people convert to premium at increasing rates as they use the service. [About two percent of Evernote’s users are premium members.] The number-one predictor for when people will convert is how long they’ve been using the service, not whether they’re nearing the 40-megabyte limit.
X: I’m not quite following you. As long as the free version is good enough to attract initial users, why wouldn’t you want to convert as many of them as possible to the paid plan?
PL: There is an easier way to think of this. Where a lot of people stumble when they’re thinking through this model is that they get stuck on the percentage of people who pay. If 98 percent of your customers are using it for free, it seems like there’s no way that could be a good business model. But the percentage does not matter at all. What matters is the total number of people who are paying, and the total expenses you are incurring to get those who pay.
So let’s say our goal is to have a million people paying for Evernote. There are two ways of doing it. If we were a traditional product, and we wanted to get a million people to pay us $45 a year, we’d have to spend some very large amount of money on advertising and marketing. Or, we can get 50 million people to fall in love with the product and use it for free, and have 2 percent of them pay us. It’s actually a lot easier and cheaper to get 50 million people to use your software and have them fall in love with it and tell their friends. You wind up with the same result, but you get there faster because you are spending money on the product and not on advertising. It’s a positive cycle, as opposed to spending that money on a Super Bowl ad.
X: One thing you don’t do much of is advertising. Couldn’t you easily sell in-app ads targeted to the types of content that users are storing to their notebooks?
PL: I’ve done some angel investing, and one thing that I’m always extremely suspicious of is business models that are too clever, that rely on things I don’t totally understand. Like “We’re going to get a bunch of data and monetize that through affiliate referrals or showing targeted advertisements or doing lead generation.” There are all of these companies that are trying to make money by letting people use their stuff for free, and getting a bunch of data, and I just don’t buy it. That’s going to hurt you with users, especially in this field. The whole point is that these are your memories. We are not data mining those, or combing through those to do anything. And also, as a business model it’s much harder to make money indirectly than to just say we’re going to have a great product and convert 2 percent of our users.
X: You’ve emphasized the private collection of memories, but as a longtime Evernote user, one feature I would love to see is more sophisticated ways to curate and republish the material I’m collecting. Right now, users can set a specific Evernote notebook to be publicly viewable on the Web, but it’s not possible to do anything fancy in terms of how the material is presented. In this area, even simple Web publishing platforms like Posterous seem to be ahead of you guys.
PL: You can break that problem into two halves. Right now, as you said, you can share notebooks with selected people or with everyone, and you can give read or write access—but only through the Web client. So, one half of the problem is that we are adding this [sharing] capability to all of the clients. Later this year, basically you will be able to subscribe to and view everybody else’s shared notebooks right inside your client.
But that doesn’t address how it looks; it’s just going to look like Evernote. The second part is more about publishing to the Web. If you really care about how it looks, that stuff is purely partnerships for us. We are launching several partnerships and integrating over the next couple of months with a whole bunch of companies, including companies that publish blogs. From within Evernote, you will be able to publish things either manually or automatically. Anything you take in and tag in a certain way could automatically be published to whatever blog you like. We have more big things coming out this summer, where we are going to have tons more partners, and a real ecosystem. So if what you want to do is use Evernote to collect your thoughts and put that on a blog, that will become easy through some integrations.
X: It sounds like you intend to stay in the collection and storage business, but that you’re content to leave the publishing to someone else.
PL: The publishing stuff is a really valuable use case. But it’s one of those things where there are so many really good casual publishing systems right now that it seems unjustified to try to rebuild that.
