

Evernote CEO Shares The Numbers that Makes Freemium Work - toddsattersten
http://toddsattersten.com/2010/02/fixed-to-flexible-interview-with-evernote-ceo-phil-libin.html

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mixmax
Some metrics:

From the article:

60 servers

35% active users (defined as being active a given month)

2,335,676 total users

41,598 premium users

38972 users per server

4 sysadmins

$68,641 - Total variable expenses (hardware + software + hosting + network +
operations staff + support staff)

$145,000 - Total revenue from active premium users

From this we can deduce some interesting numbers:

free/paying ratio (all users) - 1,7%

free/paying ratio (active users) - 2.2%

revenue per user (all users) - $0,06

revenue per active premium user - $3,5

Variable expense per user - $0,29

38927 users per server

583919 users per sysadmin

I particularly find the $0,06 revenue per user interesting, since it gives a
rough number to work with if you're doing a freemium website. Eg. if you need
$10.000 in monthly revenue to break even you will need 166.666 users.

~~~
z8000
I'm starting up my own tiny business and have been spending a great deal of
time understanding how to optimize every part of the product infrastructure to
minimize cost (to a reasonable level).

$68K per month blows my mind if the number represents monthly expenses instead
of yearly given the number of active users. I've an iPhone game with over 3MM
active unique users and by my math I can host a multiplayer solution for less
than $800/month. Granted, my service will not be sending giant PDFs, notes,
voice memos, etc. but still... What am I missing? I am not being snarky. I
need to learn.

Also, is the 4 ops guys per 60 servers a non-shocking number? When I worked at
Yahoo, the ratio of ops staff count to production server count was IMHO
ridiculously high and I never understood why it was _required_. Sure, some
redundancy and so on. Clearly I'm missing something though - what?

I'm eager to correct my misunderstandings if I'm the one off base here. Can
you recommend where I might find similar (perhaps more detailed) descriptions
of production environments by other companies?

~~~
bigiain
"Also, is the 4 ops guys per 60 servers a non-shocking number?"

4 people is the bare minimum for realistic 24/7 support. Even if you just do
"on call" support outside office hours, making sure someone (capable) is
available every weekend and at o-dark-thirty every day is difficult with less
than 4 people.

(Says a guy who spend too many years as part of a 2 or 3 person sysadmin
team...)

~~~
z8000
I suppose it depends on the thing(s) being monitored though. I certainly do
not want to have 4 people for my always-on development project. I am designing
the system to be as fault tolerant and self-healing as possible so I do not
have to have people (read: me) awakened at 3AM with alerts.

Maybe I'm insane or overly optimistic or both. Designing things to bend and
not break is really difficult and time consuming. "Thanks Captain Obvious! You
are so insightful!" No, I know, but I'm going through the cutting-of-teeth
ritual now so these kinds of things are on my mind.

~~~
pavs
It doesn't necessarily depend on the things you are monitoring. If you are
running one server, don't sweat it - if you are running anything more than 20+
server (my preference) and the capacity is constantly growing and you still
don't have a 24/7 sysadmin. I think you are doing it wrong.

The key point is, if your business model depends on more user usage ie, more
uploads more money (on a 60 server scale), you would like to have someone
standby all the time.

------
petercooper
I suspect their retention rates could be a lot better..

I paid for Evernote a year ago. The other day I got a mail saying my account
had been reverted to a free one until I renewed. But I haven't bothered.
Evernote is great but I rediscovered that the free account works just fine..
oops! If they'd notified me a week or two in advance, I'd probably have paid
for year two for fear of "losing" my privileges (whatever they are).. but as
it is, it still "just works."

Just pointing this out in case other startups consider dealing with renewals
in the same way. If people are reminded of how awesome the free account is,
there's less motivation to renew! I suspect I'll end up renewing just as a
token of support though..

~~~
aidanf
I find Evernote's free model oddly generous and I suspect their conversion
rates could be much higher with some tweaking.

I use it every day and I don't come close to reaching my monthly limits. It's
actually become one of my most used apps in recent months and I'd happily pay
a monthly subscription for it - but the free plan is so generous I've never
needed to.

~~~
lambda
Google's freemium services, such as GMail and Google Apps, are plenty
generous, and they don't really get conversion until you buy an entire
institutional version (and for universities, they even give you an
institutional version for free).

Now, Google does also make money on ads, but the point remains that it really
doesn't take a high conversion rate to get a freemium service to make money;
as long as the cost per user is low enough, it can be beneficial to be very
generous to your free users in order to attract a lot of people and get just a
few more premium users.

~~~
petercooper
In Google's case, though, it probably doesn't pay to waste time setting up
systems to properly deal with small fry customers. And since the free users
are being advertised to anyway, they don't miss out on much.

You're right though. Someone ran the numbers on Spotify (the music streaming
service). They charge $15 a month for ad-free listening or you can just use it
free. Based on average listener profiles, it worked out at something as small
as 1-2% of the userbase needing to pay to cover all the streaming costs
involved (from what I recall).

~~~
rubyrescue
makes me think of <http://sivers.org/1pct> \- there's a number smaller than
1%...

~~~
petercooper
Heh, except Spotify is good enough that most people should be paying for it..
_g_ Barely touch iTunes anymore and don't buy any music as it's nearly all on
Spotify :-)

~~~
elvirs
the problem with spotify is that storage and bandwidth costs are nothing
compared what they will have to pay labels for not suing them.

------
seldo
It's really interesting to me that he even considers taking Moore's law into
account when doing cost planning, but of course it makes sense. I also like
this line:

 _For a really quickly growing startup that's always doing something new, you
have to multiply Moore's Law by Murphy's Law; "The number of things that will
go wrong will double every year." Sure servers get cheaper, but you probably
bought the wrong ones anyway..._

~~~
z8000
I cannot help it.

The number of things that go wrong with their text cum HTML editor _does_
double every year (EN for OS X)!

It's really quite poorly implemented. Plain text suddenly transmogrifies into
bold text with a different font, deleting a CRLF causes the current paragraph
to randomly have double-spaced lines, etc.

------
axod
>> 1\. Make a product that a billion people will fall in love with and use for
the rest of their lives.

>> 2\. Make it easy for a single-digit percentage of them to pay you a few
bucks a month once in a while.

>> 3\. Make sure your variable costs are low enough that you can make a
mountain of profit if you get #1 and #2 right.

This is great advice.

~~~
TotlolRon
The vast majority of products (and web products) do not meet number 1.
Appealing to a billion is not a prerequisite to being valuable or/and
successful.

~~~
axod
I think 1. was exaggerated. The model still works if you only appeal to a few
thousand people who use your product for a while, if you can get some of them
to pay you money.

