“Unlocking Business Success: Enhancing Customer Loyalty through Retention Experiments and Explainable AI with Subsets”

Diversifying revenue streams has become the ultimate goal for any successful business. Apple is a prime example of this, with their shift towards becoming more of a services company than solely relying on hardware sales. In fact, 20% of their revenue now comes from services such as Apple TV+, Apple Music, and iCloud subscriptions.

The rising cost of acquiring new customers has also become a challenge for companies, with reports of a 200% increase over the past decade. This highlights the need for consistent and predictable revenue streams. However, the subscription-based business model comes with its own obstacles. Not only must companies focus on attracting new customers, but also on retaining existing ones. The key to success lies in reducing churn.

This is where Subsets, a Danish startup founded in 2022, comes in. Their AI-enabled platform is designed to help companies improve their subscription retention rates and bridge the gap in the industry.

The Power of Explainable AI

One of Subsets’ core strategies is utilizing “explainable AI” to identify which subscribers are at risk of cancelling their subscriptions. By providing insight into their decisions, AI becomes more trustworthy – a crucial step in addressing the concerns surrounding the “black box” problem. This concept has become a cornerstone for major language model (LLM) providers.

Since its launch, Subsets has already partnered with high-profile businesses, including the New York Times-owned Athletic and Danish newspaper Børsen. With a fresh injection of $1.65 million in pre-seed funding led by Nordic venture capital firm Upfin and tech accelerator Y Combinator (YC), Subsets aims to make a bigger impact in the industry.

Targeting the Media Business

While Subsets’ platform can be applied to any subscription-based business, it is currently focused on the digital media sector.

“We are currently limiting our use case to digital media, including digital publishers, streaming platforms, subscription apps, and telecoms,” explains Subsets’ co-founder and CEO Martin Johnsen. “But in the future, we see ourselves expanding into other digital consumer subscriptions, such as mobility, banking, and food delivery, as the world becomes increasingly reliant on digital services.”

By connecting Subsets to various internal systems, such as CRM, CMS, and billing, businesses can analyze their subscriber data to understand their behaviors and preferences. Subsets’ web app then provides easy-to-understand visuals and natural language explanations to help commercial teams identify audiences at risk of churning.

The next step is to run retention “experiments” on subsets of the subscriber base, testing different methods to see what will encourage them to stay. These can include push notifications, email promotions, and free upgrades to unlock new features. By automating the most effective retention strategies, Subsets removes much of the guesswork and allows businesses to focus on what works.

“Our experiments have proven successful in reducing churn rates,” says Johnsen. “Any subscriber who meets the criteria for a specific experiment that resulted in positive retention rates will automatically receive those actions.”

Powered by AI

With a strong background in mathematics and computation, Subsets has developed its own AI algorithms that utilize gradient-boosting models with temporal sequencing methods. By combining multiple predictive models, these algorithms can accurately predict subscriber behaviors and incorporate time-related features.

Subsets also uses frameworks from Elon Musk’s xAI to make their AI-powered insights easier to understand for humans.

“While we don’t currently use any of OpenAI’s GPT.x models, we are working on incorporating more downstream functionality into our product using the foundational model that powers ChatGPT,” Johnsen reveals.

“YC has an impressively strong network, which has given us some exciting opportunities,” Johnsen says of Subsets’ pre-seed investors, which includes Y Combinator, Cuesta Labs, Sandhill Markets, and Peakon founder Phillip Chambers. Given YC’s extensive history and network, this backing is surely a testament to Subsets’ potential for success.