But what about the revenue? What is the business model for Evernote?
The company follows a freemium model: users try out the basic product for free, and when they become addicted, they upgrade to the premium service. It’s a definite incentive to build the most customer-pleasing, competitive, addictive product you can.
So how many of Evernote’s users become premium subscribers?
Interestingly, Evernote has a very consistent pattern of converting users the longer they use the online product. While only some (0.5%) of first-time users jump straight to the premium product, that number jumps up to 7% after one year of use. After two years, that number climbs further to 11%. Of those using the product the longest—four or five years—a full 25% are likely to become paying users.
So how do you make money if you are offering a product that has millions of users and only a small percentage pay for it?
That’s the so-called Freemium model that many companies have bet on only to find it doesn’t turn into a pile of gold immediately.
Libin’s aim is to build a product that people love so much that they become cultishly enmeshed. Why? Because the longer they use it, the more likely they are to get to a point where they can’t live without it, and the more likely they are to become paying users.
Libin says that Evernote and other freemium services that serve millions without charging them or showing them ads owe their existence to the development of low-cost servers, cheap bandwidth, open source software, and cloud infrastructure.
So what next?
“This is the best time in the history of the universe to start a company,” Libin said. “Even five years ago we couldn’t have built Evernote, but today we can. That’s because the company has started exploring alternative revenue streams, like a subscription program for corporations, licenses for an enhanced version of the app, and partnerships like its one with Moleskine to create smart, digital notebooks.”
Evernote has raised $251 million to date and company CEO, Phil Libin, recently stated that the company may raise more and will likely go public in two or three years.
So Evernote’s focus isn’t on trying to find ways to move users to the premium version. Instead engineering decisions are made by figuring out how to keep retention rates high.