How to make money free
Recently, the New York Times published an article on the freemium business model, talking about it using the example of Evernote. We have prepared a translation of this text.
How to make money free
Damon darlene
Original article: http://www.nytimes.com/2009/08/30/business/30ping.html
')
Phil Libin (Phil Libin), executive director of Evernote, a free storage service, said that the service runs on different platforms, including mobile.
Free product distribution has always been considered a good marketing idea. Even the most naive consumer is able to appreciate the opportunity to get something for nothing. The word “free” has become a spell for business gurus who urge web startups to achieve rapid growth, reducing the price of most of their services to zero.
But for those who are going to make money, free services become a double-edged sword. Definitely, this attracts users, it remains only to find those who will pay for all this. Although thousands of businesses offer free online services (the biggest of them is the Flickr service from Yahoo and YouTube from Google), only a few can declare their profitability. (Analysts argue that neither Flickr nor YouTube are such.) Despite the attractiveness of the approach, it is not easy to make it work.
Indeed, recently it turned out that eBay is looking for a way to get rid of Skype. A project to create personal websites Sampa, organized by people from Microsoft, is minimized.
Advertising has always served as a simple way to generate revenue from a free service. But this was often not enough to cover the costs even until the moment of over-saturation of the advertising space and recession, which reduced the flow of income.
The backup option is to provide paid premium service to some customers in the hope that the revenue from these users will cover the costs of all others. So do many sites - for example, the same Flickr.
Fred Wilson (Fred Wilson), a venture capitalist from New York, gave a classical definition of this approach and even coined the corresponding term for it: “freemium”. And he still continues to receive enthusiastic support for this idea from readers of his blog, “A VC”.
But the question remains: how does it all work? Phil Libin (Phil Libin), executive director of Evernote, a startup in Mountain View, California, has kindly agreed to dedicate me to the finances of his private company and lift the veil of this secret.
The company provides a free web service for storing the data you collect. You can use it as a repository of various types of information: for example, records of business meetings and voice notes, or even photographs of wine labels and recipes of dishes found in magazines. Information is placed on the company's servers, so that data can be synchronized between all computers and smartphones of the user.
Take a photo of your business card using a Palm Pre or iPhone device, and it will appear simultaneously in the Evernote application on your phone and on your Dell office computer. Information can be searched even by words in photos. Enter, for example, the word "Samsung", and you will find all the business cards of representatives of this company.
“This is the universal repository of your memory,” says Phil Libin, who has already built and sold two other startups.
Evernote is, of course, free. This is important because a company that does not spend money on advertising should get new users as cheap as possible. “Our product is our marketing,” says Mr. Libin.
Within 18 months, the service has already been tested by 1.4 million users. And every day they add another 4,500 people.
“Free doesn't mean losing money,” he says. “If we manage to convince a small percentage of users to pay, we start making money.”
How many times have venture capitalists heard something like this? But Libin showed that the secret is not only that even a small percentage of paying users can turn losses into revenues, but also that the longer people use the service, the more profits they bring.
About 75% of users leave in the first four months. But that's not a big deal, as revenues from Evernote's 500,000 active subscribers grow faster than their total number grows. Why is that? Over time, users need to store more data or use additional features, such as searching the text in PDF documents with scanned pages inside. Evernote charges $ 5 per month or $ 45 per year for these benefits.
Libin studied the behavior of early users and found that the longer they use the service, the more likely they are to pay for it. Only 0.5% become paid subscribers in the first month. But a year later, already 4% become subscribers. (He thinks that over time their number will stabilize by about 22%.)
And that makes sense. The more data is accumulated in the storage, the more valuable it becomes for the user. And attractive features like photographing business cards quickly consume the monthly limit of new data allocated to the user, pushing him to pay. The “older” the user is, the more valuable it is.
On each active user in the first month, the company earns about 3 cents, but a year later, each such user already brings 35 cents per month.
Libin says that in July, Evernote earned $ 79,000 from paid users.
This is still not enough to cover the costs of engineers who develop new functions, and additional servers for storing new data. But staff costs do not grow exponentially with the arrival of new users, and the cost of additional servers decreases with decreasing computing power. (Electricity costs are also rising, but they are not so significant.)
When the company was just starting its activities, each new active user managed it at about 50 cents per month, but gradually this value dropped to 9 cents per month. According to Libin, by January 2011 the company will reach the level of profitability.
The freemium model developed by Libin is not applicable to everyone. But it will definitely work for other companies that ensure the loyalty of their users and make their products more valuable over time, at the same time reducing costs.
Libin and his investors were convinced that providing free service was the right approach. “We are going to continue to provide free service,” he says.
