoughts on using cross-platform frameworks vs. native languages, argues that Apple’s 30% cut of the in-app purchases is acceptable, and tells us how Google layoffs became a blessing in disguise.
Listen on: Metacast, Apple Podcasts, Spotify or watch on YouTube.
#14: How we chose the market to go after