From the article:
35% active users (defined as being active a given month)
2,335,676 total users
41,598 premium users
38972 users per server
$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.
$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?
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...)
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.
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.
Assuming they have a sysadmin available 24/7 (which they should) 4 employees is hardly too much. Its just enough.
When your business is on the cloud with 60 servers, there should be at least one person available at all time, whether the server ever goes down or not.
The free to paying ratio is (coincidentially?) almost exactly the same.
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..
I spent $250 on MailChimp credits this morning because email marketing is printing money at the moment. Previously customers received a hints & tricks followup email 1 day after signup (if they asked for it). I tweaked that a bit so the computer watches their activity in the first day and customizes the subject line to fit their interest. That took thirty minutes of work to double open rates, which helps retention considerably and ultimately leads to more sales.
Back to Evernote for a second: they could also probably make serious money by A/B testing obvious candidates for improvement on their front page and their purchasing page. Revenue per user is not a fixed number if you start doing conversion improvements.
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.
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.
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).
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...
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.
>> 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.