How to make money free
Damon darlene
Original article: http://www.nytimes.com/2009/08/30/business/30ping.html
')
Phil Libin (Phil Libin), executive director of Evernote, a free storage service, said that the service runs on different platforms, including mobile.
Free product distribution has always been considered a good marketing idea. Even the most naive consumer is able to appreciate the opportunity to get something for nothing. The word “free” has become a spell for business gurus who urge web startups to achieve rapid growth, reducing the price of most of their services to zero.But for those who are going to make money, free services become a double-edged sword. Definitely, this attracts users, it remains only to find those who will pay for all this. Although thousands of businesses offer free online services (the biggest of them is the Flickr service from Yahoo and YouTube from Google), only a few can declare their profitability. (Analysts argue that neither Flickr nor YouTube are such.) Despite the attractiveness of the approach, it is not easy to make it work.
Indeed, recently it turned out that eBay is looking for a way to get rid of Skype. A project to create personal websites Sampa, organized by people from Microsoft, is minimized.
Advertising has always served as a simple way to generate revenue from a free service. But this was often not enough to cover the costs even until the moment of over-saturation of the advertising space and recession, which reduced the flow of income.
The backup option is to provide paid premium service to some customers in the hope that the revenue from these users will cover the costs of all others. So do many sites - for example, the same Flickr.
Fred Wilson (Fred Wilson), a venture capitalist from New York, gave a classical definition of this approach and even coined the corresponding term for it: “freemium”. And he still continues to receive enthusiastic support for this idea from readers of his blog, “A VC”.
But the question remains: how does it all work? Phil Libin (Phil Libin), executive director of Evernote, a startup in Mountain View, California, has kindly agreed to dedicate me to the finances of his private company and lift the veil of this secret.
The company provides a free web service for storing the data you collect. You can use it as a repository of various types of information: for example, records of business meetings and voice notes, or even photographs of wine labels and recipes of dishes found in magazines. Information is placed on the company's servers, so that data can be synchronized between all computers and smartphones of the user.
Take a photo of your business card using a Palm Pre or iPhone device, and it will appear simultaneously in the Evernote application on your phone and on your Dell office computer. Information can be searched even by words in photos. Enter, for example, the word "Samsung", and you will find all the business cards of representatives of this company.
“This is the universal repository of your memory,” says Phil Libin, who has already built and sold two other startups.
Evernote is, of course, free. This is important because a company that does not spend money on advertising should get new users as cheap as possible. “Our product is our marketing,” says Mr. Libin.
Within 18 months, the service has already been tested by 1.4 million users. And every day they add another 4,500 people.
“Free doesn't mean losing money,” he says. “If we manage to convince a small percentage of users to pay, we start making money.”
How many times have venture capitalists heard something like this? But Libin showed that the secret is not only that even a small percentage of paying users can turn losses into revenues, but also that the longer people use the service, the more profits they bring.
About 75% of users leave in the first four months. But that's not a big deal, as revenues from Evernote's 500,000 active subscribers grow faster than their total number grows. Why is that? Over time, users need to store more data or use additional features, such as searching the text in PDF documents with scanned pages inside. Evernote charges $ 5 per month or $ 45 per year for these benefits.
Libin studied the behavior of early users and found that the longer they use the service, the more likely they are to pay for it. Only 0.5% become paid subscribers in the first month. But a year later, already 4% become subscribers. (He thinks that over time their number will stabilize by about 22%.)
And that makes sense. The more data is accumulated in the storage, the more valuable it becomes for the user. And attractive features like photographing business cards quickly consume the monthly limit of new data allocated to the user, pushing him to pay. The “older” the user is, the more valuable it is.
On each active user in the first month, the company earns about 3 cents, but a year later, each such user already brings 35 cents per month.
Libin says that in July, Evernote earned $ 79,000 from paid users.
This is still not enough to cover the costs of engineers who develop new functions, and additional servers for storing new data. But staff costs do not grow exponentially with the arrival of new users, and the cost of additional servers decreases with decreasing computing power. (Electricity costs are also rising, but they are not so significant.)
When the company was just starting its activities, each new active user managed it at about 50 cents per month, but gradually this value dropped to 9 cents per month. According to Libin, by January 2011 the company will reach the level of profitability.
The freemium model developed by Libin is not applicable to everyone. But it will definitely work for other companies that ensure the loyalty of their users and make their products more valuable over time, at the same time reducing costs.
Libin and his investors were convinced that providing free service was the right approach. “We are going to continue to provide free service,” he says.
Source: https://habr.com/ru/post/69539/
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