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Evernote has a simple business model. The information organization company has a free product that a majority of its users employ. A small percentage pay $5 a month to access premium features. It's basic freemium stuff.

But at a press event for the company's new Evernote Trunk feature today, president and CEO Phil Libin explained how it all works: Evernote spends all of its creative energies on product. And trusts that users will find enough utility to purchase the premium product. So far, so good.

The company launched a little over three years ago, on June 24, 2008. Since then Evernote has earned 3.7 million users worldwide. Libin says that 145 million memories are currently being stored on the service, and 312 new memories are collected every minute. But, he insists:

"The continued survival of Evernote does not depend on us coming up with clever business ideas."

As he says, "Our business model from the beginning has been freemium."

And while most companies don't like to talk about their percentages of paid and free subscribers, Evernote is proud to have  80,000 premium subscribers. That works out to be about 8% of the company's total users. Libin points out that the company has had over 12% revenue growth every month, month over month for the last two years, because every month, more users choose to become premium customers.

Phase one of Evernote's business strategy was simple: "capture everything." Today they launched a second phase that enables users to utilize products from Evernote's business partners through the app. Evernote Trunk has about 100 new features for users in its new app directory. And more will be available soon.

Libin has found that getting a very small percentage of users to pay for services has worked very well for the company:

"We've been a freemium success story."

The company's business model works in three steps. First, the work on creating a "great product that a billion people fall in love with." Then they get a small percentage of users to pay $5 a month. They also work on keeping costs low, to make sure they capitalize on profit.

For Evernote, having an 8% conversion rate of free to paid users works out very well. Why? Because the more people use Evernote, the more they need to keep using it. The company bills itself as memory platform. The more users put information into Evernote, the more they rely on the service. And the company has found that people who use Evernote a lot are more likely to convert to paid users.

Looking at all users, the company has found that 80% of its users use Evernote for both personal and business reasons. And as Libin says, "the longer people use it, the more their whole life is in there, and the more they love it and want to pay."

Evernote averages 8% of frequent users that convert to paid subscribers. And loyalty grows over time. Over 20% of the company's earliest users are currently paying for the premium service.

Libin says that frequent users often become paying customers because Evernote is "all about capturing your life. It gets more valuable over time."

The company's increasing store of data often makes people dependant, and that's what the company wants to spend its time encouraging: making people feel like they would be lost without Evernote.

According to Lipin:

"There's nothing clever about this business model. I really want all of the cleverness to be in the product."

Meghan Keane

Published 14 July, 2010 by Meghan Keane

Based in New York, Meghan Keane is US Editor of Econsultancy. You can follow her on Twitter: @keanesian.

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