Headspace, rise of the Micro-SaaS

WOW: In the 1994-95 time range, just when browsers and the Internet were beginning to seep into the world’s frame of reference, a co-worker and I used to always refer back to a single pane comic.  As people working at an networking company pre- and then post-browser, we thought it was wildly funny.  It was a single pane comic with two guys in an office.  The guy at the desk has a far off look (as best I recall) and in quotes at the bottom it has him saying, “I found the Internet, and it enriched my life.”  Anytime I find something on the Internet that makes an impression, either large and important or just whimsical, I think of that statement.

I’ve been using Headspace for about five months I put this decidedly into the “large and important” category.  And while the function and utility of a the app is interesting, I think the even more interesting concept is the success of the business model that comes along with it.

Headspace is a meditation app.  However, unlike the many 99 cent “white” noise maker apps out there, Headspace is a complete meditation solution.  Over the years I’ve made several “runs” at learning to meditate and weave regular meditations into my life.  Though the basic tenants of how to meditate can be learned in minutes, it’s something that is just difficult to do on your own.   The Headspace solution pairs content, in this case guided meditations, with a simple user interface that guides users through levels of exercises that build on each other.  In essence, it’s a meditation coach that’s always with you.  A complete solution for learning to meditate and then build a regular habit into your life.

Phew!  If you can believe it, that was the preamble for what I really wanted to talk about, the Headspace business model.  When I started off in the computer business, the early 90’s, software companies were called ISV’s (for Independent Software Vendor). In the early 2000’s, with the rise of all things web, there was a brief fad/storyline in the press about the rise of “Micro ISVs.” Essentially, web technologies were beginning to pull down the price of developing (and more importantly distributing) software.  This change lead to more and more small companies with only a handful of developers being able to produce and publish usable software.

The explosion of Apps that have come with smartphones and tablets has certainly come with an explosion of small software developers to create them.  We don’t call them micro-ISV’s so much anymore, but it’s the same basic model.  The problem with these models is how do you make any real money?  Don’t get me wrong, a single developer that sells million 99 cent apps through iTunes has almost $700k (pre tax) after paying the Apple toll.  Certainly a significant payday, but if sales of the app slow, what do you sell then?  Even the huge successes like Angry Birds have to come up with their next line extension or a new hit in order grow.

Games or big one hit wonders are fine, but what interests me most about Headspace is what might be called the rise of the “Micro-SaaS” company.  B2B Enterprise software companies are overwhelmingly moving away from large, installed, on-premise software sales. For them, the Software as a Service business model provides benefits both to customers and to themselves.  For a software vendor, the best thing about SaaS (there are so many to choose) has to be predictable recurring revenue.  Build a base of customers, put laser like focus on customer retention, and assuming your application is still relevant, you have a great way to grow and build your business.

Headspace is a good example of this small, recurring revenue type business. The app is free and features a set of “starter” meditations that let you try out the service – “10 for 10 – ten minutes a day for ten days” for instance.  At about $5.00 per month it doesn’t take too many subscribers to create a nice recurring income stream for the Headspace team.  They stopped publishing how many people are using it on their website, but last I saw I believe it was over 2,000, that’s 120k per year right there.

I have no insight into the business workings of Headspace, but from the outside my guess is that what they’ve done could certainly be done with a very small team– less than five people maybe?  The app itself is a very well done user interface, but we’re talking maybe 10-15 screens total. The hosting and streaming could be done through any of a number of providers (and is likely their largest actual cost).  Finally, most of the work looks to be in the form of content creation.  Each meditation is new and different, and hosted by the same person (ironically, most, maybe 80% of the content of 20 minute meditation is…silence!)

What interests me about this is the disruption inherent in this small format model.  I’ve made no effort to discover how many meditation coaches there are out there, but they’re there.  How many are going to lose business because one of them was smart enough to get online and be the one guy who has the potential to serve the entire English speaking world?  They lost me.  How many other professions or content creators will take this same path?  Why write a self-help book when you can “SaaS-ify” it and create a recurring stream.  Even if you charge twenty-five cents a month, there’s a break even where you’ll get all upside over the three bucks per book you’d get from your publisher.

Headspace is a “wow.”  I found the Internet, and it changed my life.

